Evanston City Council members have agreed to a resolution to build the City’s reserve fund to meet a good government practice of 16.6%.
Aldermen hedged their language around the commitment and, in a close vote, balked at an amendment proposing that a property tax hike not be used to achieve that goal.
City staff has been pushing for Council members to agree to a resolution since last year’s budget discussion, when aldermen tapped the City’s reserve fund in the face of depleted revenues.
Because of COVID-19 and the economic lockdown, the City has seen substantially lower revenues from hotel and sales taxes, parking and other sources that have been mainstays of the City’s revenue base in the past.
Aldermen dipped into the reserve funds to balance the City budget for 2021, enabling them to lower a property tax increase from 5.9% to 1%.
As a result of the move, officials projected that the City’s General Fund Reserves would fall to approximately 12% of operating expenses as of Dec. 31, 2021, well below the City’s Budget Policy of 16.6%, which would cover two months of expenses.
At the Jan. 11 City Council meeting, however, alderman balked at approving a staff-recommended resolution, approving instead a resolution committing to increasing the General Fund reserves to a minimum of 16.6% by 2025.
The increase would require that the City make contributions of at least $1.9 million annually to the reserve fund in the years 2022 through 2025.
Staff has maintained that the reserve fund is one of the areas the bond rating agencies focus on when assigning a rating on large bond sales for capital projects.
A downgrade in the bond rating could end up costing the City hundreds of thousands of dollars in higher interest rates over the long run, staff has warned.
The resolution before the Council at their Jan. 25 meeting called for lower annual contribution. It stated that the City Council “commits to achieving General Fund reserve balance of 16.6% of operating expenses by Dec. 31, 2025, or a contribution of at least $1 million annually to the reserve fund in the years 2022 through 2025.”
Additional contributions may be made to the fund balance from proceeds of property sales or other revenue sources, as decided upon by a majority of the City Council, the resolution stated.
In Council discussion, Alderman Ann Rainey, 8th Ward, proposed a change in the resolution language.
“I just think it’s a statement we’re making that really doesn’t have the full faith and enthusiasm for the Council to fulfill the promise,” she said. “I think it would be better to say that it is our best intention, and we will do what we can and we agree that the fund balance of 16.6% is prudent and that we’re going to do make our best effort to do that.
“But in no case – in no case, will we raise taxes to make that happen.”
Explaining further, she said, “in no case will I take a knife and carve out an important part of services to do it [reach the 16.6% goal],” maintaining the City could achieve that figure by reducing expenditures.
Alderman Cicely Fleming, 9th Ward, said while she appreciated Ald. Rainey’s proposal, people would still have questions what the Council would do to reach the 16.6%.
Without a plan in place, she said, “people do have a fear that it’s going to come down to either higher property taxes, more fees, or higher parking tickets, or whatever it is. And so I think, if we were going to go this direction, which I’m not comfortable with, as it is, we need to give some real clear parameters in terms of what we are willing to not spend money on, how we are willing to cut.”
Alderman Eleanor Revelle, 7th Ward, a professional writer and editor, noted that the main resolution language as it is, though, “is extremely flexible.
“It says the goal may be achieved by contributing $1 million or more to the reserve fund and additional contributions may be made to the fund balance from proceeds of property sale. We’re expressing a commitment but we are leaving it wide open really as to how we’re going to actually achieve it,” she pointed out.
Aldermen voted 5-4 in favor of the main resolution, leaving out Ald. Rainey’s amendment for a no-property-tax-hike commitment.
Voting in favor of the resolution were Aldermen Revelle; Judy Fiske, 1st Ward; Peter Braithwaite, 2nd Ward; Melissa Wynne, 3rd Ward; and Donald Wilson, 4th Ward.
Voting against were Aldermen Fleming, Rainey; Robin Rue Simmons, 5th Ward; and Thomas Suffredin, 6th Ward.
Leading into the discussion, City Manager Erika Storlie noted that the concept of setting aside as reserves 16.6% of the City’s General Fund was derived from the Government Accounting Standards Board.
“So this is not something that we’ve arbitrarily set,” she told Council members. “This is what all communities across the country are expected to carry.
“So that was adopted by the Council previous years, and we have made efforts to try to reach it,” she said, “and we’ve been somewhat successful in previous years at trying to ramp up towards it. But as you know, the pandemic has challenged our finances and so we have dropped from where we were a year ago.”
She said the resolution, then, “will reaffirm our commitment to getting to a path of having that reserve balance where it should be.”