A city staff analysis of East Lansing's proposed budget mentions "dark clouds" forming on the horizon.
Yet city staff members have presented a budget with no major cuts, no layoffs and no tax increases.
Just down Michigan Avenue, Lansing officials are searching for ways to chop more than $10 million from their expenses.
By comparison, East Lansing has been either forward-thinking or extremely fortunate. The lingering question for the city, and others like it around Michigan, is how long it can keep it up.
Rising costs, slow growth and limited state assistance have left many local governments facing long-term challenges.
"We're not as financially well off as we'd like to be," East Lansing City Manager Ted Staton said. "We've been able to tread water."
In recent years, East Lansing has been buoyed by growth in the city's Northern Tier, an area north of Lake Lansing Road.
Revenue from property taxes is up about 6.2 percent, or almost $1 million.
The city's rise in revenue is offsetting a 5 percent hike in expenses, coming from inflationary increases and special projects, such as sidewalk repair.
In most areas, the city has been able to keep costs at the level of inflation.
Contracts negotiated with city staff have capped pay raises at 2 percent for most employees over the next few years.
About 75 percent of East Lansing's budget is spent on personnel. The city employs the equivalent of 491 full-time positions.
East Lansing has also been able to minimize health care costs by creating a common plan for all employees, which has translated to lower rates from health care providers, while other cities are seeing double-digit increases, Staton said.
"Health care costs are one area where local governments have as much trouble as anybody else, with very little control," said Patrick Anderson, an economist from the East Lansing-based Anderson Economic Group. "You can do some things to control health care costs, but they're painful."
Lansing, which spends about 80 percent of its revenue on employee salaries and benefits, has been struggling with costs expected to rise to $118-$119 million in the next fiscal year.
Revenue is projected to remain almost flat through 2010 — the city expects to bring in only $108 million next year.
"This gap is not going to go away," said Randy Hannan, a spokesman for Lansing Mayor Virg Bernero. "It's going to be a recurring issue."
According to Anderson, East Lansing's solid tax base leaves the city better off than its larger neighbor, but the type of growth the city has seen "would be difficult to sustain indefinitely."
But cities have to keep growing if they hope to stay afloat, Staton said.
"The state broke the sustainability model for local governments when they stopped funding revenue sharing," he said.
The revenue sharing program collects state sales taxes and redistributes them to local governments. Revenue sharing to East Lansing has been cut more than $1 million since 2001. In that same time period, Lansing's revenue sharing has been slashed $4.5 million, Hannan said. Reductions in state funds have been a major hit to Lansing's budget, he said.
If the revenue sharing program were fully funded, East Lansing might have been able to offer a tax cut, Staton said.
The East Lansing City Council will hold a public hearing on the proposed budget tonight at 7:30 p.m. in the Gold Rooms of the Union. It's the first chance for the community to weigh in during what will be a month-long process of finalizing the budget.
