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HomeMy WebLinkAbout01_10_04_brwCITY COUNCIL ROLL CALL - PRESENT: A Quorum was present. NOT PRESENT AT ROLL CALL: ABSENT: PRESIDING: Alderman Wynne Alderman Bernstein Alderman Kent January 10, 2004 Alderman Moran Alderman Tisdahl Alderman Feldman Aldermen Jean -Baptiste, Rainey and Newman Mayor Lorraine H. Morton A SPECIAL MEETING of the City Council was called to order by Mayor Morton on Saturday, January 10, 2004 at 9:22 a.m. in the Council Chamber for the purpose of conducting a workshop on the 2004-05 City budget. Alderman Feldman moved that Council convene into Committee of the Whole. Seconded by Alderman Wynne. Motion carried unanimouslv. City Manager Roger Crum stated that the City is facing potential litigation settlements of $20 million book value in 2004. Therefore, the Council would spend several hours that morning in Executive Session reviewing major litigation. They would discuss the 2004-05 budget, which starts March 1 and must be adopted by February 29, 2004. Evanston has never had a budget deficit but has a gap between revenues and expenditures that must be filled prior to adoption. The City has always adopted a balanced budget and maintained a Aaa bond rating due to good financial practice. He stated the law requires that the City Manager's staff prepare and present a recommended budget by January 1 to the City Council, 60- days prior to the end of the fiscal year. Mr. Crum went through the budget meeting schedule; stated the proposed General Fund budget is $78,076,900, noting more than $1 million in staff requests was eliminated from the budget since October. Mr. Crum reported that the City is in better shape than was anticipated; as late as September staff was looking at a $4 million gap. The message that day was the local economy was bailing the City out. Starting with the 2003-04 budget of $73,753,800, a 3.5% wage increase of $2,061,700 is added (this budget includes all wages increases; only the police sergeants union is to be settled this year). Medical insurance is up 14% amounting to $708,900. One budgeting change is the full cost of grants of $804,600 and the normal annual increase on all the goods and services the City buys adds $747,900. This budget has no new programs or cuts proposed. Alderman Feldman asked that staff expand on growth in existing revenues, noting that staff and citizens have worked hard to produce growth. Mr. Crum noted growth on existing revenues of $1,712,800 and $804,600 for fully funded grants. Ambulance fees will be increased by $100,000 to match that which is fully reimbursed by Medicare and most insurance programs. They are bringing back the natural gas tax for $600,000 on wholesale sales; a property tax increase of 4% for the General Fund is recommended and, for the first time since he has been manager, they recommend $500,000 from excess reserves be used to balance the budget. Mayor Morton noted after the budget is adopted, months pass before the levy is passed and asked if the budget could be changed? Mr. Crum said that Council could always change a budget before December 31. Mr. Crum explained staff s approach to the budget. The problem is not as severe as expected thanks to Evanston's economy. The state economy is still a major problem but staff anticipates improvement next year. Council previously reviewed major program cuts proposed for the past two years and found them detrimental to the community's quality of life so they were not included but could be revisited. The property tax increase was kept to a minimum and new construction will cover a significant portion. All departmental requests for increases were stripped from the budget. They recommend a one-time use of surplus funds above the 8.3% reserve. The natural gas tax on wholesale gas purchases is 2 January 10, 2004 a rational revenue source. He listed programs reviewed previously for cuts: ECMC; animal control; mental health grants; community service grants; Summer Youth Employment Program; branch libraries; school resource officers; Fleetwood- Jourdain Adult Theater; South Beach closure; Levy Center program coordinator; Noyes Center public service requirement and shifting school crossing guards to School District 65. Reviewed extensively in prior years, the manager did not put those cuts in this budget. Economic Overview. Finance Director Bill Stafford stated according to Crain's Chicago Business, John Filan, director Governor's Office of Management & Budget, estimates Illinois's deficit at $2 billion for the upcoming year while the Economic and Fiscal Commission puts it at $4 billion so it will be another hard year. He explained the reason the state continues to do relatively well with cash flow is the inflow of federal dollars. He noted the state income tax continues to decrease with a net reduction of 9.6%. After three straight years of decreases, it continues to fall. People are beginning to see an economic comeback in the United States, which Illinois historically lags behind by about six months. They think there will be a comeback by summer. State sales taxes continue to be flat so the short-term outlook is not good. Evanston Economy. Real estate activity and building permits continue to be strong and are above projected 10-month levels. The sales tax is flat, but in many other communities sales tax is down. Evanston has held strong for the last three years. The Evanston economy does better in down times than in good times, which has stabilized them. He thought they would have been down except for the economic development going on in restaurants and the influx of activity. Mayor Morton asked in what areas of the budget the City would receive less revenue from the state. State Revenue Losses to Evanston. This year Mr. Stafford explained there is a supposed one-time reduction of income tax due to refunds (under funded for five years) that will cost Evanston ($6.60 per person) or $500,000 in lost revenues. While the state says this is a one-time reduction, given the state's budget, the City is budgeting this as a permanent reduction. They believe it will not be reinstated. Elimination of the photo -processing tax for a full year will cost Evanston $175,000. New national pollution discharge elimination permits cost Evanston $25,000 annually and increased state pension filing fees for police and fire will cost Evanston $11,000. State revenue reductions and increased fees have reduced this year's budget by over $700,000, which is happening to all municipalities. General Fund Revenue. The total General Fund is $78 million. Compared to other communities, Evanston has a relatively diverse tax base. The idea is the more revenue sources there are, if there is a hit in one, the impact is less overall. A diverse revenue portfolio is a strength of Evanston. Property Tax Levy. A 6.85% increase is proposed. On operating and capital revenues, those over which they have control, they propose a 3.99% increase for the General Fund and a 4% increase for debt service. Significant increases have occurred for the fire pension at 13.10% and police pension fund at 21.94%. The City has no control over these pensions, which are developed actuarially. New Property — Economic Growth. Mr. Stafford noted the economic growth that has occurred in Evanston during the past nine years means about $1.2 million in possible new levies. In terms of non -home rule taxing bodies (local school districts and township), when new property gets added, their tax base grows and they get more dollars. The City does not get that because the City taxes for an "amount." This phenomenon spreads the pain so the increase to taxpayers (individually) is not as great. If they took the new property that began in 1994, when tax caps went on and the City took advantage of it, that would mean $1.2 million more in property taxes. Instead of a 6.85% property tax increase, they would see at a 2.7% increase. This is a difficult concept to understand, but they have continued to add to the tax base. Alderman Newman and Mr. Stafford discussed this concept. Mayor Morton asked how long it takes for property value of new construction to get on the tax rolls. Mr. Stafford said it takes about three years and is incremental in nature. She clarified they could project out for three years. He noted that this year the City got full credit for the McDougal Littell building. Mayor Morton said it was significant that the public recognize that the City does not get full value immediately on new buildings. Alderman Feldman thought taking advantage of new construction should be understood. He asked why this was not recommended in the past and what was the down side? Mr. Stafford said this is a theoretical proposition and the City cannot take advantage of it. He explained that there are two different ways of taxing in Illinois depending January 10, 2004 if one is home rule or non -home rule. If one is a non -home rule, one is restricted by property tax caps which means the amount of the levy can only be increased on the base. The exception is if there is new property, they are allowed to add that to the base. For non -home rule government, the numbers that showed new building construction, they can take their tax rate and get additional dollars. Home rule governments don't get that automatic increase. The reason is a home rule government can tax for whatever amount it wants. Instead of the City getting new dollars automatically, if they taxed at the same amount as last year with the same amount of new property it means each property owner would pay a little less, because it is a bigger base. There is a lot of economic growth, the pain is being spread over more taxpayers. The increase in taxes is reduced because there is a bigger base. Mr. Crum pointed out since the school districts add it in, their levy rates are about twice that of the City. Each school district got more than $400,000 due to this new construction this year. Sales Tax. 1% is levied and is received from the state; $8.2 million total is projected, a 1.23% increase over the prior year's budget. Evanston has had a steady increase in this for the past four years, while most communities had a decrease. Home Rule Sales Tax. The other 1% tax that is levied with $5.5 million projected - 3.8% over the prior year's budget. Utility Taxes. 11.6% increase is proposed mainly due to the proposed increase of $600,000 from the natural gas use tax. Other taxes included are 5% on electricity, natural gas to residents and the telephone/telecommunications tax. The natural gas tax is the same as was proposed in the fall. The proposal is to raise the current tax rate of .0095 per therm to .025 per therm. This applies to gas customers who purchase from a supplier, not NICOR and is a tax on large institutions and condominium associations. The effect on small businesses is small because they are not large enough to get the massive discount that large institutions get. State Income Tax. He noted in 2000-01 the City received $5.7 million and now projects $4.3 million, a $1.4 million loss. About a third of that has to do with the new state mandate that they will take $500,000 for the new fund and the rest has to do with the economy. This is a 10.4% decrease from prior years. All cities in the state have to deal with this. Mayor Morton commented that Evanston's population increased by about 1,000. Mr. Crum explained that Evanston's population increased about 2%. However, the average increase in the state was 5-6%, so Evanston actually decreased proportionally because its increase was less than the average in the state. Real Estate Transfer Tax. This tax is projected at $3 million, a 20% increase. Historically it has been budgeted at $2.5 million. The City has collected $3.7 million for 10 months and will probably collect $4 million. An analysis will be done in the future; staff believes $2.5 million is the base. Other General Fund Revenues. Building permits are projected at $1.9 million. Staff believes the base is $1.6 million and will do an analysis. On fines and forfeits, parking fines are flat at $3.5 million. Extending the hours for meters has worked and met budget projections. On service charges there will be an ambulance fee increase due to Medicare. Medicare rules have changed, so the City can have two different rates and charge for other items that can be reimbursed. The City needs to modernize that because it is below market. The current ambulance fee is $175 for residents and $350 for non-residents. Medicare reimburses the City. On transfers there will be a cost -of -living increase. Revenues from recreation and the library will have a slight increase based on inflation. On grants the City used to budget them net. If they got in $400,000, it would be budgeted at $380,000 expense and they would budget a net $20,000. Now staff will budget the gross amount. This is an accounting change. Staff proposes use of $500,000 from reserves. In 2000 Council adopted a budget policy of not using one-time revenues to balance the budget and to accumulate a General Fund cash reserve of 8.33% (one month's expenditures), which has assisted staff to work on this. As of the end of the last fiscal year the City is over the 8.33% reserve. This policy has allowed them to develop a solid cash position. He said this was not unique to Evanston. Schaumburg has a similar budget - $69 million operating budget and plan to use $5 million from reserves this year. Wilmette has a $23 million budget will use $166,000 from reserves (higher percentage than Evanston) and, if they don't have a referendum, will have to use reserves of $510,000 with a budget 1/3 the size of Evanston. This is being done because budgets are tight and many feel they are hitting bottom this year. This recommendation is made reluctantly and the amount proposed is prudent. Mayor Morton assumed that the City has had a good year and will end the budget year with some surplus. Mr. Stafford said they are running slightly ahead with revenues over expenditures 4 January 10, 2004 and will end the year with a slight surplus. Mr. Crum agreed; noted when the budget was adopted a year ago there was a lot of uncertainty regarding labor costs. They budgeted a 2% increase for labor costs and had not settled with the new AFSCME group (which ended up being closer to a 4% increase). Because they had been building up excess funds, even with the increased labor cost, he estimated the City would end up with a surplus. Any excess would be added to reserves and available for emergencies. Alderman Moran asked if they did not apply the $500,000 reserve funds to balance the budget, what the property tax increase would be. Mr. Stafford said that would be an 8.57% increase. Alderman Jean - Baptiste asked how much of a surplus would the City have? Mr. Stafford thought it might be around $1 million or at least $500,000 and was due to some revenues surpassing projections and to managers staying within their budgets. Alderman Bernstein asked if the real estate transfer tax could be increased. Mr. Stafford said it could be increased but must be done through a referendum. The state capped it at $5. Mr. Casey explained when the state capped those taxes, whatever rate was left was put in place. That is why there is a great differential in that tax among communities. General Fund Expenditures. Management & Budget Director Pat Casey noted that health insurance premium costs increased 14% - over $700,000. Mayor Morton asked about adopting an ordinance that would require recipients to pay increased costs; thought this would continue to be a problem. Mr. Casey noted a majority of employees are unionized and that would have to be negotiated by contract. All employees pay a portion of the health insurance premium. Mr. Casey noted that all corporations and municipalities face these increases. Alderman Feldman said that after negotiations are completed, Council could refuse to appropriate funds. A 3.5% cost -of -living increase is proposed for all unions. The budget allows for normal step/merit increases. New positions are limited to those needed to meet mandated requirements. Last year's expenditures were $73,753,800; this year they are budgeting $78,076,900, an increase of $3,575,200. With 14% or $708,900 for health insurance care costs, the proposed cost -of -living increase of 3.5% is $2,061,700 and the accounting change for grants is $804,600. There is an increase of $747,900 in operating expenses from the current year, or 1.02%. New positions include a part-time police clerk (state mandated for racial profiling information) a part-time health clerk (federally mandated for HIPAA compliance) and a full-time plan reviewer, which is a reclassification from contractual service to a salaried position. Insurance Fund. Mr. Stafford stated the City has $22.9 million in potential liabilities. Staff continues to develop a financing plan for that. One time revenue of $3 million was provided last year and they continue to add $1.9 million per year from the General Fund. The City is prepared to issue a $9 million bond issue this summer, which is dependent on the status of the cases. This area will be monitored closely. In response to Alderman Bernstein, the bonds would be General Obligation Bonds not judgment bonds. The 4% increase in the Debt Service Fund is for a $12 million issue of which $9 million would be for insurance and $3 million for capital improvements. Police and Fire Pension Funds. Mr. Stafford noted double-digit property tax increases here due to a 13% increase for fire pensions and close to 22% for police pensions. He said that Evanston is not unique. The state benefits levels were increased two years ago. Previously, police and firefighters had to serve 35 years to get the maximum 75% of ending salary pension benefit. The legislature reduced those two years ago to 30 years. That increased the benefit but like the rest of the United States, baby boomers are getting ready to retire. They have increased the benefit level to those thinking of retiring and can retire earlier. As a result larger numbers are retiring and as they retire they are younger, will live longer and benefits will have to be paid longer. There also has been a poor performing stock market. Alderman Feldman stated that many people listening who hear double digit property tax increase don't understand that it is an increase to a portion of the tax bill. It is the same when they talk about the proposed 6.85% increase in the levy which only applies to the City's portion of the tax bill. He thought they have to continuously remind people that the 6.85% recommendation is on the City's portion of the tax bill and represents a 1.2% increase on a tax bill. This cannot be repeated enough. Mr. Stafford said Evanston is not unique in this situation. Peoria's budget is similar to Evanston. The average tax bill on a $100,000 home value is about $316 of which $150 goes to their fire/police pension funds. Wilmette passed their recent budget and the increase in the police pension was 22% and fire pension increase was 17%. Evanston is not alone -- the phenomenon is taking place statewide. It was clear that Council was dedicated to funding police/fire pensions. Mayor Morton asked if there were some deficits, are they catching up in these funds. Mr. Stafford stated the unfunded accrued liability that they are catching up — both funds have to be fully funded by the year 2030. Formerly there were some City Councils that did not fund the full actuarial amount so they are playing a little catch up, but that is not a significant amount in these numbers. January 10, 2004 Parking Fund. Mr. Stafford noted this fund has experienced a deficit for the second consecutive year. Increased revenues will be required. They have included a parking operations clerk to handle increased processing of parking tickets/fines, residential permit screening and sales. Staff is working with the Parking Committee to analyze this fund and hope to bring recommendations to City Council. Alderman Jean -Baptiste asked why there is a deficit with so much activity in this area. Mr. Stafford explained monies generated from increased fines went into the General Fund, not the Parking Fund. They need to examine rates charged in garages. With reasonable rate increases this could be remedied. He said the deficits have been $300-400,000 on a $10 million fund and could be addressed with gradual increases. Staff will talk with the Parking Committee to increase rates over several years. Relative to Chicago rates, Evanston rates are low. Two hours in Evanston cost $1. Mayor Morton related getting many complaints about parking. People feel they are being persecuted. Residents and visitors alike believe they are being gauged. People call/write to her saying they will not come back to shop here. She thought Evanston does not want that reputation. Maybe they should look at what they are saying to the Evanston community and look at revenues. She thought complaints would escalate. Mr. Stafford stated staff is concerned about that. There is concern about capacity in downtown Evanston where more parking spaces are needed. If they get the Sherman Avenue Garage in that will help. Alderman Feldman said it was up to the City and Council to see that its parking fees are just and reasonable; that enforcement policies are fair and equitable; that the City does the best they can to provide parking; that people not monopolize a space all day long and allow new people to park and to provide garage space that allows the greatest access and flexibility to people. Considering that there is a limited amount of space for parking, he thought there would be always be people who are late, get ticketed and who feel victimized and angry. He was sorry about that. Mayor Morton said the problem would escalate when the Sherman Avenue Garage is torn down. She advised, "Temper justice with mercy." Water Fund. No rate increase and depreciation is being funded adequately. Sewer Fund. As per Council ordinance last year, there is a 5% sewer rate increase scheduled for March 2004 and 5% final increase in March 2005. Fleet Fund. This is balanced; new equipment purchases are restricted with no increase to the General Fund. Summary. Mr. Crum stated there are still some concerns. The recommended one-time use of excess funds is reasonable this year. He would not have recommended this last year nor would he next year. Staff believes the bottom of the economy has been reached in the state. It says this is a one-time take away of revenues so the City must watch the state legislature and state economy. There are major state budget problems. Alderman Feldman confirmed that the reason for using one time revenues and creating a hole next year was that state and local revenues would increase. Mr. Crum noted reserves are better than a year ago, but using them should not be repeated. Increased employee medical insurance costs are a problem, but not unique to Evanston. The rest of the morning they will spend on the Insurance Fund and major litigation, which is a primary uncertainty. All else is minor in comparison. The Northwestern University lawsuit is not the City's major litigation liability. It is dollar payouts for cases involving injuries and death. Plaintiffs are charging the City with fault, so this litigation must be settled. Staff recommends that no new operating or capital programs be undertaken until major litigation is resolved. In a few weeks they will hear ideas for spending on capital programs, which staff fully endorses and lots of ideas for hiring additional people to do a better job for the community, which he would love to do. He asked Council to hold off on major changes until they see where they are on the $20 million litigation liability. All funds except Parking and Insurance are balanced in this proposal. No new programs are proposed. There are few uncertainties, such as labor contracts, before budget adoption. Staff recommends something close to this proposal be adopted. Due to uncertainties, Mr. Crum recommends a formal City Council Budget Review be held after six months (September 20th suggested). At that time they could review the status of the state economy; changes made by the legislature; status of major litigation and local revenue status. Citizen Comment. Junad Rizki. 2784 Sheridan Rd., said that all were saying the economy is good but he sees that many have lost jobs and there is no job growth. He thought the City was fortunate that it had good things going on but it is not good for every resident. He read recently that only half of the families in District 65 schools pay the fees. He commented that the City January 10, 2004 Manager has not changed anything (and he has tried the last two years but the Council resisted) and plenty could be changed. This budget represents 30 years of things that have existed and should go away. At the last Council meeting he suggested getting rid of the community defender. He knows it is funded somewhere else and they are playing a shell game. He saw a vehicle in the parking lot for the Summer Youth Employment Program and asked the purpose of it. He noted the concerns of the Mayor about parking here and thought eventually the City would lose a lot of revenue due to parking problems. New residents are not interested in programs and services. He thought the new residents eventually would get angry because they are not here just to be taxed. He thought people were moving here due to location and suggested they face reality. He suggested legal problems were due to the City's mismanagement of things that caused these problems instead of addressing them. He asked why they needed to raise property taxes by $600,000 and not cut $600,000 from the budget. He said this Council does not want to change anything or to improve efficiency. There are some residents who are in bad financial shape. He suggested the fee for a vehicle sticker was excessive. He noted that Wilmette's budget is one-third that of Evanston's with half the population. He said basically this is a big budget and nobody on Council wants to change the status quo. That is what costing people so much in taxes is. Evanston is a high cost place to live and many cannot afford it. Regarding parking tickets, his wife got a parking ticket once for being a foot over the line (as all others were). His wife said at the time she was going to stop shopping here but he did not know whether she did or not. Many people don't shop here anymore. He described parking tickets as revenue collection. Water bills are nothing more than revenue collection and are not being used for the public good. As far as capital improvements go they need money for that but part of the reason they won't have money is due to problems. They will discuss Robert Crown Center in a few days, which is another discussion of how things are being done wrong. At 10:37 a.m. Alderman Feldman moved that the City Council convene into Executive Session for the purpose of discussing matters related to litigation pursuant to 5ILCS Section 120/2 (c) (11). Seconded by Alderman Tisdahl. (11) Litigation, when an action against, affecting or on behalf of the particular public body has been filed and is pending before a court or administrative tribunal, or when the public body finds that an action is probable or imminent, in which case the basis for the finding shall be recorded and entered into the minutes of the closed meeting. Roll call. Voting aye — Jean -Baptiste, Wynne, Bernstein, Kent, Moran, Tisdahl, Feldman. Voting nay — none. Motion carried. (7-0) Mary P. Morris, City Clerk A videotape recording of this meetine has been made part of the permanent record and is available in the Citv Clerk's office.