A recent five-year financial forecast has raised significant concerns about the city's fiscal stability, projecting a potential bankruptcy by 2030 if current trends persist. City officials are now exploring various strategies to address this looming crisis, including seeking an extension of the income tax, which is set to expire in 2032. The loss of revenue from the Board of Water and Light (BWL) franchise fee lawsuit and the uncertainty surrounding the income tax renewal have intensified these worries. The city council discussed immediate budget adjustments and long-term financial planning during a meeting on February 18, emphasizing the need for proactive measures.

The financial forecast presented at the City Council meeting highlighted a troubling trend: even with the annual $14 million income tax revenue, the city is projected to lose money each year through 2030. This situation has been exacerbated by the Michigan Supreme Court ruling against the city’s collection of BWL franchise fees, resulting in an annual revenue shortfall of approximately $2 million. Additionally, the city faces the prospect of losing up to $14 million annually if voters do not renew the income tax. Councilmember Mark Meadows expressed concern about the possibility of bankruptcy, underscoring the urgency of finding sustainable solutions.

City officials are already preparing for the worst-case scenario. Audrey Kincade, recently appointed as the chief financial officer, noted that the city's fund balance, currently at $20 million, could be depleted by 2030. She emphasized the growing gap in the fund balance, which is expected to reach negative levels if no action is taken. Erik Altmann, another councilmember, pointed out that the city must consider short-term cuts to mitigate the impact of the BWL decision. Despite these challenges, City Manager Belleman assured staff members that job security remains intact, although specific details on potential budget cuts have yet to be disclosed.

The city's financial landscape is further complicated by its pension liabilities. Approximately 60% of the income tax revenue is dedicated to paying off pension debts, making it crucial for the tax to be renewed. Without this revenue, funding the pension plan becomes increasingly difficult. Moreover, the city has faced volatility in its revenue streams, with a significant drop from $60.6 million in FY24 to an estimated $48.8 million in the current fiscal year. This decline is largely attributed to the absence of major grants received in previous years, such as those from the American Rescue Plan Act.

As the city embarks on its budgeting process, officials are committed to identifying new sources of revenue and implementing cost-saving measures. The upcoming months will see intensified discussions on how to stabilize the city's finances, with a focus on securing voter support for the income tax renewal. Councilmembers recognize the importance of transparency and collaboration in addressing these financial challenges, ensuring that the city can maintain essential services while navigating this uncertain period.