Finance Advisory Committee

SPECIAL JOINT MEETING OF THE CITY COUNCIL AND FINANCE ADVISORY COMMITTEE MARCH 14, 2022 5:00 P.M. to 6:00 P.M. DeKalb Public Library Yusunas Meeting Room 309 Oak Street DeKalb, Illinois 60115 A. Call to Order B. Roll Call 1. City Council 2. Finance Advisory Committee C. Public Participation D. Consideration of a Draft Financial Plan for the Period 2022-2024 City Manager’s Summary: For the joint consideration of the City Council and the Finance Advisory Committee, City Manager Bill Nicklas and Finance Director Carrie Dittman will present a revised City Financial Plan for the period 2022-2024. A draft copy of the Revised Financial Plan is attached. E. Adjournment Notice of a Special Joint Meeting of the City Council and Finance Advisory Committee of the City of DeKalb for March 14, 2022, at 5:00 p.m. called pursuant to Chapter 2 "City Council", Section 2.05 "Special Meetings", of the Municipal Code of the City of DeKalb, Illinois. Assistive services, including hearing assistance devices, available upon request. COVID-19 Notice: The corporate authorities of the City of DeKalb intend to conduct this meeting in-person with a physically present quorum that is open to the public and in compliance with all applicable public health requirements. Pursuant to current public health guidelines, persons attending this meeting are not required to wear protective face masks/coverings. FINANCIAL PLAN 2022-2024  Mayor Cohen Barnes City Council Alderwoman Carolyn Morris, Ward One Alderwoman Barbara Larson, Ward Two Alderman Tracy Smith, Ward Three Alderman Gregory Perkins, Ward Four Alderman Scott McAdams, Ward Five Alderman Mike Verbic, Ward Six Alderman Anthony Faivre, Ward Seven City Manager Bill Nicklas Executive Team Jeremy Alexander, I.T. Director Michelle Anderson, Human Resource Director David Byrd, Police Chief Carrie Dittman, CPA and Finance Director Bryan Faivre, Director of Utilities & Transportation Zac Gill, City Engineer Dawn Harper, Chief Building Official Dan Olson, Planning Director Andy Raih, Director of Streets & Facilities Renee Riani, Airport Manager Ruth Scott, Executive Assistant Mike Thomas, Acting Fire Chief City Attorneys John Donahue/Matthew Rose Accountant Staff Susan Hauman, Assistant Finance Director Meagan Challand, Accountant Graphics Scott Zak, Management Analyst Jarell Blakey, MPA Intern 1  Table of Contents Page Section One: Introduction 4 Section Two: Economic Position 5 Section Three: Benchmarking to Comparable Communities 10 Comparable Communities 11 • Home Rule Status, Rate & Revenue 12 • Population 13 • Distance from DeKalb 14 • Full-Time Equivalent Employees 15 • General Fund Total Expenditures 16 • City Property Tax EAV, Levy & Rate 17 • General Fund Total Revenues 19 • State Sales Tax (1%) Revenues 20 • Median Household Income 21 Section Four: Operations 22 • General Fund Revenue Forecast 24 • General Fund Expenditure Forecast 32 • General Fund Balance Projections 33 Section Five: Capital and Water Funds 35 • Streets Analysis 36 • Fleet Analysis 38 • Water 40 Section Six: Policy Considerations 46 Appendix 63 2  SECTION ONE INTRODUCTION  Introduction “Wisdom is the exercise of judgment acting on experience, common sense, and available information.” Barbara Tuchman Wisdom in financial planning relies on clear-sighted information, shorn of preconceived notions or outcomes. Folly consists of the pursuit of plans and goals despite accumulating evidence that they are unattainable. Financial planning is a process, and not a product. For local governments, the “process” needs to be continuous, fearless of past fiscal trends and always tied to the organization’s defined long-term goals. Ultimately, local governments are about service and an array of actions that are demanded by the people they serve. Accordingly, the intended outcome of this study is a sharper definition of our economic position in advance of further City Council discussion about specific service goals, and the resources necessary to achieve them. The financial planning process embraced by the Government Finance Officers Association (GFOA) identifies the following essential ingredients for municipal financial analysis:  an assessment of the City’s economic position;  benchmarking of key data in relation to the experience of comparable communities;  revenue and expenditure analysis;  capital planning; and  alternative policy considerations. This Plan embraces these sinews of financial analysis and forecasting. In the preparation of this Plan, the City Manager was assisted by the City’s very able Finance department, led by Finance Director Carrie Dittman. The graphics that bring color and life to pages of statistical data were cleverly culled and imported into the text by Management Analyst Scott Zak. Finally, our always responsive Executive Assistant, Ruth Scott, and the City’s talented team of department heads lent their critical eyes to the several drafts of this Plan. Bill Nicklas City Manager March 1, 2022 3  SECTION TWO ECONOMIC POSITION  Economic Position “Become immersed in the place and period of (your) choice, standing apart from it now and then for a fresh view.” William Faulkner, attributed Overview The City of DeKalb is an urban community with a vital commercial base situated in a rural setting. It is located approximately 60 miles west of downtown Chicago. The City’s current land area is 16 square miles, all of which is located within DeKalb County. Neighboring communities include Sycamore, Malta, and Cortland. The City of DeKalb was incorporated in 1856 and since that time has continued to expand as new residents move farther west of the Chicago area to find quality affordable housing in a congestion-free community with a premium quality of life. The regional road system serving the City includes Annie Glidden Road, Peace Road, State Routes 23 & 38, and two full interchange connections with I-88. The DeKalb Taylor Municipal Airport accommodates private aircraft from one-seater planes to large corporate aircraft. DeKalb’s downtown is the heart of the community, playing host to numerous annual events and providing unique dining, shopping, entertainment, and residential alternatives. The community offers excellent City services, easy mobility around the town, and access to cultural, sports and educational activities. DeKalb is home to Northern Illinois University, which hosts 16,234 students and employs 3,300 faculty and staff. NIU’s operations, capital projects and visitor spending generate over $400 million in local economic impact. The marriage of community and university provides DeKalb with a solid foundation as a regional hub with major retailing and employment opportunities. The DeKalb Community Unit School District No. 428 serves the City of DeKalb with seven elementary schools, two middle schools, and one high school. Kishwaukee Community College, the DeKalb Public Library, and the DeKalb Park District all serve the DeKalb community and provide expanding opportunities for its residents. Council-Manager Form of Government The City of DeKalb’s municipal government operates under the Council-Manager form of government that combines the strong political leadership of elected officials in the form of a council or board, with the strong managerial experience of an appointed local government manager. The Council-Manager form establishes a representative system where all policy is 4 concentrated in the elected City Council and the Council hires a professionally trained manager to oversee the delivery of public services. Under the Council-Manager form of government, those duties not specifically reserved by the elected body pass to the City Manager and his or her professional staff. Home Rule Authority The City of DeKalb is a home rule unit by virtue of the provisions of the Constitution of the State of Illinois of 1970. Home rule status allows a community to take actions not specifically prohibited by the state statutes. Conversely, a non-home rule community can only undertake those actions specifically allowed for in the state statutes. Home Rule enables a municipality or county to establish its own system of self-governance without receiving a charter from the state and shifts much of the responsibility for local government from the state legislature to the local community. The most significant powers granted to a home rule community that pertain to finance are the ability to issue bonds without referendum, an exemption from property tax caps under the Property Tax Extension Law Limit (PTELL), and the ability to establish taxes and fees with local public approval and without state legislative action. Population DeKalb was incorporated in 1856 and designated a City in 1877. At the first decennial census after that designation, the population of DeKalb was 1,598 (1880). Since the beginning of the twentieth century, our population has generally increased at each decennial census except in 1920 and 2020, as shown in the table below: Table No. 1 Census Year Population Change % Change 1900 5,904 NA NA 1910 8,102 2,198 37.23% 1920 7,871 (231) -2.85% 1930 8,536 665 8.45% 1940 9,146 610 7.15% 1950 11,567 2,421 26.47% 1960 18,408 6,841 59.14% 1970 32,949 14,541 78.99% 1980 33,157 208 0.63% 1990 35,076 1,919 5.79% 2000 39,018 3,942 11.24% 2010 44,095 5,077 13.01% 2020 40,290 (3,572) -8.14% 5 Demographics & Housing In addition to raw population counts, the U.S. Census Bureau typically publishes demographic and housing data as part of its “American Community Survey (ACS)”. The ACS based on the 2020 decennial census has not yet been published but is expected by mid-2022. Based on ACS data published in 2018-2019 and shared by the DeKalb County Housing Authority, the following demographical information has been derived: Table No. 2 DeKalb DeKalb County Population 40,290 100,420 Growth -8.14% -4.51% Population by Age Less than 10 Years 9.7% 12.1% 10-19 Years 15.3% 15.0% 20-34 Years 39.7% 28.6% 35-54 Years 17.5% 22.7% 55-64 Years 8.7% 10.4% 65 Years and Older 9.1% 11.2% 100% 100.0% Median Age 25 31 Educational Attainment High School Diploma or Higher 92.4% 92.4% Bachelor's Degree or Higher 38.9% 31.4% Household Incomes Median Household Income $45,020 $61,086 Housing Owner-Occupied Units 6,200 21,746 Renter Occupied Units 9,299 16,406 Median Value, Owner-Occupied $157,900 $173,100 Median Gross Rent $903 $924 Household Income by Age Under 25 years $19,864 $24,963 25-44 Years $44,083 $65,834 45-64 Years $83,468 $86,188 65 Years and over $46,625 $51,360 6  Rent Expense as Percentage of Income Less than 15% 11.7% 12.9% 15% to 25% 20.4% 24.3% 25% to 35% 20.0% 20.9% 35% or more 47.9% 41.9% 100.0% 100.0% Context for Affordability Median Household Income $44,222 $61,086 80% MHI* $35,378 $48,869 30% of 80%--Rent/Month** $884 $1,722 30% of 80% Home Purchase** $106,133 $146,606 Rate of Persons in Poverty 28.5% (Figures based on 2019 ACS Survey. Note that this is the most recent data available) *Affordability in this context assumes a household earning 80% of the median household income can still rent or own without being cost-burdened in terms of non-housing demands on income (e.g., education, health, etc.). **What a household earning 80% of the median household income can afford using 30% of their income for housing costs. Race & Ethnicity DeKalb is a diverse, welcoming community. While 66% of the population identifies as White, 13% identify as Black or African American, 13% identify as Hispanic or Latino, and 5% identify as Asian. Population by Race Identified by Two or more Asian 3% 5% Hispanic or Latino 13% African American 13% White 66% 7 Economic Factors Although the City’s property tax base is primarily residential, significant expansion in the community’s commercial and industrial property values is an integral component in the diversification of the City’s tax base. In the 2020 tax year, the equalized assessed valuation (EAV) for residential properties was $381,550,762 or 62.5% of the total EAV. The Commercial EAV was $216,039,502 or 35%% of the total EAV. Farm, industrial and other EAV was $72,423,226 or 11.87% of the total EAV. In the 2021 tax year (taxes payable in 2022), the overall DeKalb EAV is expected to increase from $610,333,062 (2020) to about $704,000,000. The community’s Industrial EAV grew by $11.7 million owing to the new Ferrara distribution and packing center in particular, and by another $1,675,499 owing to a small, partial assessment of the first phase of the Meta (Facebook) data center now under construction. Included in the overall jump in community EAV was $59 million owing to the one-time “recovery” of TIF increment as the City’s Central Area TIF district is terminated. EAV approximates 33 1/3% of the market value of real property within the City’s corporate limits. Property taxes imposed on property within the City’s corporate limits provide a stable revenue source. Because the City is a home rule municipality, it is not subject to the Property Tax Extension Limitation Law. The City’s principal employers have been stable. The following table identifies those top employers and their number of employees: Table No. 3 2020 2010 Employer Rank Employees Rank Employees NIU 1 3,291 1 3932 Target Distribution Center 2 1,250 6 500 Northwestern Hospital (Kish) 3 1,200 2 1297 DeKalb School District 4 931 3 785 Tegrant Sonoco 5 700 7 370 3M 6 572 4 609 Walmart 7 525 5 525 Ferrara Candy 8 500 N/A N/A American Marketing & Publishing 9 358 8 295 Ideal Industries 10 336 N/A N/A Nestle Distribution 11 265 9 265 8 SECTION THREE BENCHMARKING  Benchmarking to Comparable Communities “Learn, compare, collect the facts!” Ivan Pavlov Comparable Cities The empirical model used for this portion of the Plan employs a sliding scale of weighted variables to measure comparability. The following variables were assigned varying weights of 15, 10 or 5 points to determine a community’s relative likeness to DeKalb in terms of primarily economic factors: Table No. 4 Criterion Source Variable Weighting Values Municipal Fire Department Illinois Fire Marshall website Yes/No College or University Community webpages 5 pts. Home Rule Status, Rate & Revenue Municipality budgets 10 pts. Illinois State Comptroller Local Population 10 pts. Government Warehouse Distance from DeKalb http://www.distance-cities.co/ 5 pts. Illinois State Comptroller Local Number of Full-time Employees 10 pts. Government Warehouse Illinois State Comptroller Local General Fund Total Expenditures 15 pts. Government Warehouse Municipality budgets & levy City EAV, Levy, & Rate 10 pts. ordinance backgrounds Illinois State Comptroller General Fund Total Revenues 15 pts. Local Government Warehouse Illinois State Comptroller Local Annual State (1%) Sales Tax Revenues 10 pts. Government Warehouse Median Family Household Income U.S. Census (2020) 10 pts. 9 Based on data culled by City staff, the empirical model yielded the following short list of Illinois cities, in alphabetical order: Table No. 5 Municipality Total Score Municipal Fire Department DeKalb 100 Yes Carpentersville 77 Yes Urbana 74 Yes Hanover Park 73 Yes Crystal Lake 70 Yes St. Charles 70 Yes Batavia 67 Yes Hoffman Estates 59 Yes Sycamore 55 Yes Geneva 51 Yes Bloomington 47 Yes Communities without municipal Fire departments were excluded because of the substantial financial requirements associated with a full-time, paid department offering both fire protection and emergency medical services on a 24/7 basis. Although not strictly comparable, Sycamore was added because it is contiguous and a familiar multi-service government which draws comparisons in popular parlance. Finally, the analysis includes two other university communities: Bloomington and Urbana. Benchmarking Data The benchmarking data identified in Table No. 4 are detailed in the charts below. 1. College or University Municipality College or University DeKalb Yes Batavia No Bloomington Yes Carpentersville No Crystal Lake No Geneva No Hanover Park No Hoffman Estates No St. Charles No Sycamore No Urbana Yes 10 2. Home Rule Status, Rate and Revenue Home Rule Sales Tax Revenue $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Under the Illinois Constitution of 1970, municipalities with a population greater than 25,000 obtained automatic home rule status. Municipalities may also adopt home rule status through referendum. Home rule units are able to regulate and impose local taxes through broader taxation powers. Generally speaking, home rule units can constitutionally tax anything that is not income, occupations, or earnings. Examples of taxes that may be imposed through home rule authority include the Municipal Retailers and Service Occupation Tax or MROT (in .25% increments); Hotel/Motel Tax (capped at 5%); Local Gasoline Tax (no limit); Food & Beverage Tax (over and above the sales tax); and Use Tax (on all tangible property registered with the State such as new or used cars and boats). The table below shows only the MROT tax rates for DeKalb’s comparable cities: Municipality Home Rule Status Home Rule Tax Rate HR Tax – 2019* Bloomington Yes 2.50% $22,354,337 Carpentersville Yes 2.00% $5,260,668 DeKalb Yes 1.75% $6,583,319 Sycamore Yes 1.75% $3,563,473 Urbana Yes 1.50% $4,320,000 St. Charles Yes 1.00% $6,274,000 Hanover Park Yes 1.00% $4,753,609 Batavia Yes 1.00% $3,657,967 Hoffman Estates Yes 1.00% $2,703,178 Crystal Lake Yes 0.75% $5,403,739 Geneva No N/A N/A *FY2019 Actual. The FY2021 totals are not yet available. Given the uniquely constrained expenditures during the COVID pandemic in FY2020, the more reliable 2019 expenditure numbers are used. 11 3. Population Population 90,000 80,000 70,000 60,000 50,000 40,000 2010 30,000 2020 20,000 10,000 0 In economic terms, population is an important factor for municipal revenue forecasting. For example, for those state-shared revenues allocated on a per capita basis such as state income tax proceeds, state motor fuel tax, and the local use tax (which applies to any tangible property purchased at retail including internet sales), population is very important. DeKalb’s decline in population according to the 2020 federal Census from 44,095 to 40,290 (3,805 persons) could result in a loss of an estimated $1.9 million (@$500 per person) in overall per capita revenues. Municipality 2010 2020 % Change Sycamore 17,519 18,577 6.04% Hoffman Estates 51,895 52,530 1.22% Carpentersville 37,691 37,983 0.77% St. Charles 32,974 33,081 0.32% Batavia 26,045 26,098 0.20% Bloomington 78,610 78,680 0.09% Geneva 21,495 21,393 -0.47% Crystal Lake 40,743 40,269 -1.16% Hanover Park 37,973 37,470 -1.32% Urbana 41,250 38,336 -7.06% DeKalb 43,862 40,290 -8.14% 12 4. Distance from DeKalb Miles from DeKalb 200 180 160 140 120 100 80 60 40 20 0 This factor may be the least useful in terms of predictive metrics, but it is a common reference point in public parlance. A more meaningful economic reference point in terms of future growth may be the distance of competitive communities from the Chicago metropolitan core. However, there are also regional economic dynamics beyond the scope of this Plan that carry unique opportunities and threats to future development. Municipality Miles Urbana 173 Bloomington 121 Hanover Park 50 Hoffman Estates 43 Crystal Lake 39 Carpentersville 35 Batavia 30 St. Charles 24 Geneva 24 Sycamore 6 DeKalb 0 13 5. Full-Time Employees Full-Time Employees (FTE) 700 600 500 400 300 200 100 0 FTEs Per 1,000 Population 9 8 7 6 5 4 3 2 1 0 Staffing is a key consideration in the “right-sizing” of local government. The relationship of staffing to local service demands and the ability of a community to meet those demands in terms of government revenue is not the focus of this study but is an important consideration in strategic planning. Municipality FTE FTEs Per 1,000 Population Bloomington 644 8.2 Hoffman Estates 338 6.4 Crystal Lake 256 6.4 St. Charles 239 7.2 Urbana 232 6.1 DeKalb 222* 5.5 Hanover Park 200 5.3 Batavia 157 6 Carpentersville 152 4 Geneva 151 7.1 Sycamore 99 5.3 *FY2022 approved staffing level. 14 6. General Fund Total Expenditures General Fund Total Expenditures $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 General Fund Expenditures Per Capita $1,400.00 $1,200.00 $1,000.00 $800.00 $600.00 $400.00 $200.00 $0.00 Municipality GF Expenditures GF Expenditures Per Capita Bloomington $93,078,229 $1,183 Hoffman Estates $57,099,430 $1,087 St. Charles $39,251,675 $1,186.53 DeKalb $36,194,449 $898.35* Hanover Park $35,419,051 $945.26 Urbana $32,201,934 $840 Carpentersville $28,614,645 $753.35 Crystal Lake $27,666,929 $687.05 Batavia $26,490,244 $1,015.03 Geneva $17,119,662 $800.25 Sycamore $16,388,712 $882.20 *FY2019 Actual. The FY2021 totals are not yet available. Given the uniquely constrained expenditures during the COVID pandemic in FY2020, the more reliable 2019 expenditures are used. 15 7. City Property Tax EAV, Levy & Rate Equalized Assessed Valuation $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 2020 2021 Estimated $500,000,000 $0 2021 Property Tax Levy $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 16  2021 Estimated City Property Tax Rate 2.5 2 1.5 1 0.5 0 Municipality 2020 EAV 2021 EAV* 2021 Levy 2021 Rate* Carpentersville $679,258,993 $698,906,021 $13,513,450** 1.93351 Hanover Park $726,416,062 $726,585,016 $13,383,696** 1.84200 Hoffman Estates $1,612,295,657 $1,849,020,509 $26,625,921 1.44000 Bloomington $1,887,703,781 $1,930,212,541 $20,920,384 1.08383 Crystal Lake $1,245,417,176 $1,296,246,215 $13,865,871 1.06969 DeKalb $610,333,062 $704,000,000 $6,845,317 0.97235 St. Charles $1,542,645,417 $1,587,363,702 $13,721,364 0.86441 Urbana $605,965,820 $631,737,010 $4,823,818 0.76358 Batavia $1,074,000,000 $1,104,000,000 $8,159,450** 0.73908 Sycamore $487,885,213 $508,768,557 $3,185,960 0.62621 Geneva $1,090,050,433 $1,120,706,153 $5,740,825 0.51225 *Estimated ** Includes levy for unabated debt It is important to note that the tables above refer only to the comparative city tax levies and rates, not the aggregate or combined rate of all local taxing bodies. In Section Six, “Policy Considerations,” the extraordinary leavening impact of the City’s rising EAV on all local taxing bodies will be addressed in detail. 17 8. General Fund Total Revenues General Fund Total Revenues $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 GF Revenues Per Capita $1,600.00 $1,400.00 $1,200.00 $1,000.00 $800.00 $600.00 $400.00 $200.00 $0.00 The tables above portray general operating revenues, and not the combined revenues of all capital, enterprise and special funds. Municipality GF Revenues GF Revenues Per Capita Bloomington $104,518,755 $1,328.40 Hoffman Estates $59,990,563 $1,142.02 St. Charles $48,386,048 $1,462.65 Hanover Park $41,943,735 $1,119.40 DeKalb $38,704,008* $960.64 Urbana $38,179,476 $995.92 Carpentersville $36,353,194 $957.10 Crystal Lake $35,897,215 $891.44 Batavia $29,324,887 $1,123.64 Geneva $20,478,137 $957.23 Sycamore $17,319,270 $932.30 *Actual 2019 Total. The FY2021 totals are not yet available. Given the uniquely constrained revenues during the COVID pandemic in FY2020, the more reliable 2019 numbers are used. 18 9. Annual State (1%) Sales Tax Revenues 2021 State Sales Tax Revenue $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 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. The 1% state sales tax allocation from the Illinois Department of Revenue is of course subject to volatility during economic downturns but is a crucial annual revenue source representing 13.5% of all general operating revenues (and about 15% of all “natural” operating revenues excluding “transfers in”). Municipality State 1% Sales Tax Bloomington $14,622,314 St. Charles $14,197,515 Crystal Lake $12,215,655 Hanover Park $8,976,874 Hoffman Estates $7,841,727 Urbana $7,841,727 DeKalb $5,761,652* Carpentersville $5,300,656 Batavia $5,079,762 Geneva $4,931,979 Sycamore $4,521,605 *Estimated FY2021 Total. Information Gathered Via Illinois Comptroller Database 19 10. Median Family Household Income Median Family Household Income $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 The community’s median household income has social and economic implications for future economic growth. Allowing for the disproportionate number of households centered on adult students whose educational commitments prevent them from seeking full-time employment, the raw data still suggests that DeKalb needs to promote new growth that supports “career jobs,” or positions that raise household incomes to a level that can support household stability and home ownership. Municipality Median Household Income Geneva $111,916 Crystal Lake $105,609 St. Charles $98,393 Batavia $93,789 Hoffman Estates $91,917 Hanover Park $76,615 Sycamore $71,698 Carpentersville $68,997 Bloomington $67,507 DeKalb $45,020* Urbana $37,102 *Estimated FY2019 Total Based on 2019 American Community Survey. 20 SECTION FOUR OPERATIONS  Operations “. . . what’s past is prologue, what to come, in yours and my discharge.” William Shakespeare In 1871, after a decade of momentous civil war and economic and political transformation, the federal government employed only 51,071 people, of whom 36,696 worked for the U.S. Post Office. Government at all levels collected only 8 cents for every dollar of income generated by private investment, and six of those eight cents were spent by local government. Government at the local level remains the most visible, transparent, and approachable of all units of government in this country, but the means required by local government to provide the services that local citizens now demand are relatively prodigious when compared with the allocations of the late nineteenth century. DeKalb is no exception. The “operations” of DeKalb’s government are principally supported by the City’s General Fund. Other City funds—the Water Fund, Transportation Fund, and Airport Fund in particular—support vital city operations, which include personnel and non-personnel expenditures. This section will focus upon the General Fund’s operating revenues and expenditures which define the rhythms of the legislative, administrative, planning, police, fire, and public works functions most familiar to the general public. ***** The FY2022 City Budget approved on December 13, 2021 (Ordinance 2021-051) forecast General Fund revenues and expenditures through 2024. The starting point was a projected FY2021 year-end fiscal condition that belied the harsh economic impacts of the COVID-19 pandemic from March 16, 2020, through May 14, 2021. The fact that the City Council had successfully taken timely and dramatic steps as the pandemic exploded in 2020, along with significant federal aid in the form of 2020 Cares Act funding ($1.816 million) and the leverage of American Rescue Plan Act funding (totaling $10,422,954: $5,211,477 in May 2021 and another $5,211,477 expected in April 2022) enabled the Council to make sensible projections about FY2022, FY2023, and FY2024 General Fund Spending. Specifically, on May 26, 2020 the Council amended the FY2020 City Budget to freeze hiring across city departments and impose other non-personnel cuts for a combined total of $2,125,833 in General Fund savings (and $261,000 in Water Fund savings). Additionally, on September 28, 2020 the City “scooped” the approximately $1.9 million associated with the January 1, 2021 and July 1, 2021 debt service on four of the City’s GO bonds payable from the General Fund and “tossed” them to 2028, 2029, and 2030 when the principal was sharply less. This resulted in a one-year hiatus in GO debt payments in 2021. Altogether, the aggregate savings of about $4 million in 21  General Fund spending and some additional constraint by department heads in operational spending resulted in a beginning General Fund balance on January 1, 2021 that was larger than the starting General Fund balance of January 1, 2020. The beginning General Fund balance on January 1, 2022, was in turn larger than the starting General Fund balance on January 1, 2021. The table below portrays actual 2020 General Fund totals, unaudited FY2021 totals, budgeted FY2022 General Fund totals, and projected FY2023 and 2024 totals: Table No. 6 FY2020 Actual FY2021 Projected FY2022 Budget FY2023 Budget FY2024 Budget Starting Fund Balance $10,524,704 $12,286,411 $16,611,650 $17,819,851 $19,221,408 Revenues by Category Property Taxes $6,178,386 $6,522,456 $6,845,318 $7,184,161 $7,539,777 Sales & Use Taxes $14,504,006 $16,554,942 $16,735,272 $17,195,492 $17,668,368 Gross Receipts Taxes $3,375,859 $3,481,950 $3,627,072 $3,726,816 $3,829,304 Intergovernmental $7,462,155 $6,136,157 $6,243,540 $6,415,237 $6,591,656 Licenses & Permits $997,277 $929,224 $973,847 $1,000,628 $1,028,145 Service Charges $3,119,088 $4,565,456 $4,034,851 $4,145,809 $4,259,819 Fines $422,112 $452,029 $471,815 $484,790 $498,122 Other Income $1,235,589 $902,277 $927,090 $952,585 $978,781 Transfers In $1,047,000 $2,132,496 $3,433,351* $3,320,387* $2,554,612* Total Revenues $38,589,510 $41,676,987 $43,292,156 $44,425,906 $44,948,584 Expenditures by Category Personnel $30,566,531 $29,910,292 $31,513,525 $33,296,694 $34,129,111 Commodities $774,146 $704,970 $759,358 $764,939 $803,186 Contractual Services $3,635,519 $4,061,680 $4,324,150 $4,369,637 $4,588,119 Equipment $19,922 $28,000 $33,500 $33,852 $35,545 Transfers Out $1,831,685 $2,384,017 $5,453,422** $4,559,226 $4,696,003 Total Expenditures $36,827,803 $37,089,559 $42,083,955 $43,024,348 $44,251,964 Rev-Exp $1,761,707 $4,588,028 $1,208,201 $1,401,558 $696,620 Prior Period Adjustment $0 -$262,789 $0 $0 $0 Ending Fund Balance $12,286,411 $16,611,650 $17,819,851 $19,221,408 $19,918,028 vs. Reserve Policy 25% 33.36% 44.79% 42.34% 44.68% 45.01% * Includes ARPA grant monies in 2022 ($1,837,285); 2023 ($1,837,285) and 2024 ($1,019,023). **Includes a $1,000,000 City grant extended to Clear Investment Group, LLC (Resolution 2021-103) to assist in the acquisition & renovation of Hunter Ridgebrook with the common addresses of 808 Ridge Drive, 832 Ridge Drive, and 835 Edgebrook Drive. 22 A. General Fund Revenues 1. ARPA Fund (Fund 110). More than any other factor, grant revenue from Fund 110 of federal funds committed to the City of DeKalb in the amount of $10,422,954 through the American Rescue Plan Act of 2021 (ARPA) will impact General Fund spending in the period January 1, 2022, through December 31, 2024. As shown in Table No. 6, above, the projected fund balance through FY2024 includes an ARPA transfer of $1,837,285 in FY2022, $1,837,285 in FY2023 and $1,019,023 in FY2024. The City of DeKalb is classified as a “metropolitan city” with an expanded list of potential ARPA uses. In terms of the General Fund, the potential uses relate primarily to revenue loss. Revenue Loss. The US Treasury’s Interim Final Rule, effective May 17, 2021, specified the categories for allowable expenditures, including payroll and covered benefits for public safety, which include police, firefighter/paramedics, and public works employees. Revenue replacement was also permissible, based on a detailed formula, which the City calculated to be $4,254,204 for the period from March 2020 to March 2021. An additional $1,837,285 was qualified by the Interim Rule for public health and safety costs in the period March 3, 2021 through May 31, 2021 for a total revenue replacement of $6,091,589 to help offset General Fund expenditures from 2021 – 2024. On January 6, 2022, the US Treasury issued its Final Rule related to spending of the ARPA Grant. The US Treasury simplified the revenue replacement model and now provides for a standard allowance of up to $10 million of the grant to be utilized for revenue replacement, with no required calculation. The revenue replacement may be used for any general government expenditure, except for paying debt service, lump-sum contributions to a pension fund, or legal settlements. In accordance with the City’s strategy to fund the fire, police and public works positions frozen in May 2020, the City will recognize grant funds of $1,511,017 in the Annual Comprehensive Financial Report for FY 2021 related to the hiring of new employees in these departments through December 31, 2021. Additionally, ARPA monies were utilized in 2021 to further the City’s commitment to broader community purposes to promote equitable outcomes to historically underserved, marginalized, or adversely affected groups, including relocation assistance for persons and businesses located in Hunter Hillcrest as part of the property’s redevelopment. This evidence-based assistance means: • The program is offered in a physical location within a Qualified Census Tract (QCT). • The primary intended beneficiaries earn less than 60% of the median income for the relevant jurisdiction. The City’s 2020 census information confirms such criteria. 23  • Over 25% of the intended beneficiaries are below the federal poverty line as defined by the US Department of Housing and Urban Development (HUD). • The proposed programming addresses health disparities, education disparities and builds stronger neighborhoods. In 2021, ARPA grant expenditures were expended on the Hunter Hillcrest project as follows: • $1,134,713 to purchase the Hunter Hillcrest property plus $13,451 for emergency building work for the existing tenants. • $50,981 in relocation assistance for the existing commercial and residential tenants. In summary, a total of $3,001,806 of the total ARPA grant of $10,422,954 was expended in 2021 for ARPA eligible expenditures as follows: • $1,511,017 to hire public safety positions (ongoing). • $1,134,713 for the purchase of the Hunter Hillcrest property (complete). • $13,451 for emergency repairs at Hunter Hillcrest (demolition and site preparation to follow). • $50,981 for relocation assistance of Hunter Hillcrest tenants (ongoing). • $291,644 in payments to other units of local government (complete). On July 26, 2021 the Council approved a grant of $241,644 for the Kishwaukee Water Reclamation District to help cover significant revenue losses attributable to the sharp decline in NIU services. On August 23, 2021 the Council approved a grant of $50,000 for the DeKalb Park District to offset revenue losses in 2020. These single-purpose taxing bodies were not eligible for direct 2020 Cares Act reimbursements. A particular emphasis of the American Rescue Plan is the replacement of lead water service lines. In this regard, in the FY2022 City Budget the Council “parked” $1,000,000 in ARPA funds in the Water Capital Fund (Fund 620) to incentivize lead service replacement across the City. The results of a late Fall, 2021 survey of homes suspected of having lead service showed far fewer (about 200 homes) than anticipated before the survey was completed (about 900 homes). The Council has yet to explore the criteria for grants to qualified homeowners. Other communities are considering a public commitment to replace the lead service from the main to the shut-off box on private property, and a $1,000 credit to incentivize the homeowner’s replacement of the remaining service to the house. If such a program was instituted, the City might be committed to a lesser lead service replacement budget of about $400,000: $200,000 for private incentive grants and an equal amount for the service replacement from the public main to the shut-off boxes. 24  The unallocated total of federally dedicated ARPA funds was $6,421,148 as of January 1, 2022. Of that total, qualified revenue replacement will total $4,693,593 in the period 2022-2024 ($1,837,285 in 2022; $1,837,285 in 2023; and $1,019,023 in 2024). A total of $1,727,555 in unallocated ARPA grant funds may be applied to continuation of the projects noted above or redirected to other general governmental services at the Council’s discretion. 2. SAFER Grant (Fund 120). Another federal source will contribute very significantly to City staffing needs and the funds required to fill them in the period 2022-2024. On August 31, 2021, the City of DeKalb received official notification that the Department of Homeland Security’s Federal Emergency Management Agency had awarded the City of DeKalb a “Staffing for Adequate Fire and Emergency Response” (SAFER) federal grant in the amount of $2,721,256.47 to be allocated between 2/27/2022 and 2/26/2025. The City of DeKalb was one of only four entities in the country to receive the full, three-year grant allocation. Other communities received one-year and two-year allocations. The City originally applied for this grant support in 2019, before the COVID crisis, to address the rising dilemma of a spike in Department call volume (especially EMS calls) and a minimum shift staffing level (13) that had not changed since the early 2000s. The City failed to secure FEMA grant support on the first attempt and re-applied at the height of the pandemic when Administration decisions to freeze unfilled positions had actually reduced the Department’s authorized union firefighters from 53 to 48. The 4-year collective bargaining agreement approved by the Council and Firefighters Local 1236 in late December 2020 committed the City to a minimum shift strength of 16 by October 1, 2024. This contract was boldly entered as both the City and the Union were still facing serious economic uncertainty. It is easy to forget that COVID vaccination was just starting in December 2020, that there was no $1.9 trillion American Rescue Plan Act (signed into law on March 11, 2021), and the executive orders restraining commerce and hospitality businesses were still rigidly in place. The fundamental consideration was the fact that the DeKalb Fire department falls short of the staffing standard set by the National Fire Protection Association (NFPA) – the American fire profession’s standard-setting body. The NFPA standard is 4 personnel on each fire company: one driver/engineer, two firefighters for task work, and one officer (supervisor). The DeKalb department regularly runs only two persons per engine on the assumption that the two firefighter/paramedics assigned to the accompanying ambulance will provide adequate personnel to suppress a fire and perform essential tasks (e.g., search and rescue, hose deployment, ventilation, etc.). This strategy is undone when either the ambulance is committed to an EMS call at the time of the fire or, upon arriving at the scene, one or more injured persons require paramedic attention. The arriving engine company is then left with just two personnel to operate the fire engine until mutual aid companies or recalled firefighters arrive, which can take up to 30 minutes. The NFPA standard is echoed in the applicable OSHA “Two-In, Two Out” rule. Because of the deficiency in staffing, the Fire Department is forced to recall firefighters every day on overtime. Such backfilling led to annual Department overtime costs of $1.156 million in 2020, up from $365,334 in 2017. 25  The 2021-2024 contract offers a gradual, long-term path to remedy the staffing shortage, and the SAFER grant was intended to provide the necessary funding for the nine (9) additional firefighters required to reach the new minimum staffing threshold. With the award of the SAFER grant, the City committed to hiring the new 9 firefighter/paramedics within 180 days, or by February 28, 2022. As with the 2021 federal ARP monies and the 2020 Coronavirus Relief Funds (CRF), rigorous reporting will be required. The SAFER funding will free up ARPA funding (Fund 110) for the kinds of community advocacy intended by the Congress, particularly in the Qualified Census Tracts targeted by the U.S. Treasury. Further discussion and decisions will be made by the Council respecting water, sewer, and road improvements in those areas in particular, as intended by federal law. 3. Property Taxes and Pensions. None of the property taxes that the DeKalb City Council will levy in 2022, 2023 and 2024 will be used for general operations. The last year that a portion of the annual City levy was available for purposes other than the payment of the City’s Fire and Police state pension obligations was 2013. According to the state pension compromise enacted by the Illinois legislature in 2011, a closed amortization period was created that requires the state-wide Fire and Police 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 one gets to 2040. As of December 31, 2020, the funded levels of DeKalb’s Fire and Police Pension Funds were 40% and 54.4%, respectively. This burden will continue until action downstate leads to reform of the actuarial cost method. Because of the COVID crisis, the two state-wide boards which are to handle the larger, consolidated investment pools to the advantage of local communities have not completed the consolidations anticipated by the Legislature in 2019. As a result, no relief in terms of reduced fund management costs has been realized. The City Manager 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. Until that moment arrives, the City will need to dedicate an ever-larger proportion of its General Fund revenues toward Fire and Police pension contributions. In 2014, the City dedicated 10.4% of its overall General Fund revenue to this end; in 2022 about 19.3% of the budgeted General Fund expenditures are dedicated to this end. This alarming trend is evident in Table 7: 26  Table No. 7 Fiscal Year Actuarial Required City's Adopted Difference $ Difference % Contribution Tax Levy 2019 Fire Pension $3,503,332 $3,220,517 $282,815 8.07% Police Pension $3,079,438 $2,796,623 $282,815 9.18% Total $6,582,770 $6,017,140 $565,630 8.59% 2020 Fire Pension $3,951,651 $3,322,914 $628,737 15.91% Police Pension $3,446,287 $2,946,735 $499,552 14.50% Total $7,397,938 $6,269,649 $1,128,289 15.25% increase over PY 12.38% 4.20% 2021 Fire Pension $4,282,230 $3,569,403 $712,827 16.65% Police Pension $3,614,881 $2,953,053 $661,828 18.31% Total $7,897,111 $6,522,456 $1,374,655 17.41% increase over PY 6.75% 4.03% 2022 Fire Pension $4,415,632 $3,720,878 $694,754 15.73% Police Pension $3,707,827 $3,124,439 $583,388 15.73% Total $8,123,459 $6,845,317 $1,278,142 15.73% increase over PY 2.87% 4.95% Fiscal Year Levy Year Future w/ 4.95% increases: 7,184,160.19 2023 2022 7,539,776.12 2024 2023 7,912,995.04 2025 2024 This structural problem challenges the City’s ability to dedicate property tax revenues derived from the recent dramatic growth in City EAV toward essential municipal services. The property tax is considered the most stable of municipal revenues, particularly by bond rating houses and bond buyers who are averse to any vulnerabilities in revenue streams dedicated toward bond repayment. A case in point is the most recent judgment by Moody’s Investors Service regarding the City’s fiscal health. In the fall of 2020, as the City Council was considering general obligation refunding bonds (Taxable Series 2020) to provide near-term budgetary relief against adverse coronavirus impacts, the pending public issue invited a Moody’s review, particularly since the agency had given the City’s A1 rating a “negative outlook” in 2018. The review was generally favorable, citing the recent growth in General Fund reserves as well as the significant recent expansion and diversification of the City’s tax base (e.g., Ferrara and Meta, as well 27  as redevelopment in the downtown core). Moody’s also favorably noted the City’s willingness to cut expenses early in 2020 in the face of the pandemic, and the fact that 90% of the principal on the City’s outstanding general obligation debt would be retired within 10 years. However, the crisis associated with the funding of the two downstate pension plans was the decisive factor in the Moody’s downgrading of the City’s credit rating from A1 to A2. The agency reasoned that although the City’s annual contributions had been meeting the minimum funding expectations to get to the 90% funded ratio by 2040, its contributions fell below the “treadwater” threshold at which growth in the net pension liabilities exceeded the dedicated property tax revenues. The agency was quick to add that any material weakening of the more volatile local sales and use tax revenues due to the pandemic, or further enrollment decline at NIU, or reductions in state-shared revenues— taken separately or altogether--would threaten sustained operating fund balances and bond buyer confidence. Were it not for the state pension crisis, the fiscal discussion would center squarely on the level of annual levy increase necessary to sustain essential services and the staffing levels to provide them. The projection of General Fund revenues and expenditures in Table No. 6, above, assumes City levy increases of 4.95% in 2022, 2023, and 2024. This pace is consistent with the guidance of the present Financial Plan (2018-2022) which levelled annual property tax growth at 5%. The 2018-2022 Plan also projected a substantially lower City EAV and recommended a not-to-exceed City rate threshold of 1.5% (pp. 128- 129). The 2018-2022 Plan’s Levy, Rate and EAV growth projections for the City are compared with actual data in the tables that follow: Table No. 8 Financial Plan, 2018-2022 2018 2019 2020 2021 2022 2023 2024 Tax Levy Projection $6,425,432 $7,619,826 $8,059,780 $8,517,453 $8,993,667 $10,054,664 NA Tax Rate 1.23% 1.41% 1.44% 1.47% 1.50% 1.62% NA EAV Projection $521,500,000 $539,752,500 $558,643,838 $578,196,372 $598,433,245 $619,378,408 NA EAV Growth* 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% NA N.B.: The City’s rate-setting EAV in 2017 was $529,629,464. The City rate was 1.2268%. N.B.: The 2018-2022 Plan numbers were in error: with a flat 3.5% EAV growth the true EAV and rate numbers are as shown above. Financial Plan, 2022-2024 2018 2019 2020 2021* 2022* 2023* 2024* Tax Levy $6,017,140 $6,269,649 $6,522,507 $6,845,317 $7,184,161 $7,539,777 $7,912,996 Tax Rate 1.18830% 1.15410% 1.06868% 0.97235% 0.89802% 0.86169% 0.83295% EAV $547,947,687 $585,726,839 $610,333,062 $704,000,000 $800,000,000 $875,000,000 $950,000,000 EAV Growth 3.50% 6.89% 4.20% 15.35% 13.64% 9.38% 8.57% *Estimated 28 The projected 2022, 2023, and 2024 City EAV numbers are speculative and will be significantly influenced by the DeKalb Township Assessor’s EAV estimate for the occupied portions of Phase One of the Facebook/Meta development in late summer 2022, and the Assessor’s EAV estimate for the Amazon plant if it is occupied in the summer of 2022. The conservative presumption is that occupancies in these two developments as well as the occupancy of Agora Towers, Isaac Suites, City Hall Suites, Wehrli Custom Fabrication, and a general inflation in local property values will increase the City’s EAV by about $75 million a year for the period 2022-2024. There remains a substantial gap between the City’s aggregate property tax rate including all local taxing bodies and the aggregate rate of other northern Illinois communities in competition with DeKalb for new business investment and jobs. The table below compares DeKalb’s aggregate rate in 2020 with those of other nearby communities: Table No. 9 City Aggregate Rate--2020 Tax Year DeKalb 11.4993% Sycamore 9.7700% Rochelle 9.6800% Aurora 9.3600% Carpentersville 9.1300% Elgin 9.1200% South Elgin 8.8800% Batavia 8.8200% North Aurora 8.7900% East Dundee 8.7600% St. Charles 8.6588% Geneva 8.4700% Average (excluding DeKalb): 9.0399% In most cases, DeKalb’s aggregate rate is about 20% higher than the average aggregate rates of the City’s nearest geographical competitors. In this context, it is likely that the City will need to continue to lead in terms of ideas and constraint. The 2021 aggregate DeKalb property tax rate is not known at this writing, but the actions of local taxing bodies in December of 2021 leaned in the direction of a lowering of local property tax rates on the basis of recent substantial increases in local equalized assessed valuations, as shown in Table No. 10: 29  Table No. 10 2021 Comparative Property Tax Rates 2021 Rate 2021/2020 Taxing Body 2019 Rate 2020 Rate (Estimate) % Difference County (blended) 1.07520 1.06293 1.03322 -2.80% Forest Preserve (blended) 0.07481 0.07396 0.07431 0.47% DeKalb Township 0.16318 0.16002 0.15165 -5.23% DeKalb Road & Bridge 0.18671 0.18485 0.17651 -4.51% City of DeKalb 0.08451 0.00000 0.00000 0.00% DeKalb Pension Funds 1.07042 1.06868 0.97235 -9.01% DeKalb Library 0.38683 0.38772 0.38007 -1.97% DeKalb Park District 0.63957 0.61941 0.63963 3.26% DeKalb Park Pension Funds 0.08088 0.09034 0.06995 -22.57% School District 428 6.95061 6.77809 6.36590 -6.08% DeKalb Schools Pension Funds 0.23322 0.28682 0.28370 -1.09% Kishwaukee College 0.64101 0.64147 0.62652 -2.33% Kishwaukee College Soc. Sec. 0.01176 0.01131 0.01102 -2.56% KWRD 0.11811 0.11596 0.11016 -5.00% KWRD Pension Funds 0.01785 0.01771 0.01682 -5.03% 11.73467 11.49927 10.91181 -5.11% Section Six of this Plan will review a policy option concerning DeKalb’s future property tax levies in the 2022-2024 study period and beyond. 4. Sales and Use Taxes. In the period 2022 through 2024 it is expected that the City’s overall sales and use taxes will grow at an average annual pace of 2.75%. This category of revenues includes the following:  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.  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.  Local Use Tax: Use taxes are imposed by the State of Illinois at the rate of 6.5% 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. Statewide, during 2020 and the first half of 2021, the local use tax 30  outperformed estimates as many people chose to shop on-line rather than in stores. The projections assume that there will not be a return to brick-and-mortar retail as it existed before the COVID-pandemic. Additionally, a tailing of per capita revenue is anticipated owing to the decline in DeKalb’s population from 44,095 to 40,290 in the national 2020 Decennial Census.  Hotel/Motel Tax: The City imposes a 7.5% tax on hotel/motel room rents. Based on FY2021 numbers to date, the City’s hospitality sector has rebounded strongly since the winter of 2020-2021. In FY2021 these revenues rebounded by over 30% in comparison with the 2020 COVID year.  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. These revenues are projected to lead the percentage increase in sales in this category because of the resilience of local owners and managers, and the unabated social interaction of DeKalb’s population as a whole, notwithstanding the pandemic and its effects. 5. Intergovernmental Revenues. This category is also expected to rumble along at about an average annual increase of 2.75%. The strongest source within this category is the City’s per capita share of state income tax revenues that annually collect in the Illinois “Local Government Distributive Fund.” The lesser categories of general revenues – service charges, fines, “other income” and transfers in – are not expected to rise or fall dramatically in the next several years. However, the “Transfer-In” category will fall off in 2024 as the last of the ARPA funds are transferred from Fund 110 to the General Fund (Fund 100) to support new hires in the Fire, Police and Public Works departments. B. General Fund Expenditures 1. Personnel. Seventy-five percent (75%) of the City’s General Fund expenditures in 2022 will consist of personnel costs, including full-time and part-time wages and salaries, and contributions to FICA (employer), IMRF (employer), fire and police pensions (employer) and health insurance. This ratio will increase to about 77% in 2023 and remain steady at about 77% in 2024. In FY2022, the General Fund budget will contain 18 additional full-time positions (205 in all) to fill the 9 full-time positions frozen in 2020 and to complete the hiring of nine additional firefighter/paramedics funded by the SAFER grant. The new Fire Department hires will bring the department to a minimum shift level of sixteen (16) bargaining unit members before the end of FY2022 and this level will be sustained through 2024 to meet the requirements of the SAFER grant and the 2021-2024 collective bargaining agreement between the City and IAFF Local 1236. 31  Full-time wages and salaries are expected to increase as represented in the table below: Table No. 11 Full-Time Wages and Salaries FY2021 Est FY2022 2022/2021 FY2023 2023/2022 FY2024 2024/2023 $14,846,964 $16,180,051 8.98% $16,584,552 2.50% $16,999,166 2.50% Collective Bargaining agreements in place for the study period call for 2.5% cost of living increases, and the management positions are expected to rise within the same parameters. 2. Non-Personnel. The largest annual non-personnel costs in the General Fund are “Transfers Out” which include the City’s general obligation debt service (abated in 2021), the Library debt payment, and General Fund expenditures to cover the “shortfalls” in property tax available to cover the growing annual actuarial obligations in the Fire and Police Pension Funds. These costs are expected to grow by an average of about $121,000 (2.6% - 2.7%) per year over the study period. The next largest category of non-personnel costs is “Contractual Services” which includes tax-sharing agreements ($1.7 million in 2022), maintenance agreements (software, vehicles, equipment, etc.), City developmental grants to the CVB, DCEDC and Chamber ($105,000), Legal Services ($185,000), Human and Social Services grants ($150,000), training, etc. This bundle of costs will also remain generally stable in the next three years. C. General Fund Balance Projections. The City’s General Fund balance policy was established in January 2017 and states that an “unassigned fund balance will be maintained at a minimum level equal to 25% of annual expenditures.” A similar policy is imposed on the Water Operating Fund (Fund 600). There is no ironclad threshold for a general operating balance among municipalities. However, rating agencies are very alert to municipal initiatives that would result in a fiscal year-end balance that fell below the adopted minimum. As noted above (see p. 17), the City’s General Fund balance has been growing beyond the minimum 25% threshold and is expected to continue in this trend through the study period, as shown in the table that follows: 32  Table No. 12 General Fund Ending Balances FY2021 Est FY2022 2022/2021 FY2023 2023/2022 FY2024 2024/2023 $16,611,650 $17,819,851 7.27% $19,221,408 7.87% $19,918,028 3.62% 33  SECTION FIVE CAPITAL & WATER FUNDS  Capital and Water Funds “Sometimes the road less travelled is less travelled for a reason.” Jerry Seinfeld “When you come to a fork in the road, take it.” Lawrence Peter Berra A. Capital Funds From the middle of the nineteenth century through the middle of the twentieth century, America excelled in the creation of infrastructure, beginning with canals and post roads then roaring through a railroad-building surge that linked major cities and the Atlantic and Pacific coasts, and finishing with an interstate highway system that tied every corner of the country together with high-speed travel. However, overall public investment in transportation declined from 2.3 percent of Gross Domestic Product (GDP) in the 1960s to about 1.7 percent in 2018. A 2017 report card from the American Society of Civil Engineers estimated that American cities experienced 240,000 water main breaks a year (DeKalb has an average of 50- 60) wasting more than 2 trillion gallons of treated water. Four in ten of the country’s 625,000 bridges are more than fifty years old and one in nine is structurally deficient. In the City of DeKalb, the report card has slightly improved in terms of streets and fleets since the bold and controversial increase in home rule motor fuel taxes on November 25, 2019 (Ordinance 2019-077). In March 2008 the City of DeKalb established a local motor fuel tax on gallons of fuel pumped at motor fuel retailers within the City’s corporate limits for the purpose of funding road maintenance. In late 2019, the rate was increased from five and one- half cents ($0.055) per gallon or fraction thereof to nine and one-half cents per gallon ($0.095). At that time, the City Council and Finance Advisory Committee jointly agreed that additional annual dedicated revenue was necessary to address serious deficiencies in the condition of the City’s streets and alleys, as well as the declining and critical condition of much of the City’s fleet of Police, Fire and Public Works vehicles, in particular. Since 2019, the local fuel tax rate has been split between road expenditures (7 cents), airport expenditures (1.5 cents), and vehicle replacement (1 cent). For these purposes, the local fuel tax is not the only source of revenue, but it is the largest recurring source of general revenue. IDOT grant support has been critical in upgrading streets and intersections in prime development areas since 2019 and will be critical in the reconstruction of the North First Street and Lucinda Avenue bridges in 2022-2023, but such state grants are by no means guaranteed going forward. 34 The 19-cent increase in the state motor fuel tax revenue that took place in 2020 is restricted by state statute for road and bridge repairs, and such ancillary costs as salt and street lighting. This funding increase has also helped in building the City’s annual street maintenance war chest. In 2017-2018, the annual allocation was stuck on about $750,000. According to the research in the City’s 2018-2022 Plan, the funding for street maintenance had averaged $860,000 for the previous 25 years. The annual war chest for street maintenance is now about $2.2 million in combined state MFT (Fund 210) and local MFT (Fund 400) monies, but the average annual street maintenance budget needed to maintain a passable pavement condition index (PCI) at a rating above 70 is about $2.6 million over the next five years. Despite the more aggressive and strategic allocation of street maintenance funding for the upgrade of key City arterials and residential collector streets (e.g., North and South First Street, North and South Seventh Street, West Taylor Street) in 2019, 2020 and 2021, the City’s many residential road miles continue to steadily deteriorate. Additionally, street-related costs such as sidewalk repairs and alley improvements have a very modest fiscal floor under them. In Section Six, “Policy Considerations,” some funding options to enhance street and fleet funding are discussed. 1. Streets The City of DeKalb generally adheres to a pavement management system periodically updated by the City to assist in the planning for annual road maintenance allocations. There are divergent opinions within and outside the civil engineering profession about when repairs may be needed, but there is a general consensus around the notion that it is far less expensive to maintain a road in fairly good condition than to restore a road which has deteriorated beyond repair. The City Engineer annually considers a range of preventative measures (e.g., crack-filling) that can extend the life of our local roads. The City Engineer is also charged with weighing and balancing needed repairs against known resources. The following graph depicts thresholds generally considered to be predictive of future repair costs: 120 100 Time for Preventative Time for Measures ($0.15-$1.00/SF) Resurfacing ($1.50 - $4.00/SF) 80 Time for Reconstruction RANK ($6.00 - $12.00/SF) 60 Standard Pavement Rank Reduction Curve 40 20 0 0 5 10 15 20 25 Time (Years) 35 The average of about $2.2 million that is now annually allocated for street maintenance will address major residential collectors such as North Thirteenth Street and North Fourteenth Street, Joanne Lane and Tilton Park Drive, and the Knolls neighborhood in 2022. The following list identifies key residential collectors that remain to be re-surfaced:  Hillcrest Drive  Normal Road  Russell Road  Lucinda Avenue  E. Pleasant Street  Malta Road  Greenwood Acres Drive These collectors were falling short of the PCI rating of “fair” (70) in 2018 and have deteriorated since. The City of DeKalb will benefit from a new rating survey funded by the county-wide metropolitan planning authority – the DeKalb Sycamore Area Transportation Study or “DSATS” – in 2022. DSATS annually receives and distributes federal transportation funds based on strategic five-year plans and incremental one-year operating plans approved by a collaborative of DeKalb, Sycamore, Cortland, NIU, and IDOT officials that meet monthly either in working committees or plenary session. DeKalb has three representatives (the Mayor, City Manager, and Transit Coordinator). The City Engineer serves on the DSATS technical committees. In addition to a variety of maintenance projects on the City’s “thoroughfares” and neighborhood streets, the City is responsible for major reconstruction and replacement projects, pegged oftentimes to regional objectives. The City will participate in the widening and reconstruction of Peace Road from the Peace Road interchange north to Fairview Drive in this study period (2022-2024). This project and follow-on phases in future years take the widening up to the Peace Road overpass north of IL Rt 38 and will be heavily funded by state and federal funds (80%) with a 20% local share. Finally, as noted above, the City has been in the quay for state funding assistance to replace the North First Street and Lucinda Avenue bridges for several years. The engineering will be completed in 2022 with the replacements occurring in 2023. The bridge contract is principally funded by a State of Illinois bond sale as well as a portion of the City’s annual state motor fuel tax allocations which have been prudently accumulated in Fund 210. Upon the completion of the City’s bridge projects in 2023, the City’s average annual capacity for street maintenance will be about $2.5 million (State MFT: $1,650,000; Local MFT: $850,000). Of that $2.5 million, over $500,000 will be needed annually for de-icing materials, electrical costs for street lighting, and traffic signal parts and repairs. The remaining $2 million would drop over $1.5 million below the optimal annual funding level of $3.8 million (Scenario No. 5) determined by the City’s engineering consultants in 2018. 36  The City increased its street maintenance funding in recent years, but the higher threshold still fell short of the $3.8 million threshold by about $1.6 million in 2020, 2021 and 2022. That total underfunding or shortfall--$4.8 million—cannot be closed without a “blitzkrieg” of spending in the range of about $7 million in one of the next three years. The street maintenance scenarios in the following table were presented as options to the City Council in 2018. Scenario No. 5 was selected as the most reachable goal, although requiring aggressive spending which was not then, or now, within the City’s fiscal grasp. Scenario No. 8 assumes annual street maintenance spending of about $2.6 million, not including the additional $500,000 + for annual de-icing materials, street lighting, and traffic signal repairs. If Scenario No. 8 in the following chart was pursued, the City would need to identify an additional $600,000 per year in road funds to remain within striking distance of a city-wide PCI rating in the mid-60s over time: Average Annual Street Avg. PCI Avg. PCI Scenario Description Maintenance Expenditures @ 5Yrs @ 10Yrs 1 Maintain the current rank of 78* $7,052,400 78 71 2 Maintain the rank at 70 $7,021,300 76 70 3 Increase rank to 80** $6,931,500 79 71 Maintain current spending 4 $1,403,200 70 59 amount ($1.2M + engineering) Resurface entire system over 20 5 $3,830,300 72 63 years ($29.28/SY) Double amount in Scenario 6 5/Year 1, then split the $3,940,800 73 64 remaining costs over 19 yrs. 7 Maintain the rank at 65 $4,622,400 73 65 8 Spend $2.5M per year $2,587,100 71 61 N.B.: The scenarios in the table above were run with only a 3”/3” resurfacing spec. No reconstruction option was included. * Not achievable at 10 years without reconstruction. Estimate $13 million including reconstruction. ** Not achievable at five years without reconstruction. Estimate $13.5 million including reconstruction. 2. Fleets The City’s fleet of Fire, Police, Public Works and other vehicles totals about 175 units of widely varying description and function. The average age of the overall fleet increased from 5.7 years to 11 years between 2006 and 2017, according to the 2018-2022 Plan, and has been reduced slightly through targeted and increased spending in the past two fiscal years. Nevertheless, most of the vehicles in the City’s fleet have been allowed to age beyond their useful life before replacing them, due to a lack of replacement funding. In 2018, it was estimated that more than one-half of the overall fleet was beyond its useful 37  life. The total fleet’s replacement value is now over $12.5 million and the annual maintenance cost on that fleet is about $305,000 in 2022. Replacing the vehicles rated in declining or critical condition would cost approximately $5.0 million. An aggressive vehicle replacement allocation of $1,975,740 for FY2022 includes the following:  Police: $220,000. Replace (4) squad cars with Ford Explorer Utility Squad Cars @$55,000 each or $220,000. These vehicles will be leased.  Fire: $1,490,740. Replace two fire engines (Engine No. 2 and Engine No. 3) in the amount of $1,415,740; two (2) Fire SUVs ($75,000 with upfitting). These are outright purchases, with the Fire engine funding coming from Fund 420 ($800,000) and Fund 130 ($615,740).  Public Works (non-Water Fund): $265,000. Replace 1997 International Tandem dump truck @ $185,000 (leased); replace 2001 Chevy 4x4 ¾ ton pickup @$40,000 (outright purchase); and 2003 Dinkmar leaf machine @ $40,000 (outright purchase). The City’s transition to a mix of lease and outright purchases in FY2020 has stretched its available vehicle replacement dollars further on an annual basis. However, for the term of the leases the outstanding balances are included in the calculation of the City’s overall debt, as shown in the table below: Governmental Activities Business Type Activities GO Capital GO IEPA Capital Per Year Bonds Leases Bonds Loans Leases Total Capita Population 2017 $22,235,654 $166,665 $1,370,000 $1,849,536 0 $25,621,855 $581 44,095 2018 $19,872,398 $149,998 $1,030,000 $1,389,155 0 $22,441,551 $509 44,095 2019 $17,467,275 $133,331 $ 685,000 $1,600,094 0 $19,885,700 $451 44,095 2020 $15,290,000 $501,144 $ 345,000 $1,086,578 $222,685 $17,445,407 $396 44,095 2021 $14,145,000 $410,823 0 $ 802,846 $180,556 $15,539,225 $386 40,290 2022 $12,610,000 $496,159 0 $ 757,841 $137,101 $14,001,101 $348 40,290 2023 $11,015,000 $508,402 0 $ 711,938 $133,074 $12,368,414 $307 40,290 None of the City’s fleets has aged as ungraciously as those housed in the Street Division of the Public Works Department. This is not due to neglect or indifference from the Division’s administration. Between 2014 and 2019, the Division received no allocations for vehicle replacement through the annual budget approval process. 38  Aside from the Fire Department’s engines and ambulances, no department can claim as many heavy-duty vehicles and pieces of equipment continually in use throughout the year. In January 2022, the Street Division housed 52 total vehicles. Of these 52 vehicles, 37 have outlived their life expectancies. This represents 71% of all the Division’s vehicles and equipment. At current prices, the replacement of all the vehicles and equipment that have reached the threshold of obsolescence would cost approximately $3,875,500. With an annual budget allocation of $265,000 (comparable to the FY2022 allocation), it would take about 14.5 years to align the Street Division’s fleet with replacement cycles meeting market standards. With an annual allocation of $400,000 it would take about 9.5 years for the Division to bring its fleet within standard lifespans. The expenditures within the following table would conform to that pace of replacement: Table No. 13 FY2022* No. Type Design Purchase Optimal Replacement Life Year Retirement Cost P19 Dump Truck 13 1997 2009 $185,000 P06 Chevy Pickup 12 1997 2009 $40,000 P05 Chevy Pickup 12 2000 2012 $40,000 Total: $265,000 FY 2023 P36 60' Aerial 15 1997 2012 $163,000 P23 Dump Truck 13 2000 2013 $172,500 P11 Ford Pickup 12 2005 2017 $52,500 P33 Zero Turn Mower 10 2009 2019 $12,000 Total: $400,000 FY2024 P25 Dump Truck 13 2003 2016 $185,500 P29 Dump Truck 13 2005 2018 $178,500 P43 Bobcat Loader 15 2004 2019 $36,000 $400,000 *Already budgeted. B. Water Fund The 2018-2022 City Financial Plan makes only passing notice of the City’s Water Operations Fund (Fund 600) and the Water Capital Fund (Fund 620) which it principally supports. The City of DeKalb owns and manages a state-of-the-art utility that supplies, treats, stores, and distributes potable water to its residents and businesses. The source of water provided to the residents of DeKalb comes from six deep wells drawing water from deep sandstone 39 aquifers, and three shallow wells that draw water from sand and gravel aquifers. Groundwater is treated at one of five ion-exchange/iron removal water treatment plants. The treatment process produces a high quality water supply by reducing the amount of hardness and iron in the water. Before leaving the treatment plant, the groundwater is treated with chlorine and phosphate to ensure the safety of the water supply within the City’s distribution system. In addition, fluoride is added to the water to promote the development of strong teeth. After treatment, the water enters the distribution system for use or is stored in one of the City’s four elevated water towers. The four towers have the ability to store a total of 5.75 million gallons. The elevated towers provide storage and maintain system pressures for fire protection. The City’s Utility staff (11 FTE) maintain over 180 miles of water main making up the City’s water distribution system. The distribution system includes over 2,500 hydrants, 3,000 valves and 11,000 service lines and water metered accounts. Utility Staffing Level FY2020 FY2021 FY2022 FT 9 10 10 PT Seasonal 1 1 1 Total 10 11 11 The primary source of funding for the Water Operations Fund (Fund 600) and Water Capital Fund (Fund 620) is water sales, accounting for over 95% of the total revenue to these two funds. The Water Department experienced an increase in water sales of 2.34% in 2021. This is the first increase in water sales since 2016. Overall, water sales have decreased an average of 1% annually over the past 10 years. Water use is expected to stabilize or moderately increase over the next few years because of new development within the corporate limits. This includes the new Ferrara, Facebook, and Amazon facilities as well as additional water demands expected as a result of the occupancy of DeKalb Plaza, Isaac Suites, Home2 Suites, Agora Towers, and Johann Suites to name a few. The following chart depicts the number of gallons billed to DeKalb residents annually over the past ten years: 40  Annual Gallons Billed 1,150,000,000 1,100,000,000 1,050,000,000 1,000,000,000 950,000,000 900,000,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1. Debt Service: The Water bond debt service and loan payments are very modest on an annual basis in terms of the substantial system they underwrite. This debt is paid through the Water Operations Fund. The debt service schedule for all outstanding Water Fund debt including IEPA loans is portrayed in the following chart: IEPA Loan IEPA Loan #L17-4045 #L17-5473 Fiscal Year Principal Interest Principal Interest Total 2022 $14,495 $4,030 $30,510 $11,336 $60,370 2023 $14,830 $3,695 $31,074 $10,772 $60,370 2024 $15,172 $3,353 $31,648 $10,197 $60,370 2025 $15,522 $3,002 $32,233 $9,612 $60,370 2026 $15,880 $2,644 $32,829 $9,017 $60,370 2027 $16,247 $2,278 $33,436 $8,410 $60,370 2028 $16,622 $1,903 $34,054 $7,792 $60,370 2029 $17,005 $1,519 $34,683 $7,162 $60,370 2030 $17,398 $1,126 $35,324 $6,521 $60,370 2031 $17,800 $725 $35,977 $5,868 $60,370 2032 $18,211 $314 $36,642 $5,203 $60,370 2033 $37,320 $4,526 $41,845 2034 $38,009 $3,836 $41,845 2035 $38,712 $3,133 $41,845 2036 $39,428 $2,418 $41,845 2037 $40,156 $1,689 $41,845 2038 $40,899 $947 $41,845 2039 $20,732 $191 $20,923 Total $179,181 24,588 623,664 $108,630 $936,063 2. Capital Spending. The capital portion of the City’s water system has been funded through the Water Capital Fund (Fund 620) since 2016. This separate fund was created to better 41 track the specific annual expenditures for water-related fleet and equipment as well as the upgrading of existing water infrastructure including water mains, wells, treatment plants and water towers. In 2016, the Council approved a water rate increase of 4.5% each year over a five-year period (2016-2020) with the commitment to direct 2/3 of each year’s rate increase (or 3% of the 4.5% annual increase) to the Water Capital Fund (Fund 620). The remaining one-third of the increase (1.5%) was directed into the Water Operations Fund (Fund 600). It should be noted that the rate increase in 2016 was only 2.2% and not 4.5%, so only 1.47% of this rate increase was directed into the Water Capital Fund. Subsequent rate increases beyond 2020 were tied to the Consumer Price Index (CPI) but follow the guidelines described above with two-thirds of the revenue directed to Fund 620 and one-third to Fund 600. Before such increases may be passed along to consumers, the Council will consider them in open session to welcome public comment. This is particularly important if the CPI rises dramatically. The following table details the revenue that has been generated each year for the Water Capital Fund since 2016: Water Operations Water Capital Fund 600 Fund 620 Total 1/3 of Rate Total Cumulative Increase Revenue 2/3 of Rate Revenue Annual Revenue Directed to Generated Increase Generated Water Generated from Water to Water Directed to to Water Rate Water Rate Operations Operations Water Capital Capital Year Increase Increase Fund 600 Fund 600 Fund 620 Fund 620 2016 2.20% $58,085 0.73% $24,619 1.47% $33,466 2017 4.50% $240,670 1.50% $80,357 3% $160,313 2018 4.50% $461,946 1.50% $153,982 3% $307,964 2019 4.50% $684,000 1.50% $227,999 3% $456,001 2020 4.50% $897,956 1.50% $296,325 3% $601,631 2021 2.60% $1,025,070 0.87% $335,893 1.73% $689,177 Major accomplishments during FY2021 included the sandblasting and painting of the South Water Tower and the replacement of over 2,900 feet of water main along Joanne Lane. Since the creation of the Water Capital Fund in 2016, over 7.4 million dollars of water capital improvements have been completed. The major projects are described in the table below: 42  Projects Total Costs 2016 - 2021 2016 - 2021 Water Main Replacement  Kishwaukee Ln., Lewis & Vienna, S. Sixth St., Maplewood Ave., S. Eleventh St., Sunset $3,355,228 Pl., Joanne Ln., Ilehamwood, Golfview, Oak Dr. and Joanne Ln. (Phase II) Well Maintenance $526,000 North and South Water Tower Painting $2,016,811 Vehicles and Equipment (Backhoe, Loader, Tandem Dump Truck, Utility Vehicles) $755,214 Sewer Repair (218 & 226 E. Lincoln Hwy.) $80,000 Water Meter Software Update $25,000 Water Meters $355,000 BS&A Utility Billing Software $314,000 TOTAL $7,427,253 The FY2022 Water Capital Fund has budgeted $2.2 million in water system capital improvements that include the following: Tentative Estimated FY2022 Projects Costs Routine Meter Replacements and New Water Meter Purchases $80,000 Well 14 – Maintenance and Inspection $165,000 SCADA Radio and Computer Upgrades $55,000 Water Main Replacement N. 13th St. and N. 14th St. (5,100 Feet) $1,500,000 Water Main Replacement N. 1st St. (300 Feet – Due to Bridge Replacement) $90,000 Utility Vehicle (Carried Over from FY2021) $204,305 Asphalt Overlay – Dresser Rd. Water Treatment Plant and North Tower $75,000 Roof Repair – Well #12 $5,000 Toro Zero-Turn Mower Replacement $17,200 Leak Detection Equipment $15,000 GPS Unit $20,000 Dresser Road Iron Filter Media $30,000 TOTAL $2,251,505 In 2023 and 2024, Water Capital Fund expenditures are expected to average about $2 million per year. Some of the larger budgeted expenses are expected to include the following: a) An upgrade of the computer system (Supervisory Control and Data Acquisition software or “SCADA”) in 2024 ($400,000). b) Continued water main improvements of about $1 million a year. c) Lead service replacements funded by ARPA funds (possibly up to $1 million). 43  d) Replacement of the City’s “Vactor” truck. The current vehicle is a 2003 model that was purchased used from the Kishwaukee Water Reclamation District in 2020. It has become an indispensable vehicle in the Water Division’s fleet and has increased the efficiency and safety of excavations. A used replacement in good condition might cost $150,000. 3. Fund Balances. The projected fund balances for FY2022-2024 are outlined below. These are “cash” balances and do not reflect the fixed asset values that are included in enterprise fund financials according to generally accepted accounting practices: WATER FUNDS: OPERATING (600) & CAPITAL (620) FY 2022 FY 2023 FY 2024 TOTAL COMBINED WATER FUNDS REVENUES 6,451,176 6,452,406 6,453,840 WATER OPERATING FUND (600) EXPENSES 4,454,022 4,578,538 4,768,486 WATER CAPITAL FUND (620) EXPENSES 2,251,505 1,703,200 2,314,900 TOTAL COMBINED WATER FUNDS EXPENSES 6,705,527 6,281,738 7,083,386 NET INCOME (LOSS) = (REVENUE LESS EXPENSES) (254,351) 170,668 (629,546) FUND BALANCES: WATER OPERATING (600) & CAPITAL FY 2022 FY 2023 FY 2024 (620) TOTAL COMBINED WATER FUNDS BALANCE - UNRESTRICTED 4,975,862 5,146,530 4,516,984 Target Operational Reserve (Fund 600) - 25% of expenses 1,113,506 1,144,635 1,192,122 Target Capital Reserve (Fund 620) - per Council direction 1,000,000 1,000,000 1,000,000 Total Target Reserves 2,113,506 2,144,635 2,192,122 Projected Excess Reserves 2,862,357 3,001,896 2,324,863 The Water Fund is expected to have the capacity to maintain a fund balance of over $5 million and to maintain a 25% fund reserve in both the Water Operations Fund and the Water Capital Fund. Projected annual revenues are anticipated to be around $6.5 million (not including any ARPA funding for lead service replacement). 44  SECTION SIX POLICY CONSIDERATIONS  Policy Considerations “If there ever could be a time for mere catch arguments, that time surely is not now.” Abraham Lincoln A. Property Taxes In taxation as in many other governmental functions, the need for administration can dull the impulse for inspiration. During the annual process of establishing their property tax levies, it is traditional and expected that public bodies will rigorously review their projected inputs (revenues) and outputs (expenditures) in recent years and consider different taxing options to enhance their operating position and sustain their services in the coming fiscal period. This is legally required, eminently practical, and honorably conducted. In DeKalb, this annual process has led us to a precarious economic crossroad: the property tax burden on local businesses, homeowners, and renters alike – if unaddressed – will put DeKalb in a non-competitive economic position. This is not an unfounded opinion. The comparative evidence is telling: City Aggregate Rate--2020 Tax Year DeKalb 11.4993% Sycamore 9.7700% Rochelle 9.6800% St. Charles 8.2300% Geneva 8.4700% Batavia 8.8200% North Aurora 8.7900% Aurora 9.3600% South Elgin 8.8800% Elgin 9.1200% Carpentersville 9.1300% East Dundee 8.7600% Average (excluding DeKalb): 9.0009% 45 In most cases, DeKalb’s aggregate rate is 20% higher than the aggregate rates of the City’s nearest geographical competitors. In this context, it is likely that the City government which has the responsibility for business attraction and retention as well as the overall quality of life for its residents will need to continue to lead in terms of ideas and constraint. The 2021 aggregate rate is not known at this writing, but the actions of local taxing bodies in December of 2021 leaned in the direction of lowering local property tax rates on the basis of recent substantial increases in local equalized assessed valuations, as shown below: 2021 Comparative Property Tax Rates 2021 Rate 2021/2020 % % of Agg Taxing Body 2019 Rate 2020 Rate (Estimate) Difference Rate County (blended) 1.07520 1.06293 1.03322 -2.80% 9.47% Forest Preserve (blended) 0.07481 0.07396 0.07431 0.47% 0.68% DeKalb Township 0.16318 0.16002 0.15165 -5.23% 1.39% DeKalb Road & Bridge 0.18671 0.18485 0.17651 -4.51% 1.62% City of DeKalb 0.08451 0.00000 0.00000 0.00% 0.00% DeKalb Pension Funds 1.07042 1.06868 0.97235 -9.01% 8.91% DeKalb Library 0.38683 0.38772 0.38007 -1.97% 3.48% DeKalb Park District 0.63957 0.61941 0.63963 3.26% 5.86% DeKalb Park Pension Funds 0.08088 0.09034 0.06995 -22.57% 0.64% School District 428 6.95061 6.77809 6.36590 -6.08% 58.34% DeKalb Schools Pension Funds 0.23322 0.28682 0.28370 -1.09% 2.60% Kishwaukee College 0.64101 0.64147 0.62652 -2.33% 5.74% Kishwaukee College Soc. Sec. 0.01176 0.01131 0.01102 -2.56% 0.10% KWRD 0.11811 0.11596 0.11016 -5.00% 1.01% KWRD Pension Funds 0.01785 0.01771 0.01682 -5.03% 0.15% 11.73467 11.49927 10.91181 -5.11% 100.00% How far can our community’s taxing bodies go in the reduction of their annual property tax rates? In its leadership role, the City’s tax rate history should be scrutinized. The City’s rate has declined for the past four tax years. The estimated 2021 City Tax Rate of 0.97235 ($6,845,317 divided by $704,000,000) is 9.01% lower than the 2020 City rate of 1.06868 per $100 EAV. The following table portrays this trend: 46  Year Rate-Setting EAV: City City Levy City Rate 2011 582,504,715 4,196,890 0.7205 2012 533,805,903 4,244,718 0.7952 2013 485,923,623 4,270,457 0.9809 2014 464,966,381 4,270,540 1.0245 2015 468,077,742 5,094,730 1.1942 2016 503,861,829 5,565,384 1.2021 2017 529,629,464 6,004,594 1.2268 2018 547,947,687 6,017,140 1.1883 2019 585,726,839 6,269,649 1.1541 2020 610,333,062 6,522,507 1.06868 2021 704,000,000 6,845,317 0.97235 The table below shows the trend in actual City tax dollars paid if the projected rate is actually 0.97235 when the final EAVs and rates are published in the spring of 2022: City of DeKalb Base Twp New Final DeKalb Year EAV Multiplier EAV Homestead EAV Rate DeKalb Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 1.1549 $1,101.11 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 1.06868 $1,063.21 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 0.97235 $983.99 Taking the same imaginary DeKalb property and plugging in the estimated 2021 rates for all local taxing bodies, the actual dollars due in 2022 would look like this: DeKalb Public Library Base New Final Library Library Year EAV Twp Multiplier EAV Homestead EAV Rate Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 0.38683 $368.81 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 0.38772 $385.73 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 0.38007 $384.62 DeKalb C.U.S.D. No. 428 Base New Final School Year EAV Twp Multiplier EAV Homestead EAV School Rate Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 7.18383 $6,849.24 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 7.06491 $7,028.73 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 6.6496 $6,729.19 County of DeKalb Base New Final County Year EAV Twp Multiplier EAV Homestead EAV County Rate Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 1.0752 $1,025.12 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 1.06293 $1,057.49 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 1.03322 $1,045.59 47 DeKalb County Forest Preserve Base New Final Year EAV Twp Multiplier EAV Homestead EAV FP Rate FP Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 0.07481 $71.33 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 0.07396 $73.58 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 0.07431 $75.20 DeKalb Park District Base New Final Year EAV Twp Multiplier EAV Homestead EAV Park Rate Park Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 0.72045 $686.90 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 0.70975 $706.12 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 0.70958 $718.07 DeKalb Township Base New Final Year EAV Twp Multiplier EAV Homestead EAV Twp Rate Twp Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 0.16318 $155.58 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 0.16002 $159.20 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 0.15165 $153.47 DeKalb Township Road & Bridge Base New Final Year EAV Twp Multiplier EAV Homestead EAV R&B Rate R&B Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 0.18671 $178.01 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 0.18485 $183.90 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 0.17651 $178.62 Kishwaukee College Base New Final Year EAV Twp Multiplier EAV Homestead EAV Kish Rate Kish Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 0.65277 $622.37 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 0.65278 $649.44 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 0.63754 $645.17 KWRD Base New Final KWRD Year EAV Twp Multiplier EAV Homestead EAV KWRD Rate Tax 2019 $97,906 1.0351 $101,343 -$6,000 $95,343 0.13596 $129.63 2020 $101,343 1.0409 $105,488 -$6,000 $99,488 0.13367 $132.99 2021 $105,488 1.0162 $107,197 -$6,000 $101,197 0.12698 $128.50 For Policy Consideration: a) Identify Aggregate Rate “Targets” for Coming Years. The projected continuous rise in City- wide EAV in the 2022-2024 study period provides the opportunity to peg targets for further, downward property tax rate adjustments while sustaining a constant level of 48 services to meet the needs of the persons served by our local taxing bodies. This study does not presume to suggest what those needs may be. Additionally, in the short-term an unforeseen circumstance unique to a particular taxing body might adversely impact its flexibility to meet such targets. Examples might include a dramatic reduction in state- shared revenue or significant increases in unfunded mandates from higher levels of government. Assuming the aggregate tax rates of DeKalb’s regional competitors for business prospects may slide upward in the period 2021-2025, local rate targets consistent with the present proportional “shares” of the aggregate tax rate might be considered. For discussion purposes with local governmental boards, the following table suggests an aggressive timeline for achieving a 9.5% target in the aggregate local property tax rate: Hypothetical Aggregate Rate Decline: 2022-2024 2021 Rate % of Agg 2022 2023 2024 Taxing Body (Estimate) Rate -5% -5% -3.5% County (blended) 1.03322 9.47% 0.981559 0.932481 0.899844 Forest Preserve (blended) 0.07431 0.68% 0.070595 0.067065 0.064718 DeKalb Township 0.15165 1.39% 0.144068 0.136864 0.132074 DeKalb Road & Bridge 0.17651 1.62% 0.167685 0.1593 0.153725 City of DeKalb 0.00000 0.00% 0 0 0 DeKalb Pension Funds 0.97235 8.91% 0.923733 0.877546 0.846832 DeKalb Library 0.38007 3.48% 0.361067 0.343013 0.331008 DeKalb Park District 0.63963 5.86% 0.607649 0.577266 0.557062 DeKalb Park Pension Funds 0.06995 0.64% 0.066453 0.06313 0.06092 School District 428 6.36590 58.34% 6.047605 5.745225 5.544142 DeKalb Schools Pension 0.28370 2.60% 0.269515 0.256039 0.247078 Funds Kishwaukee College 0.62652 5.74% 0.595194 0.565434 0.545644 Kishwaukee College Soc. Sec. 0.01102 0.10% 0.010469 0.009946 0.009597 KWRD 0.11016 1.01% 0.104652 0.099419 0.09594 KWRD Pension Funds 0.01682 0.15% 0.015979 0.01518 0.014649 10.91181 100.00% 10.36622 9.847909 9.503232 It should be noted that aside from the DeKalb Public Library which has an EAV identical with the City, all of the other local taxing bodies which are listed on local property tax bills have unique EAVs. The 2021 EAVs will not be known until they are published by the County of DeKalb in April 2022. 49 B. Streets and Fleets Section Five, “Capital and Water Funds,” reviewed the present status of the City’s funding for street maintenance and fleet replacements. The principal conclusions were as follows: 1. Streets. Targeting a pavement condition index of “71” city-wide five years out, the City will need an additional $600,000 per year in capital funding for the next 5 years to close the present funding shortfall. The FY2018-2022 Financial Plan targeted a higher PCI rating at 5 years (“72”) across the City. 2. Fleets. Just to turn around the present slippage in necessary vehicle funding in the Street Division of the Public Works Department, an additional $135,000 in capital funding is needed per year. Police and Fire Department vehicle schedules identify a combined pace of fleet funding approaching an average of $375,000 per year, which is $80,000 more than the two departments combined will spend in FY2022 (excluding the extraordinary Fire engine replacements funded by the ARPA and GEMT funds). Conservatively, based on these findings the annual funding shortfall for fleet replacement is $215,000. For Policy Consideration: There are a few key assumptions that have guided the City’s financing of capital purchases and infrastructure in the past:  The General Fund should pay only for government operations.  Expenditures should not exceed our revenue capacity. In this respect, structural imbalances can result from enduring budget deficits. The City’s structural imbalance on the operating side is in pension funding. With respect to capital funding, the willingness for more than 10 years (2008-2019) to settle for reduced street and fleet expenditures and to transfer capital funds to bail out the General Fund has created a structural imbalance on the capital side. The challenge in the years ahead is to find a consensus on “needful” and not “wishful” capital purchases.  Revenue sources should be diversified and not vulnerable to “external” threats.  Minimum fund balances of 25% or more are desired (but not yet achievable) in capital funds as well as the operating areas.  The property tax will be dedicated toward pension payments and operating needs for many years to come. Closing current annual gaps in capital funding exceeding $800,000 a year will require a long-term strategy and new income. Some options for consideration are listed below: 50 1. “Stretch” replacement schedules further beyond industry standards. This was the norm until 2019 but we are now well-past the point of diminishing returns. A case in point: the most recent front-line Police squad replacement was prompted by a catastrophic coolant issue which would have required a repair costing more than the market value of the vehicle. 2. Issue a “catch-up” general obligation bond. The City’s bonded debt is steadily declining and all issuances will be redeemed in less than 10 years. However, the City would have no dedicated revenue stream to fund the bonds. Property tax is not an option until the state pension crisis is resolved. Conventional capital revenues are already fully committed at their current rates. In addition, proposing a bond issuance so close to a bond rating downgrade (2020) would further raise eyebrows at Moody’s and possibly put the City back in a “negative outlook.” This option might be considered as further debt is retired beyond this study period. 3. Apply all of the DeKalb share of the Infrastructure Investment and Jobs Act of 2022 to urgent street improvements. Based on information circulated by the U.S Department of Transportation on February 3, 2022 the City of DeKalb is to receive a total of $948,850 for street upgrades (Table 3, Section 5307). An additional $472,644 that cannot be used for street repairs has been apportioned for DeKalb’s transit purposes (Table 6, Section 5307). As this report is published, the City’s FY2022 infrastructure program is well into design on the basis of budgeted funds for engineering and construction. Once the details for grant application are known from the Department of Transportation, it is not likely that any Infrastructure Act funds apportioned for DeKalb can be put to use until 2023. With Council approval, the entire $948,850 can be used in addition to the average of $2.2 million for street maintenance work in 2023 for a grand total of $3,148,850. This one-year “blitz” will accelerate the catch-up pace while an additional, recurring source of capital funds is pursued (see “Cannabis,” below). 4. Facilitate the establishment of one or more cannabis dispensaries in the City of DeKalb and direct any related revenues to the Capital Projects Fund (Fund 420) and/or Capital Equipment Replacement Fund (Fund 420). In the Fall 2019 veto session, the Illinois General Assembly approved significant changes to the state’s adult-use cannabis law. This Act (410 ILCS 705/1, et seq.) was signed into law by Governor Pritzker and clarified how municipal revenues from the Municipal Cannabis Retailers’ Occupation Tax (MCROT) would be distributed to local governments. The Illinois Department of Revenue was mandated to start collecting the locally imposed taxes on July 1, 2020 according to all adopted and certified municipal ordinances. On November 12, 2019, the City Council unanimously approved Ordinance 2019-069 to revise the zoning rules for local cannabis sales that were established in 2015. The revised features are as follows: 51 • The creation of a business category for “cannabis business establishments” to cover both medical and recreational cannabis dispensaries. • The definition of cannabis business establishments as special uses in the “LC” Light Commercial; “GC” General Commercial; and “LI” Light Industrial zoning districts. • The establishment of 250-foot buffers between dispensaries and residential properties, schools, day care centers, nursery and pre-schools, and NIU academic buildings or residence halls. • The establishment of a minimum separation of 1,500 feet between cannabis business locations, as adopted by the state Act. • The establishment of a limit of five (5) dispensaries. • The establishment of store operating hours from 6:00 a.m. to 10:00 p.m., as per the state Act. • The prohibition of cannabis craft growers, cultivation centers, infusers, processors, and transporters. On November25, 2019, the City Council approved a second ordinance to impose a “Municipal Cannabis Retailers’ Occupation Tax” (MCROT) of three percent (3%) of the gross receipts from cannabis sales (Ordinance 2019-074) in the City of DeKalb. The tax is collected and sent on a monthly basis by each licensed retailer to the Illinois Department of Revenue, then remitted to the municipality about two months after the filing of the state sales tax form by the retailer. In addition to the municipal tax, a state tax is imposed that is graduated according to the THC (tetrahydrocannabinol) level in the cannabis product. This state tax is also collected and sent to the Illinois Department of Revenue, which puts the state sales tax revenues in the Local Government Distributive Fund (LGDF) along with state cannabis license fees. Eight percent (8%) of the state cannabis tax deposits in the LGDF will be distributed to municipalities on a per capita basis to fund crime prevention programs. The 2019 Cannabis Act established 16 geographical zones across Illinois. The zone where DeKalb County is located has received permission for only three (3) licenses to date. The zone includes the following counties:  DeKalb  Jo Daviess  Stephenson  Carroll  Ogle  Whiteside  Lee  Bureau  Putnam  LaSalle 52  The City presently has no approved state licensees. The drag on the state approval of such licenses is largely owing to a pending lawsuit involving 185 state licensees. COVID-related constraints also played a part in 2020 and 2021. The City Council has approved the zoning for two dispensary locations—one on Peace Road and one in the Junction Center--but neither party has been granted a state license. Recently, a number of firms with licenses in other zones have expressed interest in locating in DeKalb. It is estimated that an operating cannabis dispensary can annually generate between $250,000-$400,000 per dispensary, depending on the combined MCROT rate (3% in DeKalb) and State Retailers Occupation Tax rate (6.25% in DeKalb). Population size and demographics are also important factors. Precise estimates are difficult to gather since municipalities with less than 5 dispensaries cannot disclose proprietary sales figures. However, municipal financial reports published on the internet provide an indication. For instance, in the period July 2020 through June, 2021, DuPage County’s 11 licenses averaged about $250,000 per dispensary. In the Rockford zone, the 8 licenses have averaged just under $375,000 per dispensary in the same period. The City Council can commit cannabis-related revenues to annual street improvements and fleet purchases to close the estimated $800,000 per year gap in general capital funding. 5. Increase revenue from existing sources. There are several options to consider:  Increase the home rule sales tax from 1.75% to 2%. This option does generate income from all people who put demands on City infrastructure, and not just residents and local businesses. Additionally, this tax does not fall on food, drugs and licensed personal property purchases such as vehicles. The theoretical outcome would be an additional $1,000,000 per year, dedicated exclusively for capital purposes. However, this option is not recommended at the present. First, both DeKalb and Sycamore impose a 1.75% home rule sales tax rate, and an increase will shift some sales to Sycamore because of the easy geographical proximity. Second, sales and use taxes are regressive; they do not account for the ability to pay and will fall more heavily on lower-income households. Third, a policy calling for a reduction in the local property tax burden will be less impactful if coupled with a sales tax increase. This option might one day be more palatable with a “resident rebate” which could be applied as a credit on City water bills annually. As noted in Section Two, “Economic Position,” DeKalb has about 6,200 owner-occupied units and 9,299 renter-occupied units, or about 15,500 residential units in all. The total number of active water billing accounts was about 11,000 as of January 1, 2022 because many 53  multi-family buildings have one larger water line serving multiple tenants. The budgeted home rule tax in FY2022 is about $7,000,000 which amounts to about $1,000,000 for each 0.25% increment of tax. Assuming that local residents account for about 60% of the annual home rule tax revenues, a total of $600,000 might be rebated across 11,000 water accounts for a credit of $54.55 each year per account.  Increase the local fuel tax. Again, this would generate income from all people who put demands on City infrastructure, and not just residents and local businesses. However, for every one cent increase the City only derives $135,000 in new revenue. In addition, this is a regressive tax. Finally, in the future an increase in fuel taxes will likely be offset by increases in the fuel efficiency of hybrid and electrical vehicles. C. Lead Service Line Replacement Program. The American Rescue Plan Act prioritizes the replacement of lead water service lines. As suggested in Section Four, “Operations” (pp. 25-26), there are approximately 200 lead services remaining on private, single-family properties. The City Council will have the financial resources to incentivize lead service replacement in the period 2022-2024, and a program managed by the Water Division might be implemented in 2022. A “Lead Service Replacement Program” might have two parts:  The City replacement of the service line from the street main to the “buffalo box” or shutoff which is typically located within the adjacent private property, close to the sidewalk area. The City would incur the full cost of this portion of the replacement.  The replacement of the remaining portion of the lead service from the yard shutoff to the house meter by the homeowner. If the homeowner replaced the lead line from the shutoff to the house meter at the same time that the City was replacing the lead line from the main to the shutoff, the City might provide a $1,000 grant once the private work was inspected and satisfactorily completed.  Total potential program costs for 2022-2024: $400,000. D. Affordable Housing Affordability Defined. If asked, some local residents might define “affordable housing” as plain, box-like buildings with repetitive designs and below-market prices. Such a response would be understandable, in view of the many stylized and monotonous, publicly-funded complexes which have been the physical and social legacy of low-to-moderate, government- funded housing programs in larger urban areas. However, “affordability” in the context of this Plan is not a material concept; it is a financial notion with important social and political implications. As a rule of thumb, most writers on the topic concur that housing costs become a serious problem when they exceed 30% of a household’s gross monthly income. Some lenders prefer a 28% threshold when considering mortgage loans. In the case of owner-occupied dwellings, 54 “housing cost” means the combined cost of mortgage principal and interest, taxes, mortgage insurance, and flood insurance (if applicable). In the case of rental housing, “housing cost” usually means the combined rent and utility costs. While the affordability issue is encountered in different ways by the homeless, the low-income renter, renters who are prospective first-time home buyers, and owners who are shopping for a new home, it is safe to conclude that if a household’s gross annual housing expenses exceed 30% of their gross annual income, they will generally risk their ability to meet other routine expenses and financial obligations. Affordability in DeKalb. The DeKalb County Housing Authority published an insightful and useful guide to affordability in DeKalb County in December 2020. In addition to the information released in the 2020 Census for DeKalb, the findings in the County study provide the data sources for this assessment and policy considerations. The median household income in DeKalb in 2020 was $45,020. This equates to a gross hourly wage of $21.64 based on a full-time, 40-hour per week job. DeKalb County’s median household income was $61,086 in 2020, which equates to a gross hourly wage of $29.37. DeKalb has more renter-occupied units (9,299 or 60%) than owner-occupied units (6,200 or 40%). Barring any extraordinary medical expenses, consumer debt, vehicle repairs, etc., a household making $45,020 in gross annual income could afford a monthly rent of $1,125.50 (30%). The median gross rent for a DeKalb apartment (2-3 bedroom) is 2020 was $903. In calculating affordability and eligibility for government housing assistance, the U.S. Department of Housing and Urban Development (HUD) looks at 80% of the adjusted monthly income (80% of 30%). “Affordable” rents may also be judged by the impact they have upon future financial commitments, such as home ownership. For many rental households, the prospect of eventually owning a home has appeal. In this context, the average rent levels in a community do influence whether or not housing expenses can be managed so that households can afford to save for a home. The average and median prices of all homes sold in DeKalb in the past two years are shown in the table below: 2020 2021 Median Sales Price* $172,272 $188,745 Average Sales Price* $160,900 $172,900 *The market data includes detached single-family homes as well as attached single-family units (i.e., townhouses and condominiums). 55 The pace of homebuilding in DeKalb remains sluggish: Type 2019 2020 2021 SF-Detached 3 6 9 SF-Attached 4 4 0 Duplexes 0 0 0 Mobile Home 1 1 0 For most homebuyers, the 30-year fixed rate mortgage is the most popular financing tool. To qualify for such conventional financing, lenders typically require first-time home buyers to provide the following: a down payment of 20% and a savings cushion of at least two times the monthly mortgage. Closing costs are additional and apply to all mortgagees. On February 10, 2022, Freddie Mac reported that the average 30-year fixed rate mortgage for the 60115 zip code was 3.69%, up from 3.55% on February 1, 2022 and up from 2.73% in February 2021. It is expected that long-term mortgage rates will continue to rise steadily in as the Federal Reserve raises its bank-lending rate. The home “affordability index” is approximately 2.6 times the median family income. Using DeKalb’s 2020 median household income of $45,020, the price of an affordable single-family home would presently be $117,052. Quality homes at that price would be devilishly hard to find in DeKalb. The estimated financing costs on that unit are spread below: 20% Down Payment 10% Down Payment Down payment $23,410.00 $11,705.20 Mortgage Amount $93,642.00 $105,346.80 Closing Costs* $1,200.00 $1,200.00 Mortgage Rate 3.69% 3.69% Monthly Mortgage Payment $430.49 $484.30 *Points, appraisal, credit report, 15 days interest, recording fee, FNMA service fee, survey, etc. It is difficult to escape the conclusion that the existing housing stock is scarcely affordable for first-time homebuyers unless they have family assistance with the significant “cash cost” hurdle (including down payment), and unless the household has dual earners that can raise the household income well above the median level. A singular exception is the stock of new and existing mobile homes. 56 Policy Considerations: 1. Manufactured Housing. As noted above, the prototypical affordable home in our midst is the mobile home. Such units are small (usually less than 1,000 square feet), traditionally use less expensive interior and exterior materials, and are factory- produced. In 1990, 25% of all new homes in DeKalb were mobile homes. However, because of the restrictions on height and width imposed by their transportation from the factory to the site, such dwelling units inevitably have a box-like shape which cannot be architecturally integrated into existing neighborhoods. Moreover, such homes are typically situated on rented land, which reduces their upfront cost but carries the disadvantage that such leasing diminishes their appreciation in value over time. Finally, mobile homes are structurally inferior to other types of manufactured or site-built housing, despite their federally-approved design. Other forms of manufactured housing include panelized and modular homes assembled on site. These have grown in variety and quality in recent decades but may not be substantially more affordable. Like stick-built homes, they require foundations and utility installation, site engineering and storm water runoff mitigation, and usually need on-site adaptions to blend into existing neighborhoods. Another option is the “small house.” These are site-built homes that feature 1400- 1600 square foot floor plans, 2-3 bedrooms, and 2 full baths. They can also be easily designed to be architecturally compatible, include good-quality finishes with materials that meet local codes, but make more creative use of the smaller space for storage and essential rooms. Hallways are eschewed for rooms that merge into other rooms; dining areas apart from hearth-like, homey kitchens are eliminated; and every nook is employed for closet space. Would there be a market for such small homes? DeKalb’s demographics hold a key to that answer. The 2020 Census and the DeKalb County Housing Authority’s 2020 Housing Needs Study both acknowledge the “bimodule” growth pattern in DeKalb in recent decades. The most significant population growth in the period 2014 to 2019 was in the 10 to 19 year-old range, and the 65 years and older range. The only age grouping projected to grow through 2030 is 65 years and older. The household income forecasting for the 65 years and older age grouping is close to the inverse of a standard distribution. About 38% are forecast to see a reduction in income that puts them closer to the lower income threshold, and about the same percentage are expected to live on or over $75,000 a year. Whatever the household income level might be for these senior households, a small house will presumably be more affordable and easier to maintain for the growing senior population than one-story or two-story homes over 2,000 square feet in area. 57 Further economies have been realized in recent decades as home-building essentially became an industrialized process. Most components are manufactured elsewhere including roof trusses, load-bearing beams, pre-hung doors, windows, gypsum board, aluminum or vinyl siding and exterior trim, insulation, ready-mix concrete, plywood and oriented strand board (OSB), vapor barriers, roofing, etc. The labor component is also tied to efficiency. Both rough and trim carpenters use air-powered nail and staple guns, builders use cranes to set trusses, drywallers and siding crews use various lifts to speed production, painters use spray guns, etc. The opportunity to dramatically reduce labor cost by greater prefabrication is small at this point, so the more reliable approach to cost-saving is to build a smaller house. Currently, there are no undeveloped subdivisions in DeKalb where site-built, small homes (attached or detached) are the design choice. Some examples of compatible home designs are shown below: 1388 Square Foot Model 58 Interior Views 59 1450 Square Foot Model 1590 Square Foot Model 60 2. Regulatory Relief. As the City struggled to grow out of the “Great Recession” which bottomed in the period 2009-2010, a number of regulatory fees were waived or reduced to encourage more housing starts. The reduced fee schedule adopted in 2016 is presently slated to remain in place at least until the end of 2022. Among the fee reductions was a waiver of development impact fees by the School District, KWRD (Sanitary District), and the City (water/transportation) for the first 100 single family homes beginning in 2017. The waivers reduced impact, permit, and plan review fees by $5,280.00 (69%) for an 1,800 square foot house, or a reduction from $7,634 to $2,354. As of February 1, 2022, less than 60 homes have been permitted under this incentive. Other regulatory relief that may encourage smaller, more affordable owner-occupied home production might include the following:  A waiver of single-family permit fees for site-built housing that is constructed at an overall price within 115% of the local median price of single-family units. Such waivers would offset closing costs, moving costs, etc.  Density allowances or bonuses might be extended to developers who encouraged the construction of owner-occupied units at affordable prices pegged to local median household incomes for a prescribed period (e.g. 15-20 years). 61 APPENDIX  Appendix A. Property Tax Primer 1. History When asked in 1789 whether or not the newly-adopted U.S. Constitution would last, Benjamin Franklin famously remarked that “in this world nothing is certain but death and taxes.” With respect to Illinois, at least, Franklin’s observation was prescient. The ability to tax property in Illinois was included in the state’s first constitution in 1818. It is an “ad valorem tax,” which in Latin means “according to value” and not according to the ability to pay. The property tax in Illinois was initially a state tax, but growth and political pressure resulted in the Illinois Revenue Code of 1853 which allowed taxation by townships, and established a system of local assessors sworn by oath to provide true assessments of personal property. A state Board of Equalization was established in 1867 to make sure the ostensibly true assessments were equalized across a county. A push-and-pull between personal property taxes and sales taxes has ensued over the past 150 years in Illinois as legislators have sought to shore up state funds without pushing local taxpayers to revolt. The last state-levied property tax was repealed in 1932 at the depth of the Great Depression, but a state sales tax was instituted in 1933. The State of Illinois passed an income tax in 1968 and the Illinois Constitution of 1970 eliminated the corporate property tax, but a corporate income tax was instituted in the late 1970s. At the municipal level, cities with populations over 25,000 were established as home rule bodies under the 1970 Illinois Constitution, allowing them to impose a variety of user fees, local sales taxes, and licensing fees. DeKalb has taken advantage of that allowance since 1970. Although outside the subject of urban property tax systems, it should be noted that in 1981, after urban sprawl had artificially inflated farmland prices and rural tax bills, the State of Illinois changed the basis of assessing farm land to focus on the farm land’s agricultural economic value or ability to produce. Since then, farmland values have been calculated on the basis of soil type, drainage, and other economic factors. In the 1950s and 1960s the role of the property tax expanded dramatically, in no small part because of a post WWII “baby boom” that prompted strong local demand for quality public schools. In 1991, as the baby boom and a follow-on generation had passed through local schools, the Property Tax Extension Limitation Law (PTELL) provided that non-home rule taxing districts in the Chicago collar counties were restricted from increasing property tax extensions by more than 5% or the change in the applicable Consumer Price Index, whichever is less. DeKalb County is subject to PTELL. In the early 2000s, further exemptions were instituted for senior citizens with homestead status and seniors with 62  lower income thresholds. Additionally, general homestead exemptions have been increased to $6,000. Today, over 6,600 local taxing bodies in Illinois impose property taxes. Taken altogether, the gross revenues from property taxes statewide are shared as follows: • Schools: 60% • Cities: 12.5% • Counties: 9% • Parks: 4.5% • Community Colleges: 4% • TIF Districts: 3% • Other: 7% In DeKalb, the comparable property tax shares for the past two years are shown below: 2021 Comparative Property Tax Rates 2021 Rate 2021/2020 % % of Agg Taxing Body 2019 Rate 2020 Rate (Estimate) Difference Rate County (blended) 1.07520 1.06293 1.03322 -2.80% 9.47% Forest Preserve (blended) 0.07481 0.07396 0.07431 0.47% 0.68% DeKalb Township 0.16318 0.16002 0.15165 -5.23% 1.39% DeKalb Road & Bridge 0.18671 0.18485 0.17651 -4.51% 1.62% City of DeKalb 0.08451 0.00000 0.00000 0.00% 0.00% DeKalb Pension Funds 1.07042 1.06868 0.97235 -9.01% 8.91% DeKalb Library 0.38683 0.38772 0.38007 -1.97% 3.48% DeKalb Park District 0.63957 0.61941 0.63963 3.26% 5.86% DeKalb Park Pension Funds 0.08088 0.09034 0.06995 -22.57% 0.64% School District 428 6.95061 6.77809 6.36590 -6.08% 58.34% DeKalb Schools Pension Funds 0.23322 0.28682 0.28370 -1.09% 2.60% Kishwaukee College 0.64101 0.64147 0.62652 -2.33% 5.74% Kishwaukee College Soc. Sec. 0.01176 0.01131 0.01102 -2.56% 0.10% KWRD 0.11811 0.11596 0.11016 -5.00% 1.01% KWRD Pension Funds 0.01785 0.01771 0.01682 -5.03% 0.15% 11.73467 11.49927 10.91181 -5.11% 100.00% 2. How are Property Taxes Calculated? The State of Illinois taxes “in arrears,” that is, property tax bills register the taxes due on the previous year’s assessed valuations. All municipal tax bills are calculated using the following method: Assessed Value less any Exemptions times the Tax Rate divided by 100 63 “Fair Market Value.” The purchase value or imputed value of the land and improvements. “Equalized Assessed Value or EAV.” In Illinois, counties are required to “equalize” property tax assessments so that the median level of assessment is at 33% of the fair market value. If the average sales price in the local market is either higher or lower than 33% of assessed values, the prior assessed values will be increased or decreased by an equalization factor that corrects this. The equalization factor is then multiplied by a property’s assessed value to determine its “EAV.” “New Construction.” The value of property not previously assessed which has been legally occupied over the tax year. In Illinois, a so-called “developer’s exemption” prevents the township assessor from adding new assessed value for improvements (e.g. buildings) until the municipal building or code department issues at least a temporary occupancy certificate. “Exemption.” As noted above, a number of exemptions may be applied by eligible taxpayers to reduce their annual property tax liability. These include a general homestead exemption for owner-occupancy, and since the early 2000s exemptions for senior citizens with homestead status and seniors with lower income thresholds may apply. “Township Multiplier.” The preliminary equalization factor suggested by township assessors is ultimately determined by the County Supervisor of Assessments. The City of DeKalb’s equalization factor in 2021 was 1.0162. This means the township and county assessors felt that the DeKalb property values were slightly below the three-year average level of assessment in the township. If the average level of assessment is greater than one-third of market value, the “multiplier” or equalization factor will be less than one (1). A change in the multiplier does not necessarily mean that a property tax bill will increase or decrease. The final amount of a tax bill is determined by what local taxing bodies levy. “Tax Levy.” The property tax levy is the actual amount of property tax revenue that a local taxing body wishes to receive when taxes are collected in the following year. “Tax Rate.” The tax rate of a local taxing body is the result of dividing its approved levy by its EAV, divided by 100. DeKalb’s city rate is calculated below: Numerator_ = Quotient or Levy = Tax Rate / $100 EAV Denominator EAV For DeKalb, the estimates for 2021, payable in 2022, are as follows: $6,845,317 = 0.0097235 [0.97235 / $100 EAV] $704,000,000 64 On your tax bill, the County Collector presents your tax obligations as shown in the table below. The taxpayer has to take a moment to find the rate per $100 EAV (in this instance 11.49927 divided by 100 = .1149927), then multiply the product times the personal property EAV of $99,488 to double-check the actual taxes due ($11,440.39): Single Family House EAV (2020): $99,488 2020 Comparative Property Tax Rates Taxing Body % Share-2020 2019 Rate 2020 Rate 2020 Amount County 9.24% 1.07428 1.06205 1056.61 County Pension Funds 0.01% 0.00092 0.00088 0.88 Forest Preserve 0.62% 0.07339 0.07162 71.25 Forest Preserve Pension Funds 0.02% 0.00142 0.00234 2.33 DeKalb Township 1.39% 0.16318 0.16002 159.20 DeKalb Road & Bridge 1.61% 0.18671 0.18485 183.90 City of DeKalb 0.00% 0.08451 0 0.00 DeKalb Pension Funds 9.29% 1.07042 1.06868 1063.21 DeKalb Library 3.37% 0.38683 0.38772 385.73 DeKalb Park District 5.39% 0.63957 0.61941 616.24 DeKalb Park Pension Funds 0.79% 0.08088 0.09034 89.88 School District 428 58.94% 6.95061 6.77809 6743.39 DeKalb Schools Pension Funds 2.49% 0.23322 0.28682 285.35 Kishwaukee College 5.58% 0.64101 0.64147 638.19 Kishwaukee College Soc. Sec. 0.10% 0.01176 0.01131 11.25 KWRD 1.01% 0.11811 0.11596 115.37 KWRD Pension Funds 0.15% 0.01785 0.01771 17.62 100.00% 11.73467 11.49927 11440.39 “CPI.” For PTELL taxing bodies, a cost-of-living percentage is used in computing the annual tax extensions (taxes payable) under PTELL. DeKalb County uses the CPI published by the US Department of Labor for “urban consumers” (CPI-U). The CPI reflects prices during the 12-month calendar year preceding the levy year. For 2021, the CPI is measured from December 2019 to December 2020 and so is unusually low at 1.4%. 3. How has DeKalb’s “wealth” in terms of tax base changed in recent years? The following tables track the trends in industrial, commercial, and residential valuations in recent years: 65  Industrial Valuation* 2017 2018 2019 2020 2021** $55,827,547 $57,198,687 $62,998,697 $65,682,775 $92,444,539 City-Wide EAV $529,629,464 $547,947,687 $585,726,839 $610,333,062 $704,000,000 % of City-Wide EAV 10.54% 10.44% 10.76% 10.76% 13.13% Commercial Valuation* 2017 2018 2019 2020 2021** $164,843,724 $170,625,427 $182,469,081 $189,583,406 $201,000,000 City-Wide EAV $529,629,464 $547,947,687 $585,726,839 $610,333,062 $704,000,000 % of City-Wide EAV 31.12% 31.14% 31.15% 31.06% 28.55% Residential Valuation* 2017 2018 2019 2020 2021** $305,785,673 $316,779,699 $336,652,943 $351,406,926 $410,555,461*** City-Wide EAV $529,629,464 $547,947,687 $585,726,839 $610,333,062 $704,000,000 % of City-Wide EAV 57.74% 57.81% 57.48% 57.58% 58.32% * Represents “equalized” assessed evaluation or 1/3 of the full assessed value. The minor valuations for farmland and railroad property within the City limits are included in the City- wide EAV numbers. ** Estimate. ***Includes $59,148,535 in recovered TIF #1 value treated as new construction. The significant leap in industrial valuation owing principally to the extraordinary investment by Ferrara Candy Company, Facebook/Meta and Amazon in the ChicagoWest Business Park has created a “legacy” opportunity for local taxing bodies and the constituents they serve. A significant reduction in the property tax burden on City property taxpayers is now possible without jeopardizing the operating positions of our local taxing bodies. Such taxpayer relief would also put DeKalb in a more competitive position vis-à-vis many of the communities benchmarked in this study. 66