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The City published its proposed budget for Fiscal Year 2018 (Jan. 1 to Dec. 31, 2018) on Oct. 6. The total proposed expenses for all funds (operating and capital expenditures), prior to eliminating interfund transfers, are $333.9 million.
If interfund transfers (which can result in double-counting) are eliminated, the total proposed expenses for all funds in 2018 is $280.5 million, which is 13.5% more than the amount budgeted for all funds in 2017. Much of the increase is due to capital expenditures.
The General Fund
The City’s main operating fund is its General Fund. Some of the major expenses paid through the General Fund are to operate the police and fire departments; address economic development; provide health and human services; provide for parks and recreation; and provide administrative services.
The budget documents contain a “baseline budget” showing a deficit of $6.1 million in the City’s General Fund, its main operating fund. The budget also incorporates many budget balancing strategies that, if adopted by City Council, would balance the General Fund and leave a surplus of $667,859.
The budget balancing strategies include a 1.1% increase in the City’s share of property taxes to fund police and firefighter pensions, an increase in a variety of fees and taxes, reductions in staff, freezes in filling certain vacant positions, staff, furlough days, transfers of expenses to other funds, and other measures.
“I think the plan that we have come up with is responsible and balances the continued need to provide needed services to the residents of Evanston without increasing the tax burden so horrifically that it really has a continued impact,” said City Manager Wally Bobkiewicz.
This year, the budget will also undergo an equity review, and the City’s Equity and Empowerment Coordinator Patricia Efiom will give a report to City Council.
For comparison purposes, the table below shows the total actual revenues, expenses, and surplus for 2016, the estimated actual for 2017, the baseline budget for 2018, and the proposed budget for 2018 ($ in millions).
Major Changes Impacting the Budget for the General Fund
In July, Marty Lyons, Chief Financial Officer for the City, presented City Council with a Mid-year 2017 Budget Report that projected that the City would have a shortfall in its budget for 2017 in the range of $3 million to $5.6 million. The shortfall was due primarily to projected declines in three sources of revenues: building permit fees, the City’s share of State income taxes (called the Local Governmental Distributive Fund), and the City’s share of sales taxes.
Mr. Bobkiewicz told reporters on Oct. 5 that these three sources of revenues will impact the City’s 2018 budget for its General Fund as well.
First, Mr. Bobkiewicz said, the City is projecting that sales taxes will be $600,000 less than budgeted in 2017. Mr. Lyons said the State has decided to charge a 2% administrative fee to collect sales taxes. In addition, sales at retail locations are expected to decline, which will further pull down sales tax revenues.
Second, the City’s share of State income taxes is budgeted to drop by 10%, due to legislation adopted by the State during its budgeting process last summer. This will reduce the City’s Local Government Distributive Fund by about $800,000, said Mr. Bobkiewicz.
Third, building permit fees are projected to be about $5 million less than budgeted in 2017, and about $2 million less than the fees the City is projecting it will actually collect in 2017.
Mr. Bobkiewicz said, “The big buildings are slowing down tremendously.” Mr. Lyons added, “The lion’s share is Northwestern University buildings.”
“They have been in a building mode for the last five years and they have come to the end of that,” said Mr. Bobkiewicz.
On the expense side, Mr. Bobkiewicz said there are two key changes, one positive, and one negative.
“We have been able to negotiate reductions in our health insurance costs,” he said. The savings are expected to be $315,531 in 2018.
Salary costs, however, are expected to increase by 3% in 2018, or by $2,375,598.
The City’s labor agreements with AFSME (the union for most City employees), the police officers’ union, and the firefighters’ union all expired at the end of 2016. Mr. Lyons said AFSME and the policemen’s union are close to signing an agreement, and the firefighters are still negotiating.
Mr. Bobkiewicz said, “We hope to have agreements with them through the fall.” He added, “We feel confident that [the budgeted increase] will cover the agreements that are negotiated.”
A fourth labor agreement is with police sergeants’ union, whose contract runs through 2017.
When these declines in revenues and changes to expenses are incorporated into the baseline budget, there is a deficit of about $6.1 million in the General Fund.
To balance the General Fund, Mr. Bobkiewicz said, staff are proposing $2.4 million in new revenues, and about $4.3 million of reductions in expenses and transfers to other funds.
A 1.06 % Increase in Property Taxes
On the revenue side, the proposed budget includes an increase of $421,742, or a 1.06% increase, in the City’s share of property taxes. For a home with a market value of $400,000, the impact would be about $18 per year, according to budget documents.
This increase would be used to pay more money into the police and firefighter pension funds, said Mr. Bobkiewicz. See sidebar.
He added that staff are attempting to hold the line on property tax increases. He said, in light of the increase in property taxes by School District 65 as well as other factors, City Council did not appear to be inclined to raise property taxes. Thus, while there is a slight increase proposed to fund police and firefighter pensions, “we are not looking to raise taxes to balance the budget,” he said.
Increases in Fee and Other Taxes
City staff are proposing a series of new parking fees and fines, which collectively are budgeted to increase revenues by just over $1.5 million. They are:
- Increasing parking fees in City garages from $95 to $110 per month. This would include the Sherman Plaza rooftop.
- Standardizing parking meter times (switch all 9 a.m. to 6 p.m. meters to 8 a.m. to 9 p.m.) and standardize meter rates to $1 per hour.
- Increasing the fine for parking at an expired meter from $10 to $20. Increase thing fine for a street cleaning parking ticket from $35 to $40.
- Increasing the fee for a monthly permit to park in a City surface parking lot to $60
The City would also increase fees for boat storage by 3%, and increase all fees at all recreation facilities by 2%. These changes are expected to increase revenues by $80,000. Staff also propose to increase health department inspection fee to raise about $10,000 per year.
City staff are also proposing two new taxes. One is a service charge on ride-share companies, such as UBER and LYFT, amounting to 20 cents per ride, which is expected to generate revenues of $100,000. Chicago, Mr. Bobkiewicz said, charges 52 cents per ride and is thinking of increasing it.
Another new proposed tax is an Airbnb tax, which would be the same rate as the City’s hotel tax and generate $90,000 in revenues. Mr. Bobkiewicz said Chicago has successfully implemented an Airbnb tax. He added while there has been some discussion of imposing a tax on B&Bs, he said staff was not recommending it. He added, staff estimated it would generate about $10,000 per year.
Cuts in Personnel and Programs
The City is budgeting for a reduction of a total of 28.3 full-time-equivalent (FTE) employees, and an addition of 5.5 FTEs, for a net reduction of 22.8 FTEs. The City is also proposing to keep 7 vacant positions in the police and fire department open for the year.
As part of the staff reductions, Mr. Bobkiewicz said he is recommending that a number of departments be reorganized to realize efficiencies in costs and service delivery:
- Merge the Fleet Service Division with the Facilities Management Division to create a Fleet and Facilities Division. With the retirement of the current Fleet Manager, the Facilities Division Manager will assume management of both operations.
- Move the Economic Development Division from the City Manager’s Office to the Community Development Department (CDD). The budget also proposes to reduce City funding to assist proposed businesses by $400,000; reduce mental health funding by about $31,000; and pay 25% of the salary of the Director of CDD out the City’s Affordable Housing Fund.
- Transfer the Police Department’s Social Services Bureau, which provides victim assistance, to the Human Services Department. If this shift is approved, the City would eliminate four positions in the Police Department and create one full-time and 3 part-time Human Services Specialist positions in the Human Services Department to include social services responsibilities. The budget estimates the City will save $400,000 by making this shift. When asked if this would result in a decline of services, Mr. Bobkiewicz said, “no,” and that he would be explaining that to City Council over the next six weeks.
- Eliminate the Bureau Chief positions of the Environmental Services Bureau and the Infrastructure Maintenance Bureau and to create a new Public Services Bureau, with one chief. The current Bureau Chiefs would be given the opportunity to apply for the new positon, said Mr. Bobkiewicz.
- The Facilities Maintenance Division would take over the management of the Fleet Services Division.
- The managerial positions of the Chandler Center and the Levy Center would be eliminated, and consolidated into one position.
To achieve additional savings in the General Fund, the costs of salaries of certain employees would be shifted in whole or in part to the Water and Sewer Fund and to the Parking Fund.
Mr. Bobkiewicz said he was giving notices on Oct. 5 to City personnel who would be impacted by these recommendations. If the recommendations are accepted by City Council, they would go into effect on Dec. 31.
The Capital Plan/Spending Down Reserves
The City’s Five Year, 2017-2021, Capital Plan identifies a total of $306 million in capital projects. The proposed budget plans to spend $84.3 million on capital projects in 2018.
The 2018 budget includes $29.3 million for street resurfacing, water mains, and streets; $4.8 million for other transportation; $5.4 million for parks; $17.9 million for facilities; $2.0 million for miscellaneous projects; $10.1 million for the library; and $14.6 million for water treatment, storage, and billing.
The budget documents state the proposed budget contains two major projects that will impact total debt funded through property taxes. The City anticipates that the Robert Crown Community and Library Center Project will be financed through property tax supported debt in the amount of $12.5 million, $10 million from the City and $2.5 million from the Library.
The Library has also requested funding for a major renovation of its main Library building that would require the issuance of an additional $10.1 million in property tax supported debt.
These projects would require the City to raise the current debt limit of $113 million. The City’s current outstanding debt on bonds supported by property taxes is $111.5 million.
“This was a difficult process,” said Mr. Bobkiewicz. “We’re pleased there aren’t more service deductions, more layoffs. Anytime you have any is too many.”
The operating budget is scheduled to be presented to City Council on Oct. 16, and the capital budget on Oct. 23. A budget hearing will be held on Oct. 28.
One major challenge the City has been addressing is funding the police and firefighter pension funds. In a report dated Sept. 7, 2017, Foster & Foster, the City’s actuaries, estimated the City’s unfunded liability at $113.4 million for the police pension fund and at $91.1 million for the firemen pension fund, for a total of $204.5 million. That estimate uses an assumption that the money held in the pension funds will grow at an annual rate of 6.5%.
If a 6.25% rate of return is assumed (which Foster & Foster says better reflects anticipated experience), the unfunded liabilities are estimated to be $120.9 million for the police pension fund, and $96.2 million for the firefighter pension fund, for a total of $217.1 million
City staff recommend that the City use the 6.5% assumed rate of return in determining the amount it will contribute this year to the pension funds. Using that assumption, the City’s total annual required contribution to the police and firefighter pension funds in 2018 is $18.8 million, or an increase of $421,000 over the prior year.
If a 6.25% rate of return is used in the assumptions, then the amount needed to fund the police and firefighter pensions would increase in 2018 to $1.47 million.
The reasonableness of an assumed rate of return is measured over an extended period of time, because fluctuations are expected from year to year. If the actual investment rate of return turns out to be lower than the assumed rate of return, taxpayers will be required to make up the difference.
Mr. Lyons said many municipalities are using a higher rate of return than 6.5%, and that the rating agencies Moody’s and Fitch recommend using a rate of return lower than 6.25%.