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A City staff presentation labeled “2019 Budget Update” laid out a stark projected future for the 2019 City budget, estimating increasing expenses, decreasing revenues, and a City full of residents who do not want to see services cut. Staff made the presentation before City Council at a special meeting on June 18 – a night also dominated by a discussion of the fate of Harley Clarke mansion.

Projected Expenses

Mid-year 2018 estimates currently predict about $2.9 million in budget shortfalls in 2019, starting with a projected increase of about $1.6 million in expenses over those in 2018. The bulk of the increase comes in personnel costs, expected to jump by about $1.8 million, but the amount is subject to change based on the negotiation of union employee contracts. Rising health insurance costs should add another $450,000, and broad “non-personnel” expenses, basically “everything else,” are expected to rise about $335,000 in line with historic cost increases.

The increase in these expenses may be offset by a reduction in the amount needed to fund pensions. Police and Firefighter pensions are funded by the City itself, and are a separate budgetary matter. Other employee pensions are managed by the IMRF (Illinois Municipal Retirement Fund). Pension funds had a very good year in 2017, with a much larger than expected rate of return on investments. Staff estimates that as a result Evanston’s IMRF annual required contribution will drop by about $790,000 in 2019.

In total, staff now predicts about $1.6 million in added expenses in 2019. 

Projected Revenues

On the other side of the ledger, staff expects revenues to drop by about $1.9 million. Less revenue will come from state and home rule sales tax ($780,000), hotel tax ($290,000), natural gas tax ($388,000), liquor tax ($120,000), and transfers from the expiring Washington National TIF ($550,000), staff predicts.

While Council did not directly question cost increase estimates, some wondered aloud about revenue-decrease predictions. Alderman Ann Rainey, 8th Ward, asked how the liquor tax collected, a number trending up over the past several years according to the staff memo, could show a decrease in the face of new liquor licenses to large retailer Target both downtown and on Howard Street and the opening of Binny’s Beverage Warehouse on Chicago Avenue, slated for late fall 2018.

City Revenue Manager Alex Thorpe said the Target licenses could result in sales that “might cannibalize from other businesses” and result in no increase, and added licenses “are not a straightforward forecast.”

City Manager Wally Bobkiewicz said the City planned “to sit with [Binny’s] when they open” in the “mid-fall timeframe” to get a sense of anticipated sales and how much of those sales will be new versus sales taken from other Evanston businesses. “These estimates are as we sit here in mid-June,” he added. For now, staff still expects liquor tax collection to decrease in 2019.

The RoundTable asked City CFO Hitesh Desai how the closing of a TIF would result in a revenue decrease. Mr. Desai said that in FY’18, the City assessed an administrative fee to the TIF in the amount of $550,000, and that amount will not be assessed after the TIF expires.

Mr. Desai added, though, that after the TIF expires, the tax increment attributable to the increased equalized assessed value of properties in the TIF will no longer be paid to the TIF, but will become available to the taxing entities, including the City and the school districts. The City’s share of the tax increment is about $1 million, which the City can capture by increasing its tax levy by that amount. Mr. Desai said staff believe “the City can increase property taxes by $1 million to capture this increment without affecting other residents or businesses.”

Mr. Desai said in an email to the RoundTable that the Washington National TIF will close either on a break-even basis or with a slight surplus, despite absorbing the full cost of the $7 million Fountain Square project. “There will be no lingering debt service after the closure of the TIF,” he wrote.

The Budget Survey

Staff also presented the results of the priority based budgeting survey, and to the surprise of no one, residents “really like what we do,” said Mr. Bobkiewicz. Only small ticket items like the City contribution to the DIVVY bike program, controversial from the very start, can be done without.

Other services, such as the youth intervention program and the Mayor’s summer jobs program, brought out droves of supporters. Alderman Peter Braithwaite, 2nd Ward, asked Council to end whatever drama remained and remove those two items, formally and officially, from the list of programs to be examined for possible cuts.

In the face of public pressure increasing with every meeting – June 18 brought out coaches, residents, and even a Cook County judge speaking in support of the youth intervention program – Council agreed.

Other than identifying programs that residents will not tolerate being cut, and the aforementioned vulnerable DIVVY bike contribution, the survey gave Council little to latch onto. Balancing increasing costs and looming capital needs such as the Civic Center building, the Noyes Cultural Arts Center, the police and fire headquarters and other ongoing capital needs with shrinking revenues and limited borrowing power after the Robert Crown bonds are issued (see story on page 1) will be “a very, very, very tall order,” said Mr. Bobkiewicz.

Possible New Revenue Streams

To meet the tall order, staff proposed a number of possible additional  revenue streams. First, staff floated the idea of a real estate transfer tax stamp increase. Right now, the City charges $5 per $1,000 on every sale of real estate within the City limits

Of neighboring communities, only Oak Park and Chicago charge more (Chicago’s is split between the buyer and seller of real estate), and only Oak Lawn and Highland Park match the $5 rate. Every other community charges less.

A $2 increase to $7 per thousand would raise an estimated $1.4 million, according to the staff memo. The matter is complicated by the City’s ongoing discussions about affordable housing in Evanston, because the measure would increase the cost of home ownership.

In any event, according to Mr. Thorpe, the increased tax would require a referendum and a vote in favor of the increase.

Alderman Ann Rainey, 8th Ward, said, “I totally oppose a flat real estate tax increase. But I would be interested in looking at an increase in the tax on property that sold for over $1.5 million.”

At call of the wards June 25, Alderman Eleanor Revelle, 7th Ward, asked the City to prepare a ballot measure just in case the City decided to look into increasing transfer taxes.

Another proposal suggested a possible 0.25% increase in sales taxes collected. Right now, Evanston consumers pay 10% in sales tax, split among the State (6.25%), Cook County (1.75%), mass transit (1.0%) and City (1.0%). Adding 0.25% would bring Evanston in line with Skokie and Chicago and raise about $1.5 million, according to the staff memo.

Ald. Rainey called the increase “regressive” and said “I couldn’t support that.”

She also moved to “eliminate any further discussion of red-light cameras,” a motion immediately supported by Ald. Braithwaite.

“Consider it removed,” said Mr. Bobkiewicz.

One tax proving more lucrative than predicted is the new transportation network provider (Uber and Lyft, for example) tax of 20 cents per ride originating or ending in Evanston. Tax collection has exceeded predictions so far, and a proposed increase to 40 cents would add another $300,000. Chicago collects 67 cents per ride.

The wheel tax could jump $20 to $95, bringing in another $500,000 or so. Council did not immediately address this proposal, or any of the other smaller revenue increases.

While Mr. Desai mentioned an increase in the tax levy to capture the $1 million tax increment of the Washington National TIF to the RoundTable, this was not discussed at the Council meeting.

It looks to be a long and painful budget season this year, especially if the staff predictions remain as they are.