Finance Advisory Committee

AGENDA Finance Advisory Committee Meeting Tuesday, October 17, 2017 5:00 p.m. Police Department – Training Room (Second Floor) 1. Call to Order 2. Roll Call for Attendance 3. Public Participation 4. Approval of Minutes a. Minutes of the Finance Advisory Committee Meeting of October 5, 2017 5. Asset Management Plan Phase (Streets & Fleet) 6. Tax Increment Financing (Interfund Transfers & New TIF) 7. Committee Recommendations a. Sales tax increase of 1.0% for Streets, Fleet & Operations b. Multi-Year Plan for TIF Interfund Transfers c. Creation of new TIF 8. Other Items 9. Confirm Next Meeting Date and Time a. Monday, October 30, 2017 at 5:00 p.m. at Police Department i. Review Fiscal Year 2018 Budget Recommendations 10. Adjournment The Finance Advisory Committee’s role (as listed in Chapter 54-11) is to provide well-reasoned, financially sound recommendations to the Council. Meetings and reporting shall be on a project-by-project basis or as otherwise assigned by the City Council. The Finance Advisory Committee shall work in cooperation with the City Council and the City Manager to analyze the City’s financial policies, long term financial stability, options for greater efficiencies and possible revenue and expenditure modifications.  MINUTES FINANCE ADVISORY COMMITTEE CITY OF DEKALB OCTOBER 5, 2017 1. CALL TO ORDER The Finance Advisory Committee meeting of October 5, 2017 was called to order at 4:58 p.m. by Chair Peddle. 2. ROLL CALL Committee members present were David Conlin, Lynn Neeley, Ron Partch and Chair Mike Peddle. Staff present: City Manager Anne Marie Gaura, Assistant City Manager Patty Hoppenstedt, Finance Director Molly Talkington, Interim Finance Director Jeff Wilkins, and Account Technician III Carri Parker. Staff present in audience: Police Chief Gene Lowery Committee members not present were Tom Teresinski and Steve Parker. 3. PUBLIC PARTICIPATION No Public Participation 4. APPROVAL OF MINUTES 1. Minutes of the Finance Advisory Committee Meeting of September 21, 2017 MOTION Committee Member Partch moved to approve the minutes; seconded by Committee Member Conlin. Committee Member Neeley pointed to page 5, lower half of the page, and requested that communicates be change to communities. VOTE Motion carried on a 4-0-2 vote. Chair Peddle declared motion passed with requested change. 5. PRELIMINARY 2017 LEVY AND 2018 COLLECTION OF TAXES IN AND FOR THE CORPORATE AND MUNICIPAL PURPOSES OF THE CITY OF DEKALB FOR THE FISCAL YEAR 2018.  Finance Advisory Committee Meeting October 5, 2017 Page 2 of 4 Chair Peddle provided a recap of the last Finance Advisory Committee meeting. He stated that there was a 7.5% return and 7.5% discount rate which ended up being too high and actuaries suggested that be reduced. Chair Peddle stated the $53 million needs to be caught up or paid off in the next 20 years. He added that the Financial Policies explain the Property Tax Levy as it is to cover 100% of the pension liability. Chair Peddle did add that the recommendations from the Actuaries do not include additional liability for Illinois Retirement Municipal Fund (IRMF) and Social Security. A discussion ensued between Committee members with regard to the different options presented in staff’s memorandum, each members’ recommendations and future effect on the City. Finance Director Talkington mentioned that she received update on taxable property values and they are increasing with a large portion from new construction. A discussion commenced between Committee Members with regard to the commercial opportunities within the City. MOTION Committee Member Partch moved to recommend option 3 (7.0%) to the City Council; seconded by Committee Member Neeley. VOTE Motion carried on a 4-0-2 vote. Chair Peddle declared motion passed. 6. 2018-2022 FIVE YEAR FINANCIAL PLAN City Manager Gaura mentioned that staff has looked over the Peace Road Interchange Agreement and the options available. Interim Finance Director Wilkins provided an overview of the Five Year Financial Plan. He added that within the plan, it showed that the City would generate $250,000 into the General Fund. Committee Member Conlin asked why the agreement did it not end on its own. City Manager Gaura explained the foundation and reasoning of the agreement. A discussion ensued between Committee Members and Staff with regard to the assistance provided to Social Services Agencies that may or may not be within City limits. MOTION Committee Member Neeley moved to close the Peace Road Interchange Agreement; seconded by Committee Member Conlin. Finance Advisory Committee Meeting October 5, 2017 Page 3 of 4 VOTE Motion carried on a 4-0-2 vote. Chair Peddle declared motion passed. City Manager Gaura asked for any further recommendations the Committee has on the Five Year Financial Plan. Chair Peddle would like to see an amortization of shutting down the City and showing what would still need to be levied to meet accumulated pension obligations. He added that he would like to see Other Post Employment Benefits (OPEB) counter balance, and two components: 1) enforced City policy, and 2) higher proportion of employees that are Medicare eligible. City Manager Gaura added that there has been a fundamental change in employees as we are reliant on part-time employees now. She added that the City is outsourcing more, for example, crossing guards will be shifted to the school district. City Manager Gaura explained that the Police and Fire Pension obligations are taking up a greater percentage of the budget. Interim Finance Director Wilkins provided an overview of the Illinois Municipal League (IML) current legislation recommendations. Committee members and staff had a discussion on the current happenings in legislation. Chair Peddle explained recommendations from Committee Member Teresinski regarding the Five Year Plan from an email distributed to the Committee. City Manager Gaura stated that if we implement those suggestions it will affect services. Committee Member Conlin agreed with the recommendations from Committee Member Teresinski. He added that staff push for revenue base growth. A discussion occurred regarding revenue growth and the needs of the City’s infrastructure. Committee Member Neeley mentioned that the Five Year Plan was put together very nicely. Committee Member Partch added that he would like to see more communities west of DeKalb. Assistant City Manager Hoppenstedt left the meeting at 6:59 p.m. A discussion ensued between Committee Members with regard to comparable communities. Assistant City Manager Hoppenstedt returned to the meeting at 7:01 p.m. The Finance Advisory Committee have not approved these minutes.  Finance Advisory Committee Meeting October 5, 2017 Page 4 of 4 7. COMMITTEE RECOMMENDATIONS 1. Property Tax Levy – See Section 5 2. Closure of the Peace Road Interchange Agreement – See Section 6 8. OTHER ITEMS Chair Peddle suggested that a few meetings be scheduled in advance, such as, a debriefing meeting in January/February, discussion of the Five Year Strategic Financial Plan in July, and start of the budget discussions on August. He added that there are not going to be joint meetings with the City Council. He expressed that the committee will provide a formal recommendation to the Council for FY2018. City Manager Gaura thought that if Council requests a joint meeting it would be after the FAC goes through their meetings and makes their formal recommendation. 9. NEXT MEETING The next Finance Advisory Committee meeting will be on Tuesday, October 17, 2017 at 5:00 p.m. to discuss the TIF (interfund transfers) and Asset Management Plan Phase I – Streets and Fleet. 10. ADJOURNMENT Chair Peddle requested a motion to adjourn, moved by Committee Member Neeley and seconded by Committee Member Conlin. Motion passed by a 4-0-2 vote. Meeting adjourned at 7:05 p.m. __________________________________________ CARRI PARKER, Account Technician III RETURN TO AGENDA DATE: October 13, 2018 TO: Mike Peddle, Chair Finance Advisory Committee FROM: Anne Marie Gaura, City Manager Tim Holdeman, Public Works Director Molly Talkington, Finance Director SUBJECT: Asset Management Plan Phase I – Streets and Fleet Recommendations Summary: The inaugural Five-Year Financial Plan was presented to the Financial Advisory Committee at the September 21, 2017 meeting. The Committee has had an opportunity to review the Five-Year Financial Plan’s information and recommendations including the Asset Management Plan Phase I – Streets and Fleet. On October 5, 2017, the Committee recommended staff seek closure on the Peace Road Interchange agreement with DeKalb County. At the October 17, 2017 meeting, staff is seeking policy recommendations from the Committee regarding the Asset Management Plan Phase I – Streets and Fleet. Background: The development of the City’s inaugural Five-Year Financial Plan is an extension of the analysis, capital planning and alternative policy considerations. The Plan allows a continued and progressive path of effective financial management. The Five-Year Financial Plan is a process and strategy for long‐term strategic financial planning that includes economic position analysis, benchmarking to comparable communities, revenue and expenditure the City to address the individual or compounded effects of various policy choices and to demonstrate their impact on the City’s financial future. This information enables City Council and the community to discuss policy decisions with greater awareness of their long‐term financial implications. Through this process and strategy, the City seeks to achieve the balance of fiscal strength, accountability and results that the community values. The elements of the Five-Year Financial Plan included: 1. Summary of DeKalb’s current economic position 2. Benchmarking DeKalb to comparable communities 3. Revenue and expenditure projections  4. Streets and Fleet Preliminary Asset Management Analysis 5. Alternative funding policy considerations This memorandum is focused on 4. Streets and Fleet Preliminary Asset Management Analysis and 5. Alternative funding policy considerations. The Streets and Fleet Preliminary Asset Management Analysis included detailed summaries of asset inventory and condition assessment, level of service evaluation, asset management strategy and financial strategy. The Alternative Funding Policy Considerations section included a detailed history of intergovernmental agreements with DeKalb County and the City of Sycamore. The current and projected impact of each agreement is provided along with funding scenarios for streets and fleet. A forecast and policy consideration for General Fund stabilization is also provided. Streets and Fleet Funding The recent downgrade of the City’s bond rating will impact the ability to issue bonds for capital improvement prior to 2020. The City could implement the capital improvement program as a pay-as-you-go program in 2018 and 2019 with an issuance of bonds in 2020 or later. As outlined in the plan, the following four revenue options could be utilized for the initial pay-as-you-go program. Option 1: Increase the Local Motor Fuel Tax  Current local tax is 2 cents per gallon for the Capital Projects Fund  Generates $360,000 per year  Model assumes a 4 cent increase per gallon for a total local tax of 6 cents per gallon for the Capital Projects Fund  Will generate an additional $720,000 per year  The Airport Fund receives 1.5 cents per gallon and generates $270,000 per year  Total local tax with the model assumption of 4 cents per gallon would be 7.5 cents per gallon The arguments for this option are drivers will pay for streets and this represents about $0.68 on a tank of gas. The arguments against this option are revenue does not increase over time and it’s a tax increase. Option 2: Vehicle Stickers  Residents would purchase vehicle stickers  Model assumes sticker is $50 per year  Estimated to generate $1,000,000 per year The arguments for this option include: drivers will pay for streets; it is increasingly common in Illinois communities; and it can increase over time with fee adjustments. The arguments against this option include: it does not capture revenue from non-residents; it is a significant time to administer; and it’s a fee increase. Page |2 Option 3: Trash Hauler Fee  Rationale: Trash haulers create disproportionate wear on residential streets  Fee would be established to generate $400,000 per year  If passed through to customers staff estimates would be about $4 per billing cycle The arguments for this option include: in a competitive environment, the full cost may not be passed on to residents and businesses; and it can increase over time with fee adjustments. The arguments against this option include: it does not capture revenue from non-residents; and it’s a fee increase. The fourth and final option considered in the financial management plan is a sales tax with resident rebate. The characteristics of this option are described below along with the pros and cons. Option 4: Sales Tax with Resident Rebate  Goal is to generate revenue from all people who put demands on City infrastructure, not just residents  Increase Home Rule Sales Tax from 1.75% to 2.75%  Total revenue generated by additional 1% is $3,712,000  Rebate a portion of sales tax to residents  Rebate based on $4,500 purchases within City per year  Rebate is estimated at $557,000  Rebate may be given as credit on utility bills  Not provided if past due on utilities  Requires annual application and administration  Estimated to generate $3,155,000 per year  Would be applied to pay debt service on bonds that finance streets and fleet The arguments for this options include: all users of City infrastructure help pay for it; and a rebate program softens impact on residents. The arguments against this option include: it is a tax increase; and a new administrative process would be needed for rebate program. Collections for Sales Tax are through the State of Illinois. There are only two points during the year to increase the City’s home rule portion, January and July. The change in the rate must be adopted by the City Council before April 1 for a July 1 effective date and before October 1 for a January 1 effective date. There is a four month lag between the effective date and collections receipt. The following is an example using July 1 as the effective date: 1. July – tax change goes into effect and the companies collect at the new rate 2. August – the State of Illinois receives July’s collections 3. September – the State process the collections as such 2% administrative fee and remits the remainder to the Comptroller’s Office for payment to the City 4. October – City receives payment for July collections Page |3  Therefore, if the Sales Tax increase is implemented, the first year of collections would be less than twelve months. A fiscal year with a January 1 effective date would have 9 months of collections and a July 1 effective date would have 3 months of collections in the first year. Recommendation: In the past reviews of the plan, there was concern that the high administrative costs associated with the Vehicle Stickers and the Sales Tax Rebate program would offset the benefits. All the comments and concerns expressed by the City Council and Finance Advisory Committee were taken into consideration and the revenue sources were revised based upon that feedback. Additionally, the Local Motor Fuel tax is being removed from consideration at this time, since the 1.5 cents for the Airport Fund was not included in the model as part of the overall tax rate. Therefore, staff recommends a change to the funding options listed above. The change includes removing the Vehicle Stickers and the Sales Tax Rebate program from consideration at this time. Further analysis will be done on Vehicle Stickers based on the questions and feedback received. In light of that change, for the Fiscal Year 2018 budget, staff recommends increasing the Sales Tax by 1.0% to support streets, fleet, and operations. The increase is estimated to generate an additional $3.712 million per year. With a July 1 effective date, the Fiscal Year 2018 budget would include 3 months of funding for each. The below table show the split by type: Type % Split Annual Amount 3 Month Amount Streets 45% $1,670,400 $417,600 Fleet 25% $928,000 $232,000 Operations 30% $1,113,600 $313,200* Total 100% $3,712,000 $962,800 *Operations total for 3 months is $417,600 of which $313,200 to support operations and $104,000 to meet the General Fund reserve requirement of 25% of expenditures. The effective date of July 1 and the three months of revenue would allow Public Works to add street projects and replace additional critical needs vehicles, as well as, additional support for core city operations. The proposed water hauler fees will be evaluated and considered as part of a future waste hauler contract. The current contract expires in August 2018. Staff will be reviewing future water hauler contacts with City Council during the first quarter of 2018. Page |4 RETURN TO AGENDA DATE: October 13, 2018 TO: Mike Peddle, Chair Finance Advisory Committee FROM: Anne Marie Gaura, City Manager Jason Michnick, Economic Development Planner Molly Talkington, Finance Director SUBJECT: Tax Increment Financing (TIF) – Interfund Transfers and New TIF Summary: This memorandum provides information on the Tax Increment Financing (TIF) Funds interfund transfers and the proposed TIF creation. First, the City has been overly reliant on the interfund transfers of TIF Funds and has been and will continue to decrease the amount of the transfers into the City’s General Fund through a multi-year plan. Central Area TIF District 1 (CATD) is expiring on December 31, 2021 and TIF 2 is expiring on December 31, 2018. With the expiration of these TIFs, the creation of a new TIF to continue reinvestment into the City’s Downtown is being proposed. This memorandum is for the Finance Advisory Committee to review and provide recommendations to the City Council. Interfund Transfer Background: On September 19, 2017, the City held a special Committee of the Whole meeting to discuss the status of the two expiring TIF districts and potential strategies for encouraging continued investment with the use of TIF funds. The TIF Phase Out Memo that was prepared by staff for the meeting included projected revenues, expenses, and remaining fund balances through Fiscal Year 2022. Based on the projected revenues and expenses, it is estimated that there are between $11.6 and $13.5 million in available funds to spend on projects within the two TIF districts. The calculations used for this projection included carrying forward the amount of recent historical interfund transfers to the General Fund. At the time of the meeting, staff proposed multiple options for increasing the availability of future TIF funds for projects in the downtown. One of the options that was presented to Council was to investigate a strategy for reducing interfund transfers to the General Fund. Since the creation of the CATD, a total of $14.3 million have been transferred directly to the General Fund. In addition to direct transfers, the City also began declaring one half of annual revenues as surplus, per the 2008 Intergovernmental Agreement. As part of the surplus declaration, the City also receives approximately $600,000 in additional General Fund support through the CATD. Through the remaining years of the two TIF districts, it is estimated that the total amount to be transferred to the General Fund will exceed $3.5 million under current financial policies. It is also anticipated that the City will receive an additional $3.05 to $3.37 million through surplus distribution. The chart below includes the anticipated budget amounts for FY2018 General Fund revenues originating from the two TIF districts. Property Tax Surplus TIF 1 $236,000 Sales Tax Surplus TIF 1 $350,000 Transfer from TIF 1 $678,576 Transfer from TIF 2 $113,198 Total $1,377,774 In addition to investigating a reduction to interfund transfers from the TIF funds for increasing the availability of TIF for investment, the expiration of the TIF districts will have an impact on funding available for operations through the General Fund. Staff is recommending a multi-year plan to phase out funding to the General Fund. The reduction will be to the level of the value of the Equalized Assessed Valuation (EAV) of the two TIF districts, if the City were to levy against the increase in EAV with the expiration of the TIF districts. The following calculations were made using 2016 assessment values and rates: 2016 TIF Potential Levy on TIF District 2016 Rate Increment EAV Central Area $54,383,546 1.20211% $653,750 TIF 2 $11,008,711 1.20211% $132,337 Total Value: $786,087 Based on the current value of the TIF EAV, annual transfers will be reduced by $591,686. Given that the surplus distribution amounts are calculated per an IGA, reductions would need to be made through the direct interfund transfers. However, it is anticipated that the EAV in the City will continue to grow in the coming years, which would require a reevaluation of the amount to be reduced. Staff will track EAV changes on an annual basis and adjust reductions accordingly. A total reduction in General Fund revenue of this magnitude will need to be replaced by expenditure reductions, revenue enhancements, or a combination of both. Any expenditure reductions would lead to a recurring reduction in core services provided by the City currently. Interfund Transfer Recommendation: Staff recommends the following multi-year plan to address the City’s reliance on TIF funding as shown on the following page. Page |2  Fiscal Year 2019 Eliminate the TIF 2 Transfer ($113,198) Reduction in CATD Transfer ($119,622) Fiscal Year 2019 Total ($232,820) Fiscal Year 2020 Reduction in CATD Transfer ($119,622) Fiscal Year 2020 Total ($119,622) Fiscal Year 2021 Reduction in CATD Transfer ($119,622) Fiscal Year 2021 Total ($119,622) Fiscal Year 2022 Reduction in CATD Transfer ($119,623) Fiscal Year 2022 Total ($119,623) Total Reduction Over Multi-Year Plan Life ($591,687) This multi-year plan begins to address the revenue shortfall in the General Fund in FY2019 with use of a portion of a 1.0% rate increase the Home Rule Sales Tax rate. This proposed increase is discussed in the Finance Advisory Committee memorandum on the Asset Management Plan Phase I – Streets and Fleets for the October 17, 2017 meeting. The recommendation is to use the increase in the Sales Tax rate by 1.0% to allocate funding to streets, fleet, and operations. Use of a portion of the operations allocation of $232,820 would offset the decrease in the TIF funding in FY2019. During FY2018, staff will continue working on a solution to address the remaining gap in the General Fund through expenditure reductions, other revenue enhancements, or a combination of both. New Central Business District TIF Another recommendation that was presented to Council during the September 19 meeting was the creation of a new downtown TIF district. The basis of this recommendation is that the available funds remaining through the remaining years of the TIF are not adequate to achieve the City’s vision for a vibrant downtown. In order to continue supporting private development, construction of new civic space, and tourism anchors, additional funding would need to be made available. Given the condition of a majority of the structures in the downtown, existing lease rates for residential and retail, and cost of construction and renovation, the market cannot bare redevelopment at the current time on its own. A primary purpose of TIF is to support private sector investment into blighted and deteriorating areas. A historical lack of reinvestment and maintenance into many of the buildings in the downtown have resulted in a large portion of the commercial properties in the Central Business District (CBD) being assessed at values lower than the current CATD base. Page |3 A map for the proposed new CBD TIF is attached to this memo as Exhibit 1. This map includes a boundary for the proposed TIF, as well as highlighting the properties in the downtown that were valued below their base in 2016. The boundary for the proposed CBD TIF was drawn in an effort to isolate these properties and concentrate on future redevelopment that would result in significant gains in increment. There is an additional section of the proposed TIF that stretches westward on the south side of Lincoln Highway. Central Business District TIF Recommendation Though the creation of the proposed TIF certain areas remain under TIF status. Staff is recommending the City proceed with hiring a consultant to conduct an eligibility study, housing study, and creation of a redevelopment plan. Given that there are so many parcels that are “underwater” in the CBD, the impact on other taxing districts is limited. Additionally, given the current market circumstances, continued redevelopment of existing properties in the downtown is unlikely to occur without continued subsidization. The creation of a new TIF district is critical in order to achieve the City’s vision for a vibrant downtown. Additionally, staff will develop a project plan that will target the types of projects that support growth in the equalized assessed valuation of the properties. The timing of adopting ordinances that would create the CBD TIF is also important. EAV’s are expected to increase for a second year in a row, and continue through the next reassessment. This increase has two potential impacts on the new TIF. The first is an increase the base value of the new TIF, which would reduce the potential incremental gains from recently approved projects. The second is that delaying the creation of a new TIF beyond another assessment year would jeopardize a significant eligibility factor for the new TIF. Another risk to delaying the creation of a new TIF is potential legislative changes to the Illinois TIF Act. A TIF Task Force was created by the Governor to make recommendations for changes to the Act during spring legislative sessions. One potential change is in regards to the ability to create a new TIF district that overlaps an existing or recently expired TIF district. Parcels that are currently in a TIF could not be included in a new TIF for a period of 10 to 15 years. The second potential legislative change would be to the state aid formula for school districts. The Governor made an amendatory veto to SB1 in September that would have required TIF EAV to be included as part of community wealth. This could be a potential recommendation for future TIF’s if legislation is passed. Given the risks to delaying the creation of a new TIF, staff is recommending the City move forward with hiring a consultant posthaste. It typically takes six months to go through the steps required to create a new TIF, meaning that the CBD TIF could be in place by June of 2018. Subsequently, the City would then have the ability to port funds from TIF 2, to seed projects in the CBD TIF, prior to the expiration of the TIF 2 on December 31, 2018. Exhibit 1 – Proposed Central Business District TIF Page |4  Proposed New Downtown TIF LAURA PL MILLER A V T LUCINDA AV N1 RD ST DAVY ST LINDEN O E WO S OR N 9TH ST M WIRTZ D ROLFE CA GILBERT DR V RD YA SY R DLE N 7TH ST PL AV PO LEWIS ST ND N 5TH ST NORMAL RD AUG ST N 12TH ST LB WYMAN ST N 13TH ST UST N 6TH ST A AV KA N 10TH ST COLLE DE GE AV FIS CASTLE DR K AV N 11TH ST PARK AV ST ST N2 N3 PLEASANT ST WL ND RD PIN JOHN ST OCU ES S TS T T STATE ST EL OA LINCOLN WAY OC K ST US N 9TH ST PAL TS N 8TH ST W LINCOLN HWY M T MARKET ST ER CT ST N4 TH PEARL ST ST SHERMAN PL EL GIR I NC HICKORY AR OL DS NH EL T W OC GIR Y ST GURLER ST GR UST OV AR ST ES DS N8 T T TH W GARD EN ST ST CLIFFORD DR FR A NK WR LIN N1 OO ST 1TH SE VE ST YORKSHIRE DR ST LT ST S T S2 PR OS ST S4 ST ND S3 TH PE ST RD CT S8 ST AV D WOOD ST S7 TH BLV S1 TH RD ST ER OO ELLWOOD AV ST NA ISH SE VE LT ST S9 EVANS AV ST S TH SIMON DS AV LEO T MAPLEWOOD AV EG HA S5 S6 AR GLIDDEN AV TH TH DE Proposed New Downtown TIF NS S 10TH ST S 11TH ST T BUSH ST Top Increment BUSH ST Negative Increment - Residential KENSINGTON CT - Commercial/Industrial Negative Increment ROOSEVELT CT File: \Community Development\Proposed New Downtown TIF.mxd Created: 9/12/2017 DJE 0 500 1,000 2,000 3,000 4,000 I Feet RETURN TO AGENDA