Archive for the 'Grand Rapids Economy' Category
Fiscal Armageddon – Time for Tough Choices
The October revenue report for the state of Michigan has been released, and there’s very little good news to be had. Revenues were again below the most recent projections. October saw tax collections that were $31 million below expectations. The best real-time indicators of economic activity, sales taxes and income tax withholding, are both down, again.
Due to the near-complete collapse of state revenues, the cuts have (finally) been forthcoming. Public schools received per-pupil cuts of approximately $300 for the current fiscal year. State agencies have been ordered by the governor to cut 10% of their budgets. The cycle of layoffs and reduced revenues continues.
The result? Governor Granholm and the MEA have begun hyperventilating. This week they staged a massive lobbying effort to get legislators to increase taxes. Apparently they don’t require Economics 101 in teacher colleges.
On the city level, Grand Rapids has seen a similar decline in income tax revenues and property tax revenues will probably see declines due to historic drops in resale values of homes and commercial property. Immediately upon announcing the layoffs of 125 city employees, Mayor Heartwell called for a ballot question to raise taxes in the city. He claims there hasn’t been a tax increase in 15 years. Apparently the constant reduction of the personal income tax exemption, the added property tax bill “service fee,” and the increase in trash collection property tax don’t count as tax increases in the mayor’s book.
Oh, and don’t forget that The Rapid is coming back, probably in early 2010 to ask, again, for a tax increase to build the redundant and wasteful “Silver Line” bus service, to clog up Division during rush hour.
But the fiscal problems are just beginning, and there is very little sign that anyone is proposing real solutions. The “easy” way out, increasing taxes, will only work so much. They will run in to the law of diminishing returns. The speaker of the state house, Democrat Andy Dillon, apparently grew some huevos and bucked his MEA masters by proposing the pooling of all public school health plans into one statewide health plan. The MEA, fearing the loss of their money-laundering cash cow health plan MESSA, promptly went ape-sh*t. This illustrates the difficulty of real, substantive change at the state level. So many special interests peddling their influence (in the form of money) makes it nearly impossible to propose an innovative solution to the state’s structural budget problems.
Of course, then there are the unsustainable defined-benefit Ponzi public pension plans. They will fail. It’s just a matter of time. Even politicians can’t repeal the laws of compounding numbers. But I’m sure they will try.
But we should turn to the local level, where real people can have the most chance of affecting change. We can, as a city, choose to continue down the ultimately disastrous path of “the easy way out,” or we can have real, substantive change in how city government does business.
A quick overview of what’s going on at the local level: As state revenue declines, so does the state subsidy to cities called revenue sharing. Revenue sharing has been on the decline for several years. City leaders keep pointing to how much has been “lost,” but their complaints fall on deaf ears – or at least ears that understand that cities fall further back in line from other special interest groups.
As revenue sharing declines, so have city income tax receipts. The city’s income tax revenue is down 14% (apparently year on year).
Not only has revenue been on the decline, the gigantic hydrogen bomb of the city’s pension system is preparing to detonate. The city’s 2010 fiscal plan (published before the layoffs were announced this week), is available here. One paragraph should stand out and set off all the alarm bells in the city:
In FY2007 our two pension retirement trusts were 110% and 120% funded. Both employer and employee contribution levels were at or near the lowest possible levels. This advantage was eliminated by the breathtaking decline of the financial markets over the past 18 months. We now know that our retirement funds are significantly underfunded. This means that both employee and employer contributions must move dramatically higher. Proposed changes to actuarial assumptions and plan provisions will freeze employee contributions at the bottom of the contribution range and provide additional time for the City to adjust to higher employer contributions. Nonetheless, the employer share will go from 7.7% in to 9.29% in FY2010, and 13.62% in FY2011 for the General Pension and from an FY2010 rate of 0% to an estimated 23% in FY2011 for the Police/Fire Pension. These percentages assume that we will be able to implement critical smoothing techniques that will mitigate the intense upward pressure on required contributions. The increase in employer funding requirements contributed to the FY2010 GOF operating deficit of $2.9 million. Unless we see a significant increase in the market value of retirement plan assets over the next couple of years, the estimated pension contribution will continue to rise. (emphasis mine)
Translation: 2010 layoffs are just the beginning. Fiscal Year 2010 includes a pension contribution (as a percentage of salaries) for the police and fire employees of 0%. Yes, 0%. This will go from 0% to 23% (of salaries) in one year. A search of the fiscal plan shows that total personnel costs for police and fire are about $67 million. Let’s back out about 40% of that (just a wild guess) to come to actual base salary cost. We come up with about $40 million. Now, re-read the above paragraph. The city is going from contributing $0 in the current fiscal year to the police and fire pension plan to (my estimate) of 23% of salaries in 2011 – or about $10 million. The increase in contributions for the other defined-benefit pension participants on the city’s payroll will increase from 9.29% this year to 13.62% next year. This is unsustainable.
The mayor’s solution? Raise taxes.
Lest I be declared someone who only points out problems and no solutions, here are a few suggestions:
- Lay off all non-essential employees. This includes the “equal opportunity” department of five people.
- Outsource information technology (IT) services.
- Eliminate the Office of Children, Youth, and Families.
- Convert all employees, now, to a defined-contribution retirement plan. NOW.
- Eliminate the Downtown Development Authority. This entity sucks up about $17 million of local property tax revenue that would normally go to the city’s general operating fund. The DDA also currently owns the Van Andel Arena. Sell the arena, pay off the outstanding bonds, and use the excess to pay off some of the DeVos Place bonds. The DDA currently operates as a taxpayer-funded subsidy to developers, giving away free money to those who ask.
- Implement a fire department response fee. Most (if not all) homeowners insurance plans offer coverage if you’re charged for fire department response.
- Eliminate the city’s trash collection services. There is a special property tax levied for this. There are plenty of private trash haulers. Once the trash collection services are eliminated, go to voters and ask them if it’s ok to convert the current trash levy on property tax to a general fund levy so that it can be spent on other city services (including police).
- Contact every citizen and ask them what their priorities are. Do you prefer Police and smooth roads, or do you prefer an equal opportunity department and subsidies for developers?
If serious, dramatic changes are not implemented, the city will go bankrupt. This has started to happen in other states. There is no chance in h*ll that the economy is going to return to anywhere near where it was at the peak of the last cycle in 2007 – at least not any time soon.
Tough choices need to be made now – if our politicians can stomach it.
Posted by: GRPundit on Friday, 13th Nov, 2009
Grand Rapids Area Tax Hikes – Vote on Tuesday, May 8th!
Don’t forget to vote tomorrow (Tuesday, May 8th). There are three tax issues on the ballot in Grand Rapids, and everyone in Kent County gets to vote on the Grand Rapids Community College tax hike.
If you live in Grand Rapids, East Grand Rapids, Kentwood, Walker, Wyoming, or Grandville, you get the pleasure of voting on the bloated and wasteful Interurban Transit Partnership (The Rapid) tax hike of 18%. Some interesting fact on The Rapid:
- Rapid buses carry an average of only six people at any given time
- Even as the numbers of passengers has increased, the cost of The Rapid on a per-passenger basis is also going up, meaning the Rapid is getting less efficient with time
- The Rapid’s web site misleads the public by under-reporting revenue by $18 million this year alone. Why do they hide the real cost of The Rapid?
- The average transit bus gets only 3.65 miles to the gallon and spews 50 times more pollution than a car. Rapid buses add pollution to the environment, they don’t reduce it!
You can read more information on the waste at The Rapid by checking out the Rapid No web site at www.RapidNo.org.
All Kent County residents get to vote on the GRCC millage increase of 31%. The interesting part is that this property tax increase is permanent! It never expires.
Grand Rapids Residents Also get to vote on the Grand Rapids Public Schools operating millage. This tax is on non-homestead property only, but effects renters.
So, don’t forget to vote on Tuesday, no matter where you live in Kent County.
Posted by: GRPundit on Monday, 7th May, 2007
May 8th Transit Tax – Opposition Organizes
Did you know that you should be voting on May 8th? Probably not. And that’s what the folks at the local bus service agency, the Interurban Transit Partnership (also known as The Rapid), are betting on. They are asking for a renewal of their .95 mill property tax, along with an increase of .17 mills.
As you may know, The Rapid’s web site is at www.ridetherapid.org.
It has come to our attention that opposition to the tax increase is organized this year. Check out www.stoptherapid.org (also apparently at www.rapidno.org). Some of the facts surrounding The Rapid mirror what we’ve been saying for years. In short, it’s a horrible deal. From the website:
- “The average transit bus only gets 3.65 miles per gallon
- Transit buses spew 50 times more pollution and 279 times more soot than a passenger car.
- Each RAPID bus costs $9.40 per mile to operate. A typical car costs about $0.22 per mile to operate.
- For each passenger that rides a RAPID bus, the RAPID loses $5.82. Taxpayers (that’s us!) make up that amount to the tune of $30.7 million a year!”
Wow! 3.65 miles to the gallon? We knew it was a bad deal, but just how bad wasn’t this clear to us.
The best part of the site is the “This Pig Stinks!” campaign. We like it so much, we’ve added it to our menu at the right. This pig really does stink! We just hope the word gets out about this web site before the election. The taxpayers of Grand Rapids and the surrounding area need to understand the facts on The Rapid.
Posted by: GRPundit on Saturday, 31st Mar, 2007
23 is No Longer Enough
Grand Rapids’ favorite son, Ambassador Peter Secchia, now appears as though he has changed his mind. Formerly the chair of “23 is Enough,” an anti-Wayland casino group, Secchia now seems to believe that 25 is just right.
According to Sunday’s Grand Rapids Press, Secchia has resigned his position at 23 and is now campaigning for a new casino in downtown Grand Rapids. One wonders why the change of heart.
The idea is that the GR casino would be basically a funding mechanism for the government, paying for the local pools, museums, parks, etc. While the idea seems to be in the right place, we’re very skeptical of any government unit owning an running an enterprise that the private sector should. Each time one of these publically-owned enterprises comes into existence, it generally entails the creation of new bureaucracies and un-elected governance boards (such as the DDA, the money-losing Kent County Convention and Arena Authority, etc).
One is left to wonder, though, when Secchia makes a statement like this, “I’m talking about a casino like Detroit has, (but) owned by the city, county and local people who would share the profits…” Does Secchia plan to be one of the “local people” who shares the profits? Who would own the casino? Who would operate it? Will it be just another government boondoggle, like the current city-owned golf course?
Posted by: GRPundit on Wednesday, 28th Mar, 2007
Favorable Job Market Predicted for Grand Rapids
MiBiz reports that the job market for the Grand Rapids area is looking up for the fourth quarter of 2005.
The trend is continuing in favor of service industries. The construction, wholesale/retail trade and finance/insurance/real estate industries are expected to add the most jobs, with manufacturing staying stable with no growth anticipated.
But we’ll remind our readers that Governor Granholm wants to tax service industries more in favor of tax cuts for manufacturers. It doesn’t make much sense to increase the tax burden of those industries which are creating jobs, which will result in the creation of fewer jobs. The single business tax needs to be cut across the board, so all industries benefit. The lower the taxes, the more money employers will have to create jobs. It really is that simple.
Michigan has the nation’s worst economy and people are leaving the state. It’s time to get government out of the way so businesses can be allowed to create jobs.
Posted by: GRPundit on Tuesday, 20th Sep, 2005
Labor Day Cancelled
In what can only be described as a delicious irony, the labor day parade was cancelled in Grand Rapids.
Local unions, which have the responsibility of financing the cost of putting on the parade, simply didn’t have the money this year. They couldn’t come up with the necessary $25,000. Union leaders, however, promise to be back with a parade next year at a trimmed-down $10,000 cost.
According to Wikipedia, Labor Day started in the 1880’s, by organizations such as the Knights of Labor and the International Workingmen’s Association (which was led by Karl Marx himself).
We here are GRPundit don’t mourn the loss of the labor day parade.
Posted by: GRPundit on Monday, 5th Sep, 2005
Local Businesses Speak Out in Favor of Casino
An interesting article in today’s Grand Rapids Press says that there are several local businesses that are bucking the “official” line of the Grand Rapids Chamber of Commerce.
The Commerce folks oppose the casino in Wayland because they think it will sap business from Grand Rapids. Nevermind the fact that there are already people who drive all the way to Mt. Pleasant currently. Keeping those folks closer to GR apparently doesn’t enter into their minds.
But the important thing to note in this article is that there are some business owners in town that are afraid to speak out in favor of the casino out of fear of repercussions. Unbelieveable.
Posted by: GRPundit on Sunday, 1st May, 2005
Casino Closer to Opening
The federal government is in the process of approving the Gun Lake band of Pottawatomi Indians to open a “class 2″ casino in the Wayland area. A class two casino can only host gaming such as bingo and a few other electronic games. Once that is opened, the tribe can pursue a class three license with the state to allow everything else you normally see in a casino.
Of course, the powers that be are up in arms. A local group, mostly consisting of business folks in Grand Rapids, calling themselves “23 is Enough,” referring to the 23 casinos in Michigan, is fighting the decision.
But that very name is the picture of hubris. 23 is enough? Says who? Certainly not the marketplace. This type of rhetoric is coming from the business community. We’ve never seen them have a campaign against taxes, saying “40% is enough.” Perhaps they should concern themselves less with a job-creating enterprise than with the job-killing enterprise of excessive taxation.
We look forward to another local casino. The more the better.
Posted by: GRPundit on Wednesday, 20th Apr, 2005
GR Losing Residents
Today the US Census Bureau released a report showing that the city of Grand Rapids is losing population. Surpised? Hardly. As we’ve reported earlier, the city of Grand Rapids now has the second-highest tax burden in the county. And what do we have to show for it? A nifty new convention center. Even as young people are moving downtown into the newly-renovated apartments and condos, the population continues to dip.
What does this mean? It makes for a depressed housing market (fewer homes are needed). So those of us who live in the city who are already hit with lower home values because of poor schools and high taxes, get squeezed even more.
What’s the solution? There’s still a lot of wasteful city government. Taxes should be reduced, both property and income tax, to attract businesses and homeowners. As people leave the city and property values decline, so does tax base growth, making the problem worse.
So, why should we stay in the city, again? Someone remind me.
Posted by: GRPundit on Friday, 25th Jun, 2004
To GR City Residents: More taxes!
Attention Grand Rapids city residents: does your wallet seem to be getting thinner? Well, it’s going to get thinner again. Yesterday the City Commission voted to decrease your income tax exemption from $1000 to $750, resulting in a tax increase of about $13 per resident. The vote was unanimous.
The exemption was originally increased so that your taxes would decrease when the transit millage increased. Remember them telling us “this transit millage isn’t going to increase your taxes because we’re decreasing your income tax.” Well, not only has the transit tax increased additionally since then, now the income tax is increasing, wiping out the promised compensation of the difference.
Let’s look at the changes to Grand Rapids’ residents’ balance sheet in the last several months.
1. Increased property tax from the transit millage in Nov of 2003
2. Increased income tax for GR residents and non-residents who work in GR.
3. Increased property tax from the special education millage of Feb of 2004.
4. Proposed increase in property tax for the Grand Rapids Public Schools to build new buildings in June of this year.
5. Proposed increase in property tax for the new zoo, probably in August of 2004.
The powers that be don’t seem to grasp that all these increased taxes harm the economy and decrease growth. Michigan’s unemployment is already far above the national average and increased taxes are a proven way to stop or dramatically slow any recovery.
And Commissioner Jendrasiak, in commenting on increasing your income tax, is complaining about needing more revenue. How about cutting some city government? The rest of us have had to trim back, both in our personal lives and in business. But the City’s appetite continues to grow.
Next time you need to transfer a balance and find a lower interest rate on a credit card, be sure to go to the Compare Credit Cards web site to find the latest deals and credit card offers.
Posted by: GRPundit on Wednesday, 10th Mar, 2004
