So what happened Monday night at City Hall?

The Normal Town Council spent another evening discussing how to deal with a revenue shortfall.  Unchecked it would mean going from a surplus in the general fund to a deficit in two years.

The Town is not currently in a deficit situation.  In fact, the town will end the current 2009-10 budget year with a surplus in its main operating fund.   But due to reduced state income tax collections and state and local sales tax receipts, the anticipated eight percent cushion will  fall to 2.5 percent of total general fund expenditures.   Our finance department recommends an end of year balance of eight to ten percent of general fund expenditures.

2009 Election

In this year's council campaign, we were well into the deepest recession in my lifetime. My top priority had to be maintaining the fiscal integrity of the town. And I remain committed to that goal. We will get through this without experiencing the kind of budget crises have enveloped cities unwilling to make difficult decisions.

The council’s goal is to avoid a deficit and to shore up the general fund reserves through a combination of budget cuts and tax increases.

While it’s tempting to simply cut your way out of your predicament,  we discovered that you have cut far too deeply into the basic services that define Normal town government.   That was not an option.

 Two employees signed up for the early retirement incentive.   Understandably, many employees close to retirement considered taking the benefit, but concluded that they would rather work, a typical response in an uncertain economy.

Still, staff identified several areas that could be cut without impacting services too much.  

  • Shiny cars and trucks take a back seat to programs.  At this time, it didn’t make a lot of sense to me to have enough vehicle reserves on hand to replace every police car, garbage truck, or mower at once.     $1 million from this fund will be transferred to the general fund over the next two years.   As far as I’m concerned, excessive vehicle replacement reserves are a good place to start.
  • Program cuts that are significant but are manageable.   The Harmon Arts Grants are a great gesture, and we are able to help several arts programs in the community, but we can eliminate those dollars while funds are tight.  The same holds true for Normal Newsline, half of the town annual tree planting budget, City Vision, and the parks and recreation program brochures.     Eliminating electronic recycling will save $175, 000 over five years.   Turning over operations of the Activity Center to Normal Township will save $323,000 over five years.   We need to develop a cost sharing arrangement with Unit 5 on crossing guards.
  • The 1/4 cent sales tax adds a quarter to the purchase of $100.  While I don’t relish it, imposing the quarter cent sales tax is the most painless way to collect $1.3 million per year.    We have done our best to delay matching Bloomington’s rate.   I had hoped we could hold out.   We no longer have that luxury.
  • A temporary property tax hike.  The 4.3 cent per hundred dollar rate increase would allow the Town to cover more of the cost of state-mandated employee retirement benefits with the property tax.  It would boost the tax bill of the owner of a $200,000 home about $30 per year.   We resisted a proposal to boost the property tax another 6 cents for operations.   In my mind, when the economy recovers, this tax hike goes away before the Harmon Arts Grants or the parks and recreation brochures return.
  • Other revenues include increasing the parking fines for the first time in 20 years to $20, boosting summer camp fees, imposing towing fees for cars involved in alleged crimes, and new technical rescue and auto extrication fees (usually born by insurance companies).

We said no to moving up the second half of the planned garbage fee increase.   The water/garbage bill has provided too much sticker shock as it is this year.  There was no reason to provide another premature shock.

I said no to a “convenience fee” for paying your bills on-line.  That’s my definition of an “inconvenience fee.” 

If we follow this plan, we will build up the Town’s general fund reserves to near $3 million by March 31, 2011 and $3.8 million the following year.

After the work session, the council met in executive session  for about an hour to receive information about the potential for involuntary job cuts.  At this time, there does not appear to be any council appetite for layoffs.  

 Hopefully, that relieves some of anxiety that I sensed in the city council chambers Monday night.

This is an unhappy but necessary part of the job.   During my re-election campaign, I pledged that the financial integrity of Normal Town Government would be my top priority.   It will remain my top priority for the rest of my term.

Program cuts and tax and fee increases are necessary at this time to prevent a budget crisis.  The economy will turn around, and these actions will help the Town rebound quicker than other communities.  

Our employees are doing a super job working through this time of reduced revenues and providing the kinds of services that make us all proud to live here.

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9 Comments

Filed under Budget, Taxes, Town Council, Uncategorized

9 responses to “So what happened Monday night at City Hall?

  1. I appreciate the efforts to avoid a deficit. Tough but necessary decisions. Thanks for providing a summary of the issues.

  2. Andrew Matthews

    It’s disappointing that Normal finds itself in these circumstances. That being said, I can’t say it’s entirely unexpected. It seems that this recession has made things crumble in municipalities like a house of cards.

    I do have one question for clarification, Adam. You wrote that the town is not currently in a deficit situation. However, my understanding from the information provided by Ron Hill and the discussion last night is that we ARE in deficit spending. Isn’t that the reason that our reserves are dropping? Haven’t we already begun spending more than our revenues? Maybe I missed something last night.

    Thanks for speaking up about the convenience fee last night. Adding to that cost seems counterproductive.

    • Adam

      Andrew, I appreciate the question.

      Saying the Town is in deficit spending is a reach. Let’s wait until the end of the year. I made $200 today, but I spent $250 at the grocery store. I had $800 in my account. Is that deficit spending?

      Let me repeat. This is a problem of significantly lower than budgeted revenues due to the recession. We have quickly identified the problem and are responding to prevent ending up in the same budget hole that so many other communities (and other governmental units) find themselves.

      At the time last fall when staff was putting together this year’s budget, the Illinois Municipal League, which has a sophisticated system of projecting revenue, forecast a two-percent drop in state income tax receipts.

      They missed it big.

      The drop is closer to 20 percent or $1.3 million for the Town. With the state’s double digit unemployment rate, it’s not going to recover very soon. In fact, during the last modest recession, it took the state income tax about three years to recover.

      This was the deepest recession in my lifetime and the recovery has been jobless.

      After only a month or two of the current fiscal year, Town staff imposed a two-percent across the board expenditure cut. The rate of spending was decreased. Where it was possible, some projects were moved to next fiscal year.

      This year we will end up spending more than we take in. That is the purpose of reserves — to use as a “rainy day” fund.

      It’s raining.

      If we had not taken any action, the finance department projected we would end the current fiscal year with a smaller, but positive year end balance in the general fund.

      Does it mean we are spending more than we are taking in for a period of time? Yes. But I would argue that does not represent a true deficit.

      With no spending cuts or additional revenue, the Town would end the following fiscal year 2010-11 with a true general fund deficit.

      It would only get worse from there.

  3. Andrew Matthews

    Thanks for the follow-up, Adam. If you don’t mind, I’d like a little clarification on some information. As the budget is a hefty document and certainly takes time and work to process, I’d be happy to talk to Ron Hill if you aren’t sure about some information.

    In looking at this year’s budget (pg. 16), it appears as though this deficit spending isn’t a snapshot like your grocery example. From the estimates indicated in the budget, we apparently spent $992,806 more from the general fund last year than we brought in as revenue. According to the report submitted for Monday night, it appears that FY09-10 is going to end in a deficit as well (Scenario 1: $2,006,210; Scenario 2 with changes discussed: $2,120,670). By definition, a deficit exists when a government body’s outlays exceed revenues in a given period, typically a given fiscal year. As this will apparently be the second consecutive fiscal year for such an occurrence, I don’t really see it as a reach. Perhaps the numbers aren’t all there?

    As for the decrease in revenues caused by the recession…that is certainly part of the issue. However, the numbers again don’t seem to add up. It’s been reported that the decrease in sales tax is going to be approximately 15% and the decrease in income tax is going to be approximately 21%. Running the numbers from the budget, those percentages appear something like this (again, perhaps Ron or Andrew has different numbers, I’m using the publicly available budget):
    Local sales tax decrease of 15%: $1,054,915
    State sales tax decrease of 15%: $1,184,349
    Income tax decrease of 21%: $998,202
    Total: $3,237.466
    However, the Town is seeking $3.5 million in new revenue. Perhaps some of the other revenue sources are hurt by the economy, but as of a month ago I read a letter indicating that food and beverage tax was actually up about 2% this year. So the question remains…is this entirely due to the economic recession? With the trend of deficit for two years and need actually greater than the amount of the revenue sources directly affected by the recession, is there perhaps more to the problems we are facing?

    As for the “rainy day” aspect of reserves, I suppose you are right to an extent. However, my understanding is that we also need that cushion to ensure sufficient funds are available for operating expenses. Some revenues don’t come in on time or consistently (not in our control to change that), so we utilize the reserves to minimize the effects of swings in revenues. By all means they are helpful in downturns and recessions, but that is really only one of the purposes.

    In addition to these concerns, it also seems that the entire story is missing some key points. We have delayed needed expenditures and repairs. The proposed solution borrows from funds which will compound the effects later. For example, and correct me if I’m wrong on the numbers, I believe we resurfaced 4 of 36 priority 1 roads. That expense won’t go away and will only become a bigger issue as the list will grow larger with lower priority roads becoming worse in the meantime. We are drawing down the vehicle replacement fund which means we may have to delay purchases when vehicles break down and simply increase future costs. We are drawing down the contingency fund which is, according to the Finance Department’s trend report, typically used in it’s entirety. Not only is this fund already below desired levels, but reducing it will make it more difficult to address unexpected costs…already a challenge as our “rainy day” fund is below acceptable levels and we are operating in a deficit. We also removed the east side fire station from the budget meaning we still can’t respond in sufficient time to save a life in a smoke filled room…nor will we be able to in the next 5 years. We continued to spend on things that weren’t vital services even while the recession was upon us…and now we hear that the recession is the cause of our problems.

    I guess I see the point about the recession causing problems, but I know it would be nice to hear someone admit that some poor choices were made as well.

    And while I know we don’t agree that Uptown has anything to do with this, there is one large elephant in the room. The Town Council is looking to find an additional $3.5 million in revenues and/or cuts. The debt service payments for this year are approximately $3,302,001 (per pg. 233 of budget). Estimated TIF revenue to repay that debt is around $525,000 this year. The rest is paid by general fund revenue sources. Isn’t that math troubling in light of our current need to balance the budget?

    I think the best way to have a discussion and determine best solutions is to make sure we have all of the cards on the table…we need to see the whole house to get the big picture.

  4. Chris Koos

    Andrew:

    I agree that the budget document is hefty and is also an evolving document, I do suggest you direct many of your questions to Ron Hill, as many of the numbers you base your decisions upon are out of date.

    We disagreed during the campaign over the tenets of public finance, and we still do disagree. Before you rewrite the basics of public finance,I suggest you sit down with Mr Hill and learn how different funds interact or stand alone, as good financial practices or as codifed by law.

  5. Ben Matthews

    Apparently while the financial status of the town seems to have changed drastically since the campaign (or at least the way you and the Council are talking about it has changed drastically), it would seem not much else has changed since then, Mayor Koos.

    Just an observation, but you spent the entire campaign and even the days after attempting to question Andrew’s credibility and integrity. He spent the campaign questioninig the issues.

    And now, he posts here asking valid questions about the issues using facts and logic. And you respond not with facts of your own, but by attempting to question his credibility and integrity, again.

    The more things change, the more they stay the same … and the one thing that stays the same throughout it all is that it’s the taxpayers and citizens of this fantastic community that are impacted most.

    I would suggest that not only Andrew ask some tough questions of Ron Hill (which I am sure you are aware he did throughout the campaign), but perhaps the Council should ask some of those same tough questions and realize the time for trying to spin this and make everything look okay has passed. The roundabout and water feature might finally be coming together, and the hotel is finally open, but no matter how nice it might look on the outside, there are still some major holes in the budget and Town finances, not unlike the cavernous hole right next to the gorgeous new hotel.

    The campaign is over. It’s time to make tough decisions.

  6. Andrew Matthews

    Thanks for the input, Mayor. I would love to discuss these issues just as I have offered to you in the past. However, I find it impossible to address the platitudes you offer in response to the specifics I presented. If there are specific issues with the items I presented earlier, please point them out for clarification. I’m sure you have spoken with Mr. Hill and are already aware that I have asked multiple questions to better understand the process…and I’m sure he will share that with you.

    I do appreciate the input you have provided. It leaves me hoping that you will follow through on your promise to sit down after the campaign. Just as I asked in my email from April 8th for you to address specifics, I am asking you to do the same today. I’ll provide part of the text from that email in hopes that you can provide a response to my earlier question and to today’s request for detailed examples:

    “I also noticed that you made comments which indicated I made false claims during the campaign. I must say that I find that disappointing the day after the election. In every opportunity throughout this campaign, I have
    spoken very highly of you as a man and public servant. I know we don’t agree on all of the issues, but it did trouble me that such comments were made after the campaign. We disagreed on the issues, but I honestly do not think I lied or made false claims at any point. If I did, please
    point me to the instance so I can make amends or correct my statements.”

    I look forward to your response just as I did on April 8th when I offered my congratulations and desire for clarification. Please let me know what public finance law or practice I have rewritten. Also, please let me know what I have stated which is in error.

  7. John

    Funny stuff here. Matthews is whining about 6 month old e-mail and why no one cares about his gross lack of knowledge relating to financial realities. I can see why Normal voters reelected Koos.

    Stick to Baseball boys – enjoy a Corn-Belters game and forget about it.

  8. Andrew Matthews

    Thanks for your analysis, John. I’ll be sure to park on the grass parking lot.

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