Evanston City Council members are heading into their final 2021 Budget session Monday, Nov. 23 with a property tax hike on the table and other alternatives looking less likely.
City officials have already taken steps in response to Council members’ reluctance about the property tax hike, paring $500,000 from the tax increase that was going to go to bolster the City’s General Fund reserve.
Officials have now lowered the property tax increase from 5.9% to 4.5% during the course of the budget sessions. The City’s portion of the property tax bill is about 20%. Levies of other taxing bodies figure into the property tax bill, including School District 65 and School District 202, which together take about 68% of the property tax bill.
The City’s proposed increase translates into a $95.06 increase for a homeowner of a property with a market value of $400,000 and would lift that resident’s City taxes overall to $2,035.01 of that total tax bill.
The property tax is a big revenue generator as officials address an estimated $8 million shortfall with revenues down in a number of areas because of COVID-19 and the economic shutdown.
Aldermen have scrambled for alternatives, including pulling back on the annual contributions to long-underfunded police and fire pensions, as well as cutting back contributions to the City’s reserve fund.
A Word About Pensions
At the Nov. 16 City Council meeting, Council members appeared to have pulled back from deferring contributions to their pension fund contributions after a sobering presentation from actuary Jason Franken.
Mr. Franken’s firm, Foster & Foster, has been performing the actuarial valuations for the City’s police and fire pension plans since 2015.
Right now, each plan is about 50% funded, Mr. Franken told aldermen, meaning about half the liabilities are not currently covered by assets.
“So over the next 20 years or so we’re trying to reduce and eliminate that unfunded liability to ensure that we have enough assets on hand to cover all of the future benefit payments when they come due,” he explained. “And so really, at the end of the day, that’s what our contribution is. It’s the normal cost, which is the cost of your providing your pension to your current actives [employees], plus the amortization payment that’s intended to reduce the gap between the assets that are in the plan, and the liabilities that currently exists in the plan.”
Currently, about 70% of the City’s contributions into the plan – more than $11 for the police pension fund – is for the unfunded liability, Mr. Franken explained.
“So about a third of the total contribution is going to cover active employees, the remaining two thirds is trying to eliminate that shortfall that exists in the plan currently,” he said.
Another way of looking at it, he explained, is that if the City were 100% funded the contribution would decrease by almost%.
With current funding levels as they are “really the only thing that’s going to eliminate that unfunded liability is more contributions,” Mr. Franken told aldermen.
“I’m not even talking about reducing it. I think an increase needs to be made to those contributions. If you’re really looking to pay down your unfunded liability because right now, you know, there’s $240 million of unfunded liability at six-and-a quarter percent interest, as you know, that’s significantly increasing every year.”
Reacting, several aldermen agreed that deferring or cutting back on pension payments would not be a prudent move. The bulk of the unfounded liability built up in the 1970s and 1980s, long before the current Council.
The City does not want “to go backwards,” said Alderman Donald Wilson, 4th Ward
“I feel pretty strongly now about not wanting to change that pension funding,” he said. “I just feel like it buys us a tax increase, you know, next year, literally. And for many years after that.”
Ninth Ward Alderman Cicely Fleming, who had raised the pension-funding question at the Council’s previous budget hearing, acknowledged Mr. Franken’s report.
“And I don’t want to go backwards either,” she said.
But even with the proposed tax increase reduced from 5.9% to 4.5%, she said, “it is very hard to pass on the tax increase when people are not doing well.
“…When people don’t even have employment, and we know there’s no mortgage relief, coming, there’s no rental relief coming, any tax increase is just going to be a burden,” she said.
Council members eyed other areas where expenditures could be cut or revenues generated to make up the need for a property tax.
Alderman Thomas Suffredin, 6th Ward, asked about the General Fund balance. The General Fund is the City’s main operating fund, and the bulk of expenditures there is for personnel.
Staff is projecting a $14.1 million fund balance by the end of next year, equaling 12.7% of expenses. Officials goal is to have reserves up to 16.6 percent by 2024.
Ald. Suffredin called for a “deeper” discussion of the issue. The City tax makes up a small portion of the total tax bill, “but it is layered on top of other increases, and a lot of people are facing a real reduction in their household income as well.”
Overall, he said, “I don’t feel like we’ve exhausted every option. I respectfully disagree in terms of holding on to a property tax increase… I don’t know that there was an effort to really figure out if we could reduce employee count enough to avoid tax increase. What I’m hearing from people is that they are very concerned about the total property tax burden they have.”
City officials, though, pointed out the importance of the pension funds and reserves in the City’s overall financial picture.
Hitesh Desai, the City’s Chief Financial Officer, said these two areas are brought up by the credit agencies “as factors which could adversely affect your rating.
He said the City’s adopted reserve goal is less than the three months of reserves that other cities have. “So it’s critical that we try to maintain that,” he told Council members.
If the City were to make up the need for a property tax hike through staff cuts, as many as 25 to 30 positions would have to be cut, said City Manager Erika Storlie.
“But I will, I will say that it will be a tall order, since we sort of took the first stab at that throughout the last year trying to get the reduction down to as much as possible and gearing up for this this next year,” she said.
“So the the 50 positions that we have either reduced or eliminated in the last eight months have really generated the majority of the savings for next year. If we were to take it a little bit deeper, we will be cutting into what is already a pretty barebones staff, and we have trouble delivering services that are currently provided.”
Aldermen also raised some other revenue ideas that have been in the table for years but not examined by the current Council, such as charging Northwestern University for fire and ambulance calls.
During the discussion, Ms. Storlie acknowledged that with pensions not funded and reserves also falling short, “we’re not starting out in a great seat.
“So that made us have to put forward a budget that had some very tough pills to swallow on it.”
Other communities with reserves built up before the pandemic have been able to get through without any tax hikes or layoffs, “which is simply phenomenal, that, that that was the choice that they didn’t have to make, because they had that rainy day fund, at a level where it should be,” she said.
Ms. Storlie said her goal is to work with Council members over the coming years “to get our policy up to where it needs to be so that the next time we’re fixing down a pandemic, or any other crisis that faces the community, we don’t have to take drastic measures that we’ve had to take in the last year.
“I know that you would not like to do them,” she told Council members.
“I would not like to do them. We would like to put ourselves in a position to weather these storms, with a little less drama.”
City Council members are scheduled to discuss and approve a final budget at their Monday, Nov. 23 City Council meeting which starts at 5:30 p.m.
The meeting can be watched online at www.cityofevanston.org/channel16 or on Cable Channel 16.