Finance Advisory Committee

SPECIAL JOINT MEETING OF THE CITY COUNCIL COMMITTEE OF THE WHOLE & FINANCE ADVISORY COMMITTEE AUGUST 17, 2020 6:00 P.M. TO 8:00 P.M. DeKalb Public Library Yusunas Meeting Room 309 Oak Street DeKalb, Illinois 60115 COVID-19 Notice: This meeting will be conducted in-person with a physically present quorum and open to the public. The corporate authorities of the City of DeKalb intend to conduct this meeting in compliance with all applicable social distancing and public health requirements. All persons attending this meeting in-person shall be required to wear protective face masks/coverings. Furthermore, the corporate authorities of the City of DeKalb intend to conduct this meeting pursuant to Illinois Governor JB Pritzker’s Executive Order 2020-43 dated June 26, 2020 (the “Executive Order”), which prohibits gatherings of more than 50 people, unless the City of DeKalb determines that it is necessary to invoke the Governmental Functions exemption contained in Section 4(c) of the Executive Order “to ensure the operation of government agencies or to provide for or support the health, safety and welfare of the public.” As a convenience to the public, the City of DeKalb may also provide video, audio, telephonic or internet access for the public to monitor this meeting. The provision of any such remote means of access is not intended to provide for attendance by a means other than physical presence due to the COVID-19 public health emergency, nor is it intended to provide an opportunity for the public to address public officials, make public comment or otherwise participate in the meeting. Persons wishing to provide public comment or otherwise address public officials in person during this meeting must comply with all applicable rules governing the conduct of this meeting including, but not limited to, the aforementioned social distancing and face covering requirements. The City of DeKalb is providing the following conveniences for the public to monitor and participate in this meeting:  Persons wishing to view the meeting from home or elsewhere can tune in to Channel 14 or by following the link provided here.  Persons wishing to provide public comment but are unable to attend the meeting in person or remotely may forward their comments by clicking on the link provided here. Note that all submissions must be received no later than 12:00 p.m. on the day of the meeting to ensure dissemination to the City Council and Finance Advisory Committee (FAC) before the meeting convenes.  Zoom Meeting Information: https://us02web.zoom.us/j/83816881070?pwd=T0JFR1ZvajhEb2MxZXczdU5rWHJUUT09 Meeting ID: 838 1688 1070 Passcode: 171786 One Tap Mobile: +13126266799,,83816881070#,,,,,,0#,,171786# US (Chicago)  For those participating via Zoom and wishing to comment during the public participation portion of the meeting, or prior to discussion of a particular item, please click on the link provided here and add in the Comment Section that you wish to address Council and the FAC verbally. Note that all submissions must be received no later than 12:00 p.m. on the day of the meeting to ensure your name is added to the list of remote speakers. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 2 of 18 A. CALL TO ORDER  City Council Committee of the Whole Call to Order and Roll Call.  Finance Advisory Committee Call to Order and Roll Call. B. Approval of Agenda C. Public Participation D. Considerations 1. Consideration of Basic Assumptions Behind the Fiscal Year 2021 City Budget. City Manager’s Summary: Background The current economic crisis, caused in part by the rapid and still untamed world-wide spread of the COVID-19 virus, has defied conventional economic thought and theory. Through the twentieth century and into the first decades of the twenty-first century, advanced industrial countries wrestled with wavelike business cycles that occasionally generated profound recessions and one great world-wide depression. The causes of the great economic crises were often attributed to one or more of the following: a) Adventurous bank lending practices; b) Maldistribution of wealth; c) Structural changes (i.e. greater productivity) that turned out more products or commodities than consumers could buy (see b, above); d) Intensifying world market competition; e) Government fiscal policies and regulation. f) The “isms”: nationalism; socialism; communism; corporate capitalism. For our purposes the proximate cause that for the moment, literally and figuratively, infects our economic discourse is the COVID-19 virus which has led to unforeseen and unparalleled government constraints on private business activity, employment, and public services. The National Bureau of Economic Research has dated the onset of the related economic crisis in this country to mid-February, after several weeks of warning signs around the world. We still have no ability to confidently forecast when a combination of reliable, accessible and affordable virus testing, and a reliable vaccine will be available to spur a steady recovery. What we do know is that the Federal Reserve announced on Friday, July 31, that the fiscal quarter just ended recorded the most precipitous and deep economic contraction in U.S. financial history – 32.9% from April through June 2020. The Fed also reported that consumer spending, the biggest driver of the U.S. economy, declined at an annual rate of 34.6%--also the sharpest decline in any fiscal quarter on record. In April more Assistive services, including hearing assistance devices, available upon request.  Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 3 of 18 than 20 million jobs vanished nationwide. As federal subsidies to the unemployed expire and the Congress scrambles to extend them at some level, it is clear that the largest consumer market in the world is being supported by federal debt. Where does the DeKalb community stand in this economic crisis? First, the good news. The two most impressive industrial starts since the chartering of the first DeKalb railroad in the mid-1850s – Ferrara Candy Company and Facebook DeKalb – bring the promise of a more substantial and diverse tax base and new jobs to help undergird our recovery. Upon full build-out, the combination of these two extraordinary corporate commitments will increase the county-wide industrial EAV by about 13%. However, the re-assessment of the land and the initial assessment of the buildings on the two Gurler Road development sites will not register on the City’s property tax base in 2020, but will dramatically strengthen that key source of general revenue in the years ahead. More good news: the continuing investment in DeKalb’s downtown core broadens our commercial and residential tax base and will bring new consumer spending to our hospitality sector when it is able to operate at capacity. Related to this, the nearly complete Egyptian Theatre project should compliment all of these green roots as its beautiful, remodeled spaces can again host events downtown. Finally, most of the local, family-owned hospitality venues have survived through the sheer pluck and resilience of their owners, managers and employees despite the most difficult economic circumstances they have ever faced. Nevertheless, for the present our hospitality businesses are operating at about 25% capacity. The City government and local businesses will alike feel the loss of the physical presence of those NIU students who elect to pursue on-line NIU courses while residing and working in other northern Illinois communities. The extent to which the creative and timely course and curriculum changes undertaken by NIU’s faculty and administration last spring will accelerate broader interest in less conventional paths of learning is yet to be fully fathomed. We are all feeling our way and doing so together. What is the Current Fiscal Condition of the City Government? In this context, as we project FY2020 year-end numbers and attempt to forecast reliable FY2021 City revenues and expenditures, the City staff welcome the comments and suggestions of the Council and FAC on the following operational and capital budget modules in particular:  The General Fund  The MFT Fund (Fund 210)  The Capital Projects Fund (Fund 400)  The Capital Equipment Replacement Fund (Fund 420) The brief notes that follow on the current state and projected budgets for each of these critical City funds will hopefully inform the conversation. Assistive services, including hearing assistance devices, available upon request. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 4 of 18 THE GENERAL FUND Most residents and businesses encounter our municipal government through one of the operational departments financed by the General Fund. How does the General Fund receive its revenues and target its expenditures? Property Tax and Pension Obligations. For reasons that every bond house and rating agency appreciates, the property tax is the most stable source of municipal revenues in difficult financial times. What is levied is applied and ultimately distributed. In 2020, the City’s 2019 corporate levy (excluding the Library) of $6,759,724 will be fully distributed in about 4 distributions from the County Assessor by year’s end. It is important to note the following, however: a) None of the City’s property taxes levied in 2019 and paid in 2020 will be used for general operations. The City will pay $490,075 toward the retirement of the Library’s G.O. Bond 2013A (not shown in the table below) and will pay the balance of the $6,759,724 that was levied in the Fall of 2019 toward the City’s actuarial obligations to the Fire and Police pension funds. In addition, another $1,128,289 will be needed from other General Fund revenues to fulfill the City’s actuarial obligation for 2019. The table below graphically depicts the shortfall. b) None of the property taxes levied in the Fall of 2020, payable in 2021, will be used for general operations. The City must pay some or all of the Library G.O. Bond 2013 A obligation (not shown) from the 2020 levy and will pay the balance of the levy toward the City’s actuarial obligations to the Fire and Police Pension funds. In addition, the $1,031,368 shortfall between the City’s levy and the actuarial obligation for 2020 will need to be drawn from other General Fund revenues or the General Fund reserve. Actual Pension Levy Funding and Pension Obligations 2018 Actuarial 2018 Levy Difference* % Difference Obligation Funding Fire Pension $3,503,332 $3,220,517 $282,815 8.07% Police $3,079,438 $2,796,623 $282,815 9.18% Pension Total $6,582,770 $6,017,140 $565,630 8.59% 2019 Actuarial 2019 Levy Difference* % Difference Obligation Funding Fire Pension $3,920,907 $3,322,914 $597,993 15.25% Police $3,477,031 $2,946,735 $530,296 15.25% Pension Total $7,397,938 $6,269,649 $1,128,289 15.25% 2020 Actuarial 2020 Levy Difference* % Difference Obligation Funding Fire Pension $4,282,230 $3,741,046 $541,184 12.64% Police $3,614,881 $3,124,697 $490,184 13.56% Pension Total $7,897,111 $6,865,743 $1,031,368 13.06% *Paid from General Fund revenues other than property taxes Assistive services, including hearing assistance devices, available upon request.  Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 5 of 18 c) In 2014 the City dedicated 10.4% of its General Fund revenues toward Fire and Police pension contributions. In 2020 it dedicated 19.24% of its amended General Fund budget. The projected FY2021 share is about 19.5% based on a General Fund revenue estimate of $35,239,234. d) According to Township and County assessment officials, the projected 2020 City levy, payable in 2021, will not capture the value of the Ferrara or Facebook starts in 2020. These will become “new construction” values as buildings are occupied in 2021. State statute provides a developer exemption prior to an occupancy certificate, and that exemption includes the increased land value. Next year’s City-wide EAV may jump by $10 million or more because of the Ferrara and Facebook construction values alone, but this benefit is a year away. e) The DeKalb Township multiplier for 2020 is 4.09. In addition, the estimated 2020 City-wide EAV will include about $2 million in new construction value (owing primarily to Home2Suites and Plaza DeKalb), versus a new property value of $766,275 in 2019. The estimated 2020 rate-setting EAV for DeKalb is $611,750,000. Final EAV numbers are not usually released by the County Assessor until October. f) The City levy obligation for the Fire and Police pensions plus the Library G.O. bond is $6,865,743 + $484,650 = $7,350,393. If, as in recent years, the City Council wishes to dedicate all of its property tax receipts to cover the Fire and Police pension contributions recommended by the City’s actuary, along with the Library G.O. debt payment, it would result in an estimated City tax rate of 1.2017%--an increase of 4.12% over the final rate of 1.1541 in 2019. If the 2020 City levy carried a lesser portion of the Library bond obligation and the balance of that obligation was paid from the General Fund reserve, the estimated City tax rate could be held flat at 1.1541%. Specifically, a City levy of $7,060,000 based on a rate-setting EAV of $611,750,000 would yield the flat City rate of $1.1541. Of course, the General Fund reserve would be reduced by an additional $290,393. The annual levy discussion will occur toward the end of October as the City gains further EAV information from the County Assessor. Overall General Fund Revenue and Expenditure Projections. The foregoing property tax and levy analysis highlights the continuing heavy burden imposed on DeKalb and other Illinois municipalities by a rising “ramp” in Fire and Police pension obligations imposed by the state legislature in 2011. According to the 2011 pension compromise, a closed amortization period was created that requires all pension funds to be 90% funded on the arbitrary date of 2040. This approach builds in increasing levels of contribution beyond annual increases owing to such actuarial factors as the number of lives covered, the wage levels at retirement, mortality, disability, etc. If funding ratios are low (the average state-wide is around 55%), the additional funds needed each year rise significantly the closer we get to 2040. As of January 1, 2020, the funding levels of DeKalb’s Fire and Police Pension Funds are 38.60% and 50.20%, respectively. This burden is exacerbated by the COVID-19 impacts and will continue until action downstate leads to reform of the actuarial cost method. In the late fall of 2019, the state legislature acted to consolidate more than 650 Police and Fire investment funds that were individually managed with varying success, into two separate Assistive services, including hearing assistance devices, available upon request. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 6 of 18 state-wide funds operating much like the Illinois Municipal Retirement Fund (IMRF) which currently has a funding level of 90%. Because of the COVID crisis, the two state-wide funds which are to handle the larger, consolidated investment pools to the advantage of local communities are still in the process of organization and no relief in terms of reduced fund management costs has been realized. The City is working collaboratively with the Illinois Municipal League and the Associated Fire Fighters of Illinois to press the state legislature and the recently-consolidated state pension boards toward an actuarial cost method that can be sustained over time. The importance of this legislative action cannot be over-stated. As the table below illustrates, if the additional $1,031,368 required of the General Fund in 2021 beyond our annual property tax receipts was not owing, 58% of the General Fund gap between revenues and expenditures would be covered. General Fund History and Forecast FY2017 FY2018 FY2019 FY2020 FY2020 Est FY2021 Actual Actual Actual Budget Budget Beginning Fund $9,229,121 $9,073,796 $7,402,887 $10,524,735 $10,524,735 $8,738,594 Balance Revenues by Category Property Taxes $5,523,532 $5,869,058 $5,897,168 $6,269,649 $6,269,649 $7,060,000 Sales & Use Taxes $15,238,720 $15,475,476 $15,944,998 $15,764,982 $13,503,770 $13,361,507 Gross Receipts Taxes $3,643,995 $3,721,204 $3,601,811 $3,611,000 $3,227,477 $3,487,912 Intergovernmental $4,805,948 $5,054,131 $5,591,020 $5,475,534 $5,314,034 $4,757,324 Licenses & Permits $875,518 $731,200 $786,023 $675,500 $740,528 $735,271 Service Charges $2,212,674 $2,599,455 $4,009,430 $3,534,500 $3,036,374 $3,498,346 Fines $608,515 $664,757 $622,502 $676,000 $507,433 $499,314 Other Income $1,218,294 $1,249,680 $1,641,107 $1,172,092 $1,059,910 $1,061,560 Transfers In $1,588,852 $652,386 $321,800 $1,266,000 $1,283,000 $778,000 Total Revenues $35,716,048 $36,017,347 $38,415,859 $38,445,257 $34,942,175 $35,239,234 Expenditures by Category Personnel $28,106,457 $29,766,715 $29,221,058 $30,790,624 $29,781,124 $29,031,124 Commodities $841,632 $888,525 $969,914 $1,022,886 $972,886 $924,242 Contactual Services $4,642,360 $4,290,540 $4,012,164 $4,384,966 $4,034,966 $3,833,218 Equipment $234,774 $80,649 $72,256 $40,000 $40,000 $40,000 Transfers Out $2,046,150 $2,661,827 $1,629,779 $1,899,340 $1,899,340 $3,034,768 Total Expenditures $35,871,373 $37,688,256 $35,905,171 $38,137,816 $36,728,316 $36,863,352 Rev-Exp -$155,325 -$1,670,909 $2,510,688 $307,441 -$1,786,141 -$1,624,118 Prior Period Adjustment $0 $0 $611,160 $0 $0 $0 Ending Fund Balance $9,073,796 $7,402,887 $10,524,735 $10,832,176 $8,738,594 $7,114,476 vs. Reserve Policy 25% 25.30% 19.64% 29.31% 28.40% 23.79% 19.30% Includes additional transfer to Police & Fire Pension Funds of $1,031,368 for property tax shortfall, and $290,393 for the larger portion of the Library GO Bond payment in 2021. Includes $750,000 in Cares Act federal funding in FY2020 and $250,000 in FY2021 Assistive services, including hearing assistance devices, available upon request.  Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 7 of 18 The numbers in the foregoing table are drawn from a deeper dive into the various revenue categories that is portrayed in an addendum to this report. The Council and FAC will note the following in that addendum: FY2020 General Fund Revenues  Sales and Use Taxes. In this category in FY2020 we expect a 14% decline overall, with the following detailed breakdown:  States Sales Tax. The Illinois Department of Revenue collects a 6.25% tax on the sale of general merchandise and distributes 1% to the municipality where the sale occurred and 0.25% to DeKalb County. On the basis of numbers for only the first five months of 2020, it is projected that the 1% tax revenue will be down $556,966 (-10%) from the FY2020 Budget.  Home Rule Sales Tax: The City imposes a 1.75% home rule sales tax on sales of general merchandise (except food, drugs or licensed personal property such as vehicles). This is also collected by the state and remitted to the City about 3 months after the sale occurs. On the basis of numbers for only the first five months of 2020, it is projected that the home rule tax revenue will decline $1,388,066 (-21%).  Local Use Tax: Use taxes are imposed by the State of Illinois at the 6.5% rate on the privilege of using personal property purchased anywhere at retail, including online purchases. This revenue is collected by the state and forwarded to municipalities on a per capita basis (about $34.50 per capita in the past year). Statewide, the local use tax is outperforming estimates, and it is possible that we will see an increase of $363,102 (25%) over the FY2020 budget.  Hotel/Motel Tax: The City imposes a 7.5% tax on hotel/motel room rents. COVID-related cautions about travel have severely impacted this business sector. In addition, City revenues were voluntarily constrained when the Council voted on March 26 to suspend hotel/motel taxes for the period April 1 through December 31, with a maximum credit of $6,000 per hotel or motel (there are 6 contributing businesses in DeKalb). The estimated revenue for FY2020 is $144,117, a decline of $155,883 (-52%) as compared with the FY2020 budget.  Restaurant/Bar Tax: The City collects a 2% tax on prepared food and beverages and packaged liquor sales. This tax is collected at the local level. On March 26, the Council voted to suspend the local restaurant/bar tax liability through December 31, up to a total of $3,000 per business. The projected shortfall is $524,399 (-27%) as compared with the FY2020 budget. Total: -$2,262,212 (-14%) Assistive services, including hearing assistance devices, available upon request. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 8 of 18 All of the critical sales and use tax revenue streams are further at risk if local bars and restaurants are required to reduce their services in the remaining months of this fiscal year.  Gross Receipts Taxes. These include the City’s utility tax on electric usage (variable, based on kilowatt hour consumption) and gas usage (at 4 cents per therm), plus a telecommunications tax (6% of the gross retail charge), and a franchise tax. The telecommunications and franchise tax revenues have been declining as residents and businesses “cut the cord.” Total: - $383,523 (-10.6%).  Intergovernmental Revenues. This category makes up 14% of the FY2020 budgeted revenues. The strongest source within this category is the City’s per capita share of state income tax revenue. The FY2020 Budget relied upon an IML estimate of about $108.39 per capita, or $4,680,389. In the present context of high unemployment, the projected total will be $3,868,792, down $811,597 (- 17%). One positive possibility is the receipt of CARES funding through the State of Illinois. It is reported that the City may qualify for $750,000 in CARES funding to offset payroll expenses and other costs associated with COVID-related overtime, sequestering. At this writing, no CARES Act allotment has been received. The City is documenting eligible costs based on recent webinars and published guidance. Total without Cares Act allotment: -$911,500 (-16.7%) Total with Cares Act allotment: -$161,500 (-3%)  Licenses & Permits. In this category, the City sees an immediate benefit from the Ferrara and Facebook projects, which raise the total of permit fees by $106,561 (+32.8%) over what was budgeted for 2020. Overall, this category of revenues is projected to increase significantly in 2020 and remain steady in 2021. Total: +65,028 (+9.6%)  Service Charges. This category includes the NIU fire service contractual fees, plan review fees, and one of the fastest rising sources of general revenue – ambulance service fees. Such fees have significantly increased in recent years because of an increasing reliance on Fire department paramedics to handle concerns previously brought to a family physician, but at a lower cost. Ambulance fees are presently down, due to higher-than-average “write-offs” from our bill collection. Total: -$498,126 (-14%)  Fines. This category includes court fines, parking fines, and administrative tow fines. A decline is expected as unemployment cuts into the ability of persons to pay such costs. Total: -$168,567 (-25%) Assistive services, including hearing assistance devices, available upon request.  Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 9 of 18  Other Income. This category includes investment interest; the City’s share of the annual TIF surplus; and various refunds and reimbursements. Total: -$112,182 (-9.6%)  Transfers In. On May 11, the City Manager recommended and the Council approved a one-time transfer of $500,000 from Fund 420 (Capital Equipment Replacement Fund) to the General Fund because most of the current reserve consists of General Fund transfers over the years including E911 Board payments, Police fines, rental income from water tower leases, the sale of capital assets, etc. This transfer cannot be replicated in FY2021. Total: +$17,000 The total projected decline in 2020 revenues as compared with the approved 2020 Budget is $3,503,082. General Fund Revenues by Category 2017-2021 18 $ in Millions 16 14 12 10 8 6 4 2 0 SALES & PROPERTY INTERGOVT GROSS SERVICE OTHER TRANSFERS LICENSES & FINES USE TAXES TAXES REVENUES RECEIPTS CHARGES INCOME IN PERMITS TAXES 2017 Actual 2018 Actual 2019 Actual 2020 Estimate 2021 Budget FY2020 General Fund Expenditures On May 11, the City Manager recommended, and the Council supported, a number of personnel reductions for 2020.These reductions were subsequently memorialized by ordinance (Ordinance No. 2020-037) on May 26, 2020. The FY2020 personnel reductions are shown in the following table: Assistive services, including hearing assistance devices, available upon request. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 10 of 18 Gen Fund Water Fund FY2020 Actions Total Savings Savings Personnel Fire Freeze FF/Paramedic Hire $94,000 $0 Freeze FF/Paramedic Hire $94,000 $0 Freeze FF/Paramedic Hire $94,000 $0 Subtotal $282,000 $0 $282,000 Police Freeze Patrol Officer Hire $104,000 $0 Freeze Patrol Officer Hire $104,000 $0 Freeze Patrol Officer Hire $104,000 $0 Freeze PT TC Hire $40,000 $0 Freeze PT CSO Hire $37,000 $0 Subtotal $389,000 $0 $389,000 Public Works Freeze Water Maintenance Position $47,000 $71,000 Freeze Street Maintenance Position $71,000 $47,000 Freeze Water Crew Leader Promotion $49,000 $74,000 Freeze Street Crew Leader Promotion $74,000 $49,000 Subtotal $241,000 $241,000 $482,000 Finance Account Tech II $55,000 $20,000 Subtotal $55,000 $20,000 $75,000 Other Reduce Training/Travel 25% $42,500 $0 Total Personnel Savings $1,009,500 $261,000 $1,270,500 Additionally, the following expenditure reductions were approved by the City Council: 1. Commodities: Reduction across the board of already constrained commodity expenses by 5%, yielding $50,000. 2. Contractual Services: In addition to the training reductions identified in the foregoing Personnel table, an estimated reduction of about $315,000 in tax-sharing with other taxing bodies in 2020 is likely due to the fall in tax revenues to be shared. Another $65,000 was cut across all operating budgets. The total General Fund savings from these actions was $1,439,500. At the time – just three months ago – this was expected to offset about 32% of the projected Assistive services, including hearing assistance devices, available upon request.  Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 11 of 18 $4,500,000 General Fund revenue shortfall. Based on additional data since mid- May and in anticipation of the $750,000 CARES Act allotment, the General Fund reductions of May 2020 will offset about 41% of the projected revenue shortfall of $3,503,082. FY2021 Budget Assumptions As the Council, FAC, and public read to this point, the impact of the revenue declines and budget cuts in FY2020 on the General Fund reserve are evident. Despite some severe body blows to the City’s fiscal health, the substantial shoring of the reserve by the end of 2019 and early Council action in 2020 leave us in reasonably good shape at the end of this year. This judgment assumes no further COVID-related restrictions on business and employment occur, and the limited tax data from the State to date is reliable for predicting revenue trends through the end of the year. A projected year- end General Fund balance of over $8.7 million (23.79% of FY20 expenditures) would be respectable. Here's the rub: there is no certainty as to when or if we will see the vaccine that will finally lead to a strong, sustained recovery. There is also no certainty that the promised federal relief for local governments that is to be passed along to the states will reach DeKalb. In this context, the City Manager offers the following assumptions for the FY2021 Budget: 1. FY2021 General Fund Revenues  Property Taxes. The City levy approved in November will include the obligations defined by the City’s actuary for the Fire and Police pensions ($6,865,743) and $194,257 of the $484,650 Library GO Bond obligation. This fine-tuned levy aims to hit last year’s City tax rate of 1.1541 so our taxpayers do not see a jump in the City portion of their annual property tax bill. From where we sit, City officials could argue that a property tax hike is merited by the extraordinary economic times in which we live. However, given the severe economic hardships felt by residents and businesses most impacted by the COVID-19 virus, this argument would ring hollow. It is assumed that the City’s rate-setting EAV will increase by 4.44% from $585,726,839 to $611,750,000. The City-wide EAV increased by 6.9% in 2019.  Sales and Use Taxes. Until we know more about when or if our hospitality sector will get off the mat, it is conservative to estimate that this category will be flat in FY2021.  Gross Receipts Taxes. There will be some modest increases in the utility tax receipts owing to the new developments on Gurler Road.  Intergovernmental Revenues. The City’s provisional allotment of $1.8 million from the CARES Act has to be validated by our records. We estimate we can justify $750,000 in FY2020 and $250,000 in FY2021. The difference in the two federal allocations explains the fall off in 2021. Assistive services, including hearing assistance devices, available upon request. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 12 of 18  Licenses & Permits. This category will remain flat. We expect to keep pace with industrial and commercial building permit revenues.  Service Charges. We should return to the late 2019 pace for ambulance service fees.  Fines. This category should be flat.  Other Income. Depending on what is finally negotiated with the JRB, 2021 may be the last year for any TIF #1 surplus revenue. 2. 2021 General Fund Expenditures  Personnel. It is expected that the City administration and the three union locals serving most of our employees – FOP Lodge 115, IAFF Local 1236, and AFSCME Local 813 – will cooperate to lower personnel costs in 2021. The IAFF and AFSCME contracts expire at the end of this year and negotiations on a new contract will soon begin. A three-year contract between the City and FOP Lodge 115 was approved by the Council on March 9 (Resolution 2020-025). Representatives from all three locals have met with the City Manager and expressed a willingness to work through creative solutions to our current economic circumstances. The table that follows shows a further personnel reduction of $750,000.  Commodities. This category shows a 5% reduction from the 2020 year-end estimate, and a 9.64% reduction from the amended 2020 Budget.  Contractual Services. This category shows a 5% reduction from the 2020 year- end estimate and a 12.6% reduction from the 2020 amended Budget.  Equipment. No change. This line item covers incidental small equipment purchases.  Transfers Out. In the 2021 Budget this category will make the “extra” General Fund allocation for the pension shortfall more transparent. As noted under “Property Taxes” above, in order to keep the City portion of the aggregate tax rate flat in 2021, an additional $290,333 will be taken from the General Fund to help pay for the Library GO bond payment, rather than pass that full cost along to the local taxpayers. It is anticipated that as the substantial new EAV for Ferrara and Facebook hits the books in 2021, the City levy will once again be able to shoulder all of the Library GO Bond payment. It is also hoped that the state legislature will assist local governments with a creative and much-needed revision to the actuarial method of calculating our Fire and Police pension obligations in the 2021 Spring session. The following table focuses upon the 2021 General Fund assumptions described above: Assistive services, including hearing assistance devices, available upon request.  Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 13 of 18 FY2021 General Fund FY2020 FY2020 FY2021 Budget Est Budget Beginning Fund Balance $10,524,735 $10,524,735 $8,738,594 Revenues by Category FY20 % Est/FY21 Difference Property Taxes $6,269,649 $6,269,649 $7,060,000 $790,351 12.61% Sales & Use Taxes $15,764,982 $13,503,770 $13,361,507 -$142,263 -1.05% Gross Receipts Taxes $3,611,000 $3,227,477 $3,487,912 $260,435 8.07% Intergovernmental $5,475,534 $5,314,034 $4,757,324 -$556,710 -10.48% Licenses & Permits $675,500 $740,528 $735,271 -$5,257 -0.71% Service Charges $3,534,500 $3,036,374 $3,498,346 $461,972 15.21% Fines $676,000 $507,433 $499,314 -$8,119 -1.60% Other Income $1,172,092 $1,059,910 $1,061,560 $1,650 0.16% Transfers In $1,266,000 $1,283,000 $778,000 -$505,000 -39.36% Total Revenues $38,445,257 $34,942,175 $35,239,234 $297,059 0.85% Expenditures by Category Personnel $30,790,624 $29,781,124 $29,031,124 -$750,000 -2.52% Commodities $1,022,886 $972,886 $924,242 -$48,644 -5.00% Contractual Services $4,384,966 $4,034,966 $3,833,218 -$201,748 -5.00% Equipment $40,000 $40,000 $40,000 $0 0.00% Transfers Out $1,899,340 $1,899,340 $3,034,768 $1,135,428 59.78% Total Expenditures $38,137,816 $36,728,316 $36,863,352 $135,036 0.37% Rev-Exp $307,441 -$1,786,141 -$1,624,118 $162,023 -9.07% Prior Period Adjustment $0 $0 $0 Ending Fund Balance $10,832,176 $8,738,594 $7,114,476 -$1,624,118 -18.59% vs. Reserve Policy 25% 28.40% 23.79% 19.30% Includes additional transfer to Police & Fire Pension Funds of $1,031,368 for property tax shortfall, and $290,393 for the larger portion of the Library G.O. Bond payment in 2021. Includes $750,000 in Cares Act federal funding in FY2020, and $250,000 in FY2021 3. FY2021 Capital Funds a) Fund 210 Motor Fuel Tax. The State of Illinois shares a monthly per capita allocation with municipalities based on gasoline purchases. The number of gallons pumped rather than the price of gas is the determinant. These funds are principally restricted to street and bridge maintenance and related costs but, interestingly, can be used for salt purchases and also to defray the City’s Assistive services, including hearing assistance devices, available upon request. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 14 of 18 electrical charges for street lighting. In recent years the City has been stockpiling its MFT allotment for the Lucinda Avenue and First Street bridge repair projects, but has also dedicated a portion toward the design of the Twombly Road improvements in 2021. On a positive note, the City received $967,250 in MFT-based Rebuild Illinois Bond monies this year to help defray the costs of the new Afton Road right-of- way acquisition and design costs, and also engineering for the new bike path on Fairview Drive. The Council approved a budget amendment on July 13 (Resolution 2020-045) to dedicate the 2020 Rebuild Illinois allocation to these purposes, which will free up standard MFT revenues for annual street maintenance. FY2019 Actual FY2020 Budget FY2020 Est. FY2021 Budget Revenues Bond Revenue $0 $967,250 $967,250 $967,250 Federal Grants $0 $0 $0 $0 Federal Pass-Through Grants $0 $0 $0 $0 State Grants $0 $0 $0 $0 MFT Allotment $1,454,409 $1,679,745 $1,375,000 $1,375,000 Investment Interest $69,131 $65,000 $50,000 $60,000 Refunds/Reimbursements $0 $0 $0 $60,000 Transfer from General Fund $0 $0 $0 $0 Total Revenues $1,523,540 $2,711,995 $2,392,250 $2,462,250 Expenditures Maintenance--Street $0 $0 $0 $1,200,000 Bonded Capital Projects $0 $0 $0 $750,000 Ice/Snow Control Supplies $99,944 $125,000 $125,000 $125,000 Maintenance--Sidewalks $0 $0 $0 $0 Arch/Eng Services $50,252 $1,045,000 $960,000 $725,000 Land Acquisition Services $3,199 $0 $0 $0 Electric Services $286,079 $400,000 $400,000 $400,000 Legal Expenses & Notices $0 $0 $0 $0 Land Acquisition Services $0 $250,000 $250,000 $0 Street Improvements $0 $375,000 $300,000 $500,000 Street Construction $706,123 $450,000 $250,000 $560,000 Other Capital Improvements $174,912 $0 $0 $0 Transfer to General Fund $0 $0 $0 $0 Total Expenditures $1,320,509 $2,645,000 $2,285,000 $4,260,000 Net of Revenues/Expenditures $203,031 $66,995 $107,250 -$1,797,750 Beginning Balance $2,797,303 $3,000,334 $3,000,334 $3,107,584 Ending Balance $3,000,334 $3,067,329 $3,107,584 $1,309,834 In FY2021 and FY2022, the City is expected to receive additional installments of $967,250 per year from the Rebuild Illinois capital program. A portion of the Assistive services, including hearing assistance devices, available upon request.  Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 15 of 18 FY2021 Rebuild allocation will be used for the construction of Afton Road. After 2021, the smaller fund balance in addition to the annual MFT allotment for street maintenance will bring Fund 210 back into the historic range of annual revenues and expenditures. b) Fund 400 Capital Projects Fund. The principal source of revenue for this fund is a local tax on motor fuel purchases. Lesser sources include sales of surplus property and transfers from the General Fund. One year ago, the Council and FAC wrestled with the growing gap between the cost of upgrading streets and the available funds for street repair. With 130 centerline miles of roads to maintain (75% or 97.5 miles are residential), the average street maintenance budget to maintain a pavement condition index (PCI) at a rating above 70 on all City roads would require about $3.7 million per year. The annual State MFT allotment which increased by 19 cents per gallon in 2019 added about $500,000 to the City’s annual street maintenance program, and the Council added another 3 cents per gallon in local motor fuel tax for the same purpose. Of the 4 cent increase passed by the Council in November 2019, one cent went to Fund 420 for better fleet maintenance. The annual war chest for street maintenance is now about $2,205,000 in combined Fund 210 (state MFT) and Fund 400 (local MFT) monies. Other street-related costs such as sidewalk repairs, alley improvements, and construction engineering also have a modest fiscal floor under them. This is a significant increase from the roughly $750,000 spent in FY2017. FY2019 FY2020 FY2020 FY2021 Actual Budget Est. Budget Revenues Home Rule Motor Fuel Tax $714,856 $1,216,250 $800,000 $800,000 State Grants $0 $0 $1,440,000 $0 Traffic Impact Fees $0 $0 $0 $0 Rental Income $0 $0 $0 $0 Investment Interest $0 $0 $0 $0 Misc. Revenue $0 $0 $0 $0 Refunds/Reimbursements $0 $0 $60,000 $60,000 Sales of Surplus Property $136,632 $250,000 $700,000 $0 Transfer from General Fund $36,756 $0 $0 $0 Total Revenues $888,244 $1,466,250 $3,000,000 $860,000 Expenditures Supplies/Parts $0 $0 $0 $0 Maintenance--Buildings $0 $0 $0 $0 Maintenance--Sidewalks $0 $50,000 $50,000 $50,000 Arch/Eng Services $122,423 $125,000 $250,000 $75,000 Legal Expenses & Notices $0 $0 $0 $0 Land Acquisition Services $0 $0 $375,000 $60,000 Buildings & Improvements $0 $200,000 $160,000 $50,000 Assistive services, including hearing assistance devices, available upon request. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 16 of 18 Street Improvements $0 $0 $90,000 $425,000 Street Maintenance $685,749 $1,100,000 $820,000 $750,000 Alley Improvements $0 $100,000 $100,000 $100,000 Technology Equipment $0 $60,000 $205,000 $150,000 Transfer to Capital Equip. Fund $0 $0 $0 $0 Total Expenditures $808,172 $1,635,000 $2,050,000 $1,660,000 Net of Revenues/Expenditures $80,072 -$168,750 $950,000 -$800,000 Beginning Balance $443,991 $524,063 $355,313 $1,305,313 Ending Balance $524,063 $355,313 $1,305,313 $505,313 c) Fund 420 Capital Equipment Replacement Fund. As noted above, in November 2019 the City Council dedicated one cent of its 4-cent increase in the local fuel tax to fleet maintenance and thereby added about $175,000 to the annual revenues for such purposes. Other recurring fund sources include lease payments from telecommunication companies with antennae on our water towers (Rental Income”); E911 Board payments (“Reimbursements”); and a DeKalb County emergency services payment (“Miscellaneous Revenue”). This fund accounts for the purchases of vehicles and major equipment for the City. In August 2019, the Council and FAC wrestled with the widening gap between the City’s aging fleets and the funds available to replace them. In mid- 2019, the City’s fleet of Fire, Police, Public Works and other vehicles totaled 170 units with an average age that had grown from 5.7 years in 2006 to 12 years in 2018. At that time, the annual fleet maintenance costs had risen to about $300,000 per year and the replacement value of the combined City vehicles was about $12 million, with about one-half of the City’s vehicles beyond their useful life. The replacement cost of the 80 or so vehicles in the worst condition was about $4.3 million. As a result of the Joint Council/FAC discussion, the City staff were directed to investigate leasing options that might accelerate vehicle replacements for a few years until a sustainable level of annual lease obligations could be established. On May 26, the City Council reviewed and approved a staff proposal to enter an open-ended equity lease program with Enterprise Fleet Management that included 13 vehicles—10 of which were funded by Fund 420 and 3 were funded by the Water Capital Fund (Fund 620). All vehicles were priced on a five-year lease term, with the option of rolling any remaining equity into the lease of a follow-on vehicle. The total not-to-exceed leasing cost for the 13 vehicles over the full five-year term is $665,000. The total first year lease cost for the 13 vehicles is $186,893 (including down payments) as compared with the cash purchase price of $597,287 for a cashflow benefit of $410,394 in FY2020. The Fund 420 share of the annual lease costs in FY2020 is $161,114. On June 8, the City entered a more specialized master lease for two unique vehicles: a 2019 Ford Type III ambulance and a 2021 International 5-yard tandem dump truck. Enterprise focuses its program on smaller vehicles, so after reviewing the market the staff recommended and the Council approved a contract with Tax-Exempt Leasing Corporation for a financed amount of Assistive services, including hearing assistance devices, available upon request.  Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 17 of 18 $296,710 for the two vehicles at an interest rate of 2.6%.The outright purchase had been budgeted at $300,000 but the annual finance payment of $63,475 frees up additional monies for ongoing vehicle replacement. FY2019 Actual FY2020 Budget FY2020 Est. FY2021 Budget Revenues Home Rule Motor Fuel Tax $0 $173,750 $160,000 $165,000 State Grants $0 $0 $0 $0 Rental Income $217,155 $155,000 $155,000 $155,000 Investment Interest $489 $500 $0 $0 Misc. Revenue $40,000 $40,000 $30,000 $30,000 Refunds/Reimbursements $166,714 $172,500 $172,500 $172,500 Donation/Contribution $0 $20,000 $0 $0 Sales of Surplus Property $15,840 $15,000 $0 $0 Transfer from General Fund $75,000 $1,700 $0 $0 Total Revenues $515,198 $578,450 $517,500 $522,500 Expenditures Maintenance--Buildings $1,406 $0 $0 $0 Maintenance--Equipment $0 $21,700 $0 $0 Loan Payments $16,667 $16,667 $16,667 $16,667 Technology Equipment $84,929 $0 $0 $0 Vehicles $53,624 $1,145,000 $225,000 $450,000 Transfer to General Fund $0 $500,000 $500,000 $0 Total Expenditures $156,626 $1,683,367 $741,667 $466,667 Net of Revenues/Expenditures $358,572 -$1,104,917 -$224,167 $55,833 Beginning Balance $338,799 $697,371 $697,371 $473,204 Ending Balance $697,371 -$407,546 $473,204 $529,037 Summary The foregoing analysis surveys the City’s projected fiscal landscape for the next year and a half. This is purposeful. To the extent that we can rely on the past to guide us through our present difficulties, it is interesting to note that since 1929 the average recession has lasted about 15 months. The current deep recession is not based on cyclical business disruptions, however. A sustained rebound in GDP, employment, supply chains, and equity markets will depend on the development and wide distribution of one or more coronavirus vaccines. There is an underlying bias growing in the financial media that this goal may be achieved sometime in the third quarter of 2021. Such a plateau would allow for an easing of government-imposed restrictions on consumer activity but will not erase the cautions we have all taken to heart in the past four months. By the end of FY2021, the City government will have experienced a loss of roughly $3.5 million in reserve equity that had been restored to a record height as recently as January of this year. FY2020 General Fund expenditures will be cut $1,409,500, but General Fund revenues will drop $3,503,082 below the approved FY2020 budget (a net operating loss of $2,093,582), resulting in a reduction in the projected year-end Assistive services, including hearing assistance devices, available upon request. Special Joint Meeting City Council Committee of the Whole & Finance Advisory Committee August 17, 2020 Page 18 of 18 reserve from a budgeted $10,832,176 to $8,738,594. A projected net operating loss in FY2021 (-$1,624,118) will result in a further degradation of the General Fund reserve to $7,114,476 or slightly below the reserve at the end of 2018. This drop will be $1 million greater if the estimated $1 million in federal CARES Act funding does not materialize in the coming months. With the projected restoration of a balanced budget in FY2022, the most severe threat to the steady rebuilding of the General Fund reserve will not be the coronavirus, but an unresolved state pension crisis. The City of DeKalb can simply not endure the exponential increase in pension obligations and the increasing drain it imposes on general operating revenues. Disguised somewhat by the more visible and dramatic COVID-19 fiscal impacts, the pension crisis is the greatest menace to our reserve capacity. FY2021 Budget Schedule On July 27, the City Council approved the following FY2021 Budget schedule:  September 1 – October 14. Intense Department-level budget discussions around spending targets based on general goals established on August 17.  Thursday, October 14. Publication of Agenda for FAC Meeting on October 19.  Monday, October 19. Finance Advisory Board Meeting to review proposed, detailed FY2021 Budget highlights, including annual levy assumptions, 6:00 p.m. to 8:30 p.m.  Monday, October 26. Council consideration of property tax levy options.  Tuesday, November 10 (November 9 is the observance of Veteran’s Day, a city holiday). Council resolution establishing a Truth in Taxation Hearing for November 23.  Monday, November 16 & Wednesday, November 18. Back-to-back Special Council meetings in joint session with the Finance Advisory Committee to go over the Proposed FY2021 Budget document. The General Fund departments will be the focus on November 16, and the Capital, Enterprise, and Special Funds will be the focus on November 18.  Monday, November 23. Truth in Taxation Hearing. Budget Hearing. First Reading on Proposed FY2021 City Budget.  Monday, December 14. Second Reading on Proposed FY2021 City Budget.  December 31, 2020. Last day to file FY2021 Annual Budget and Property Tax Levy. E. ADJOURNMENT Notice of a Special Meeting of the City Council and Finance Advisory Committee for August 17, 2020 at 6:00 p.m., called pursuant to Chapter 2 “City Council”, Section 2.05 “Special Meetings”, of the Municipal Code of the City of DeKalb, Illinois. RUTH A. SCOTT, Executive Assistant Assistive services, including hearing assistance devices, available upon request.