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Can Kalamazoo Fix Its Own Budget?

Sehvilla Mann
/
WMUK

The City of Kalamazoo has closed an almost three-million dollar hole in its 2016 budget, but it expects to face a widening gap in its finances over the next few years. To look for solutions, it created a citizen panel that for months has looked for ways to increase city revenue. The panel is about to make its final recommendations to the Commission.

But despite the city’s best efforts, some question whether the budget problem can be solved on a local level.
 

The city convened the group because, like a number of Michigan municipalities, over the long term Kalamazoo is expected to take in less money than it needs to cover costs.

Michigan State University economist Eric Scorsone says the city would need a lot of luck to close the gap on its own.

“Your really good city managers feel like they can fix these kinds of problems and unfortunately even the best of them really can’t, ultimately,” he says.

We’ll come back to why Scorsone is skeptical.

Kalamazoo’s budget panel has narrowed its leading options to a handful. They include: encouraging development, selling city-owned properties such as parking ramps or leasing them out; asking the county to increase its law enforcement millage, and moving toward regional water and sewer management together with neighboring governments. It will make its final recommendations after its last meeting December 7.

How far would those steps go?

“Combined they do not fix the hole in the budget,” says panel chair and business owner Sheri Welsh.

Welsh says meeting and talking about the budget has been a good process. But she also says she wishes the group had come closer to closing the budget gap. New development and selling parking ramps would only raise so much money, she says. And regional asks fall outside the city’s control.

“Consolidated services seem like a great idea, until you have to get the voters to pay for those. When they think that they’re happening just fine in their own backyard, why would they want to pay property tax and approve a vote to pay more property tax just to help out the City of Kalamazoo?” she asks.

Welsh thought one of the best options before the panel was a city income tax. She says that would go a long way right away toward fixing the problem. Welsh says an income tax would come with a significant property tax cut – and would ease the burden for those can least afford taxes.

“We had the ability on a city income tax to be able to say, ‘OK, you’ll get an X amount of an exemption,’ which would mean real tax relief for low income folks,” she says.

As for balancing the budget by cutting expenses, Welsh says she wonders where the city would trim.

“Our city manager [Jim Ritsema] presented a report that showed over the past I believe it was five years the cuts that have been made in personnel in services and the budget,” she says.

“We’re not talking about a whole lot of fat sitting out there anymore. We’re talking about cutting into muscle.”

Real estate developer Thomas Huff also serves on the panel. Like the majority of members, he did not recommend an income tax. Huff says he’s concerned it could drive business out of the city.

“If in fact the city ran out of revenue and they were unable to have expense reductions through the Department of Public Safety then to me income tax would be a last resort, a last option,” he says.

In Huff’s opinion, it is cuts more than revenue that will make a sustainable budget. And he says there are places the city could make them – perhaps withinin the Department of Public Safety, with better use of technology and less generous pensions.

Kalamazoo mayor Bobby Hopewell says the financial situation is the biggest issue before the city. He says the city “will get there” with its budget goals. But Scorsone, the MSU economist, isn’t sure.

“Unless the community’s growing rapidly, has lots of new development and construction, lots of new jobs coming in and even sometimes it doesn’t always pan out as well as you’d think on the tax side, it is just very hard. And keep in mind Michigan is not a fast-growing state,” Scorsone says.

Scorsone co-authored a recent study that finds state fiscal policy makes it hard even for well-managed cities – and he considers Kalamazoo to be one – to balance their budgets. He says the squeeze is largely due to strict caps on property taxes under Michigan’s Headlee Amendment and Proposal A.

“Meaning cities, essentially, their revenue growth’s going to be confined to the level of inflation plus any new construction. And there’s not a ton of new construction going on especially in certain cities. And so basically inflation is literally running at close to zero. And revenues will not be growing very much,” he says.

But Scorsone says state policy is not likely to change anytime soon. As for the revenue panel’s recommendations, the city commission is free to follow them or not. It could take up ideas the panel discarded, such as a city income tax.
 

Sehvilla Mann joined WMUK’s news team in 2014 as a reporter on the local government and education beats. She covered those topics and more in eight years of reporting for the Station, before becoming news director in 2022.
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