DeKalb Times

City of Dekalb City Council and Finance Advisory Committee met Aug. 19.

Here is the agenda provided by the council:

A. CALL TO ORDER

1. City Council Committee of the Whole Call to Order and Roll Call. 

2. Finance Advisory Committee Call to Order and Roll Call.

B. APPROVAL OF AGENDA

C. PUBLIC PARTICIPATION

D. CONSIDERATIONS

1. Consideration of Key Assumptions for the Fiscal Year 2025 City Budget.

City Manager’s Summary: At this point in the City’s fiscal year (which runs with the calendar year), the City staff have sifted through the Annual Comprehensive Financial Report (ACFR), for 2023, published in mid-June 2024, which reports financials for the fiscal year that ended on December 31, 2023. Additionally, the City staff have studied financial trends gleaned from state-shared revenue reports since January 2024. Forecasting 2025 revenues from these records is very speculative each year, in no small part because state reports of key revenues collected locally and remitted to the state (e.g. 1% sales tax, local use tax, state income tax, and home rule tax) are received by the City after a typical 2-3 month interval. In brief, our City officials are looking at key income categories that reflect consumer spending in April and May of 2024.

Nevertheless, our financial staff are accustomed to the revenue forecasting challenges and have developed working predictions for FY2025 City revenues impacting spending by the City’s operating departments. More detailed revenue and spending projections will be available at the mid-October Finance Advisory Committee (FAC) meeting. The focus of this August meeting is traditionally the City’s General Fund which comprises the operating departments whose services our local residents encounter more regularly than any other in a given fiscal year. Some attention will also be given to the general capital funds which support local infrastructure and City fleets.

General Fund Overview

A. General Fund Revenue Assumptions

Although all General Fund revenue line items have been analyzed year-to-date, the principal assumptions will need to be further reviewed as general revenues are recorded through the third quarter of 2024.

Comments:

a) Police and Fire Property Tax Levies. The 2024 legislative Spring session in Springfield failed, once again, to produce even a shell bill that would address the long-term structural problem in the unfunded state pension obligations. Even the rumored possibility of bringing the assets of the Police and Fire downstate public safety pension funds to a 90% funding level by 2050 instead of 2040 through an agreed bill at the eleventh hour failed to materialize. As a result, no state legislative action in the veto session this fall will alter the City’s actuarial responsibilities as laid out in the annual actuarial reports for the active and retired “lives” covered by the City’s police and fire pension boards. There will be an upward spike in the City’s pension obligations, partly owing to new hires but primarily owing (in 2024) to the imperatives of the closed amortization system.

The City will meet 100% of its pension obligations, but the City levies will not cover the entirety of that obligation. The balance will be paid from other General Fund revenues.

As in every fiscal year since 2013, the City of DeKalb’s property tax levy is entirely dedicated toward the funding of Fire and Police pensions. In terms of the total General Fund revenues, in 2003, 12% of all operating revenues were dedicated toward state Fire and Police pensions; the total in 2024 was 20%.

Actuarial reports for the City’s public safety obligations will not be completed until later this year. In 2024, DeKalb’s unfunded liabilities are as follows:

Fire: $58,732,996 (41.6% funded, up from 41% in 2023)

Police: $46,588,471 (52.8% funded, down from 53.6% in 2023)

Total: $105,321,467 (the total in 2023 was $98,504,265)

With a fiduciary obligation of such enormous magnitude that is growing toward a million every year, one truly feels that the City’s annual contribution is like paying only interest on a growing credit card debt.

DeKalb is not alone. Across the entire state, the combined total of Fire and Police liabilities in 2018 was about $960,000,000. Currently, it is well over a billion dollars. The solution is beyond local municipal resources. The answer, which cannot come soon enough, is a different amortization model. Amortizing a pension system as if every obligation needs to be paid on a certain date – whether it is 2040 or 2050 – is fiscally and politically foolhardy.

The resolution of this fiscal challenge rests with the State of Illinois and will require the collaboration of the Associated Fire Fighters of Illinois (AFFI), Fraternal Order of Police (FOP), municipalities across the state (aligned with the Illinois Municipal League or IML), and the Illinois legislature. Negotiations within and between such large, vested interests need to begin – the outcome will be years away, but the clock is ticking.

The City’s operating reserve will diminish as the annual pension obligation increases and the City meets the 100% funding target each year. It is estimated that the City’s General Fund balance will steadily diminish over the next ten years to a point where it will no longer exceed the policy threshold of 25% of the annual General Fund expenditures (see table below).

Although the annual, in-depth levy discussion is several months away, working assumptions are needed at this early date because of the importance of property tax as a general revenue for the City. The City’s emphasis on local property tax reduction, spearheaded in recent years by Mayor Barnes, has informed the proposed levies highlighted in the list of major General Fund revenues herein. The City has provided leadership since 2018 when the Council realized the community was at an economic crossroad: if unaddressed the property tax burden on local businesses, homeowners, and renters alike would put DeKalb in a non-competitive economic position. At that time, DeKalb’s aggregate tax rate was nearly 20% higher than the aggregate rates of the City’s nearest geographical competitors, which averaged about $9.0009 per $100 EAV.

More than any other factor including the substantial “equalization factors” applied to the EAV of properties in DeKalb Township in recent years, the ability of local taxing bodies to realize the benefit of new construction in their levy decisions while lowering their property tax rates is the continuing development of industrial values on DeKalb’s southside.

The DeKalb Township equalization factor in 2024 will be about 14.6%. Although subject to change as better information about the possible year-end EAV for the City of DeKalb is learned, the proposed 2024 City property tax levy for budget purposes is $8,341,336 which should result in a City of DeKalb rate of about 0.79441 based on an EAV projection of $1,050,000,000. This would be a rate reduction of 2% from the 2023 rate of 0.81096.

b) States Sales Tax and Home Rule Sales Tax. Both categories of sales tax were strong again in 2023, according to the June audit. As noted in the table on page 2, above, it is expected that the City’s 1% sales tax will increase by about $600,000 to $650,000 (about 9%) over the revised FY2024 estimate of about $7.5 million. The home rule tax will increase by about 6.5% in FY2025 over the revised 2024 estimate. The projections for the amended 2024 budget as well as the 2023 budget have proven to be very conservative.

c) Municipal Utility Tax. This category includes electric (ComEd) and gas (Nicor) tax receipts. The tax is based on kilowatt hours (electric) and therms (gas). The estimated 2025 revenues are partly based on the monthly averages for the past 5 years, but also anticipate higher kilowatt hours generated from Building 3 of the Meta development which is just now being energized (a 50% discount was part of the Meta incentive package).

d) State Income Tax. This tax is allocated on a per capita basis by the State of Illinois. The population used since 2022 is 40,290. The Illinois Municipal League's per capita estimate of $175.91 was used to formulate the 2025 projected amount. Municipal distributions are made from the state Treasurer’s Local Government Distributive Fund (LGDF) which currently distributes about 6.47% of all state income taxes collected to municipalities on a per capita basis. The City of DeKalb and the other 1,295 municipalities in Illinois are united in seeking the restoration of the 10% rate that prevailed for decades until the housing crisis of 2008.

B. General Fund Expenditure Assumptions

a) Personnel. An historical overview of the City’s staffing plan over the past five years is shown in the following table.

With respect to Fire and Police staffing levels, there is no question that actual budgeted levels have increased in the past 5 years, in accordance with Council direction.

The projected staffing in the table below reflects the Council’s prior commitments to a fourth Fire station and Police shift levels sufficient to meet patrol, investigative, and community policing objectives.

The 2024-2027 Fire contract projects a gradual rise in minimum shift coverage to establish the full staffing of Station #4 over time. By October 1, 2024, the minimum daily department shift will be 16; by April 1, 2025, the minimum daily department shift is 19; by October 1, 2026, the minimum daily department shift is 20; and by October 1, 2027, the minimum daily department shift is 21.

The recent negotiated labor contract with FOP Lodge 115 only maintained City wage levels in relation to those of comparable northern Illinois cities. Including pension costs and the projected new hires, but not including overtime costs, the fiscal impact of the FOP contract settled in November 2023 averaged $362,500 per year through 2026, The recent negotiated labor contract with IAFF Local 1236 only targeted the mid-range of the City’s comparable cities beginning in 2025 because both the Union and management were aware of the fiscal impact of the hiring needed to open the new fire station and to raise minimum shift levels to NFPA standards. Including pension costs and the projected new hires but not including overtime costs, the fiscal impact of the IAFF wage package settled in December 2023 averaged $584,019 per year through 2027. As the Council will recall, the Fire contract had to “catch up” the City’s firefighter/paramedics in relation to our 9 comparable cities against which Local 1236 placed last in 2023 in take-home pay, because the Local voluntarily took no wage increases in 2020 or 2021 to help the City through its COVID crisis.

b) Transfers Out. As predicted in the fall of 2023, the City’s aggregate, general obligation debt service increases by about $410,000 in 2025 to redeem the bond for Fire Station #4 construction.

The City’s Ground Emergency Medical Transportation (GEMT) Fund is reimbursing the General Fund for a number of years for this increase, which will only last through 2027, when an equivalent amount of debt falls off as other G.O. bond notes are retired.

However, the working draft of the FY2025 General Fund budget will allocate another $1.5 million from the General Fund balance (“reserve”) for additional street repairs and Public Works fleet replacements in response to Council concerns at the strategic planning workshop of April 27, 2024. These general revenue shifts will be accounted as “Transfers Out” and expensed to the General Fund. This will create a budget imbalance.

For a sharper view of the projected FY2025 Budget revenues and expenditures in relation to the General Fund balance and the FY2024 Amended Budget.

Capital Fund Overview

A. Motor Fuel Tax Fund (Fund 210). The City’s annual budget has 29 funds including the General Fund that are expected to account for $118 million in expenditures in 2024. The projected overall operating expenses in the General Fund in 2025 are $52,252,692 – the next largest annual expenditures come from the Transportation Fund (Fund 200 – about $24 million); Water Operations ((Fund 600 – about $7 million), Health Insurance (Fund 710 – about $7.5 million) and the two pension funds (a combined $10 million+), and the Library Fund (Fund 900 – about $4 million). The City’s capital funds fall next in the pecking order and are probably better known to our residents and businesses because of the broadly recognized physical impacts.

The City receives a per capita allocation of Illinois Motor Fuel Tax (MFT) revenues on a monthly basis from a State tax on gasoline purchases. These funds can only be used for certain costs related to street maintenance and improvement projects, as set forth by the State of Illinois. The annual MFT allotment to the City in FY2025 is projected to be flat at $1,700,000. According to the Illinois Municipal League, gas prices lingering around $3.85 per gallon across Illinois have not significantly depressed the number of gallons pumped, which is the basis for the MFT calculation.

About $618,000 of the FY2025 state MFT allocation will be used to defray the City’s electrical charges for streetlights ($333,000) and road salt purchases ($285,000) which have levelled since the annualized inflation rate peaked in June of 2022. An additional allocation for street supplies and commodities ($133,000) can be considered part of the annual street maintenance work.

FY2024 was the State MFT-designated year for annual street maintenance which is alternated with the City’s Capital Projects Fund (Fund 400). The relatively higher available funds in Fund 400 will support the largest portion of the street maintenance program in 2025. With an additional $1 million transfer from the City’s General Fund balance, a historic street maintenance budget of $3.5 million is available between Funds 210 and 400.

B. Capital Projects Fund (Fund 400). The local motor fuel tax rate of 9.5 cents per gallon is split between road expenditures (7 cents), airport expenditures (1.5 cents), and vehicle replacement (1 cent). Proceeds from the local tax on motor fuel can be used for any public capital improvement. In FY2025 a total of $940,000 is projected in local motor fuel tax revenue, an increase of less than one percent from FY2024.

In FY2025 a transfer of $1,000,000 is projected from the General Fund balance to increase the allocation for the street maintenance program. Aside from the Fund 400 allocation for street and alley maintenance in FY2025 ($2,000,000), the fund will also support the purchase of IT equipment such as PC replacements, network infrastructure upgrades, and public safety cameras ($140,000), miscellaneous building improvements ($75,000), the non-TIF architectural improvement program started in 2023 ($70,000), and the annual Barb City Manor allocation ($50,000).

C. Capital Equipment Replacement Fund (Fund 420). The City’s GEMT Fund has supported Fire department vehicle and equipment needs for several years and will continue to do so. The Police and Public Works departments rely upon the one cent per gallon local fuel tax which will raise an estimated $120,000 in 2025. Another source of annual revenue in Fund 420 consists of lease payments from telecommunication companies with antennae on the City’s water towers (“Rental Income”) and sales of surplus property (such as old vehicles put out of service or land sales). In FY2023, payments from the DeKalb County E-911 board totaling several hundred thousand dollars were shifted under new auditing rules to the General Fund because of their personnel content, reducing the recurrent funding sources. A new dedicated funding source – cannabis tax payments – began accruing in FY2024 and is projected to accrue about $250,000 in FY2025.

In FY2025, with the help of a General Fund transfer of $500,000, the following vehicle expenses are planned:

▪ Police: $275,000 (4 squad replacements)

▪ Public Works: $900,000 (4 new dump trucks)

Remaining FY2025 Budget Preparation Schedule

In recent years, the Council has followed a very transparent review process for the creation of the following year’s fiscal budget. Keeping with that successful format, the following schedule is proposed for development of the City’s municipal budget for 2025 after the joint meeting on August 19:

▪ August 19 through October 4 – Intense department-level budget discussions around spending targets based on general goals established on August 19.

▪ Thursday, October 17 – Publication of an agenda for an FAC meeting on October 21.

▪ Monday, October 21 – FAC meeting to review proposed, detailed FY2025 Budget highlights, including annual levy assumptions, 6:00 p.m. to 8:30 p.m.

▪ Monday, October 28 – Council consideration of property tax levy options.

▪ Monday, November 11 – Presentation of a Council resolution establishing a Truth in Taxation Hearing for November 27.

▪ Monday, November 18 and Wednesday, November 20 (if needed) – Back-to-back special Council meetings in joint session with the FAC to go over the proposed FY2025 budget document. The General Fund departments, Capital Funds, Enterprise Funds, and Special Funds will be the focus.

▪ Monday, November 25 – Truth in Taxation Hearing and FY2025 Budget Hearing. First reading on Proposed FY2025 City Budget.

▪ Monday, December 9 – Second reading on Proposed FY2025 City Budget.

▪ December 30 – Last day to file the approved FY2025 Annual Budget and Property Tax Levy with the DeKalb County Clerk.

E. ADJOURNMENT

https://www.cityofdekalb.com/AgendaCenter/ViewFile/Agenda/_08192024-2571