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Marty Lyons, Chief Financial Officer for the City, presented City Council with a Mid-year 2017 Budget Report on July 10 that projects the City will have a shortfall in its budget for 2017 in the range of between $3 million (under Scenario 1, pegged as the most likely scenario) and $5.6 million (under Scenario 2, a worst case scenario). Each of these projections assume the City will be able to reduce budgeted expenses by about $2.5 million during the year. Absent these reductions, the projected deficits would be larger.
Mr. Lyons said the City is under budget for the year due primarily to two reasons. First, he said, there is a shortfall of between $2.7 million and $4.7 million in the fees budgeted from building permits. He said the shortfall was due to three or four major projects that will likely not start this year. “But we have a high confidence that they will come in next year,” he said.
Second, he said, “We’re under budget due to our economy.” He said the City’s share of state sales taxes is projected to be under budget by between $400,000 and $1.37 million for the year. He said the City’s share of State income taxes, called, the Local Government Distributive Fund, is projected to be under budget by $780,000. He added that the City is also projecting a shortfall of between $200,000 and $500,000 in utility taxes.
Mr. Lyons said the Illinois Municipal League did not anticipate these shortfalls which are due to the State of Illinois economy, nor did the Illinois Department of Revenue. He said they started to get a glimpse of how the economy was progressing starting in March and April.
Mayor Steve Hagerty asked, “The decrease we’re seeing in our sales tax and in our economy is not unique to Evanston. Other communities are experiencing the same thing. Is that true?”
Mr. Lyons said, “Yes. What we can’t say is whether or not they [the other communities] budgeted conservatively. We were a little aggressive. We’ve been doing very well downtown. We tried to hit the number on the head for income and sales tax.”
On the expense side, there is uncertainty regarding salary expenses because police and firemen salaries are still being negotiated with the unions. Mr. Lyons said the City budgeted that the salaries would increase by 1.5% in 2017, but he said the salaries could potentially increase by 2.75%. He said the current practice is that wage increases would be retroactive to the time the union contracts expired, which was Jan. 1, 2017. “So we have to come up with those dollars.”
If the City and the unions agree on a 2.75% salary increase, the amount over budget would be $1,505,358 if the increase is retroactive to Jan. 1, 2017; and it would be $752,679, if it is retroactive to July 1, 2017.
“On a more positive note,” Mr. Lyons said, “there’s a potential for just under $2.5 million in expense cuts from departments to year-end.” He said some of the reductions are normally occurring, for example, as a result of a milder winter, which reduced the cost of snow plowing and salt. But he added that the City’s budget staff worked with departments to develop a revised estimate of year-end 2017 expenses, examining options to save money in 2017 by delaying purchases, holding vacancies, etc. He said staff anticipates a savings of $2.5 million.
The table below summarizes the revenue reductions and the expense increases projected for 2017 under Scenario 1 and Scenario 2 (in $000s).
Mayor Hagerty summed up, “Even with the department estimates of soft reductions that they can make, we’re still now showing a deficit between Scenario 1 and 2 between $3 million and $5.5 million. In order to close that gap we need to either find additional reductions or look at the revenue side.”
Mr. Lyons said using reserves in the general fund to help balance the budget is not an option, because “it would send the wrong signal to the rating agencies” and “our cost of borrowing would go up.” The City’s stated goal, and GAAP best practice, is to have at least 15% of the operating budget in reserve, but right now the general fund has only about 13%.
Mr. Hagerty asked whether the City would ultimately receive the full amount it budgeted for its share of income taxes from the State. Mr. Lyons said the State has told municipalities they will ultimately receive all the payments due, but some will be in 2018, which “doesn’t help us in 2017.” Several aldermen asked that he verify how many payments will be made in 2017. Ald. Ann Rainey, 8th ward, insisted the City would receive all or more than expected, while Mr. Lyons said the City would receive full payment for six months and then 10% less than expected for the next six months.
Ald. Rainey asked staff to prepare a report explaining what the City would receive as soon as possible, and staff agreed to do so.
Staff proposed several ways to help address the projected budget deficit, including:
• A $10 increase to parking tickets
• Changing the number of tickets to make a car “boot eligible” from five to three
• A 1 cent increase to the motor fuel tax
• A 1% increase to the liquor tax
• A 0.25% increase to the home rule sales tax.
“I’m not voting for any of your tax increases, just so you know,” said Ald. Rainey. Alderman Don Wilson, 4th ward, later agreed.
Alderman Peter Braithwaite, 2nd Ward, said one way to improve permit numbers might be to approve permits for smaller projects, such as upgrading kitchens or bathrooms, faster. The budget calls for about $3 million in this type of permit fees, and the City has received about $1.2 million to date.
“It takes about four weeks to get a permit,” said Ald. Braithwaite. “If we could speed up the process, permit fees would come in more quickly.”
“Finding qualified people to do this work is a challenge,” said Mr. Bobkiewicz. “Plan review takes expertise.”
City Manager Wally Bobkiewicz said, “My sense of the City Council is that the sales tax, the liquor tax, and gas tax increases are probably not tenable at this juncture. Is that a fair assessment?” No one disagreed with him.
Mr. Bobkiewicz said he would bring back a proposal regarding booting vehicles, which may include using a “barnacle” which affixes to the windshield of a car, and a proposal on parking tickets. He said he would also look at transferring money from funds other than the general fund.
“While we don’t believe this will be painless,” he said, “We believe we can come up with a solution for the balance of 2017.” It is anticipated administrators will present a plan to Council at their next meeting.