City Council

MINUTES CITY OF DEKALB SPECIAL COMMITTEE OF THE WHOLE MEETING JULY 10, 2018 The City Council of DeKalb, Illinois held a Special Committee of the Whole meeting on July 10, 2018, in the City Council Chambers of the DeKalb Municipal Building, 200 South Fourth Street, DeKalb, Illinois. Mayor Smith called the meeting to order at 5:00 p.m. A. ROLL CALL Deputy City Clerk Shelly Jureczek called the roll and the following members of the City Council were present: Alderman Bill Finucane, Alderman Mike Marquardt, Alderman Patrick Fagan, Alderman Kate Noreiko, Alderman Mike Verbic, and Mayor Jerry Smith. Alderman David Jacobson and Alderman Tony Faivre were absent. Also present were: Interim City Manager Molly Talkington, City Attorney Dean Frieders, Assistant Finance Director Robert Miller, Police Chief Gene Lowery, Fire Chief Eric Hicks, Public Works Director Tim Holdeman, Management Analyst Aaron Stevens, Management Analyst Ray Munch, Management Intern Jason Blumenthal, and Deputy City Clerk Shelly Jureczek. B. ITEMS ALSO ON THE REGULAR AGENDA There were none. C. PUBLIC PARTICIPATION There was no public participation at this portion of the meeting. However, Mayor Smith asked for public participation at the end of the meeting. D. CONSIDERATIONS 1. Budget Workshop Review of Budget Schedules and Goals. • Five-Year Financial Plan. Interim City Manager Talkington provided a comprehensive overview of the Five-Year Financial Plan (Plan) using a PowerPoint Presentation based on the July 6, 2018, staff memo addressed to Mayor Smith and City Council. Interim City Manager Talkington stated the Plan is a broad look at the City broken down into the following categories: Current Economic Condition, Benchmarking Data, Streets and Fleet Analysis, Alternative Funding Policy Considerations, and Revenue Special Committee of the Whole Meeting Minutes July 10, 2018 Page 2 of 5 and Expenditure Projections. She indicated she will be looking for guidance from Council on the final two categories. With respect to the Financial Forecast, Interim City Manager Talkington stated she will continue to update the forecast throughout the budget process. When projects are added, changed or removed, the forecast will reflect those changes. She also noted that the Plan contemplates that all services offered today are expected to continue each year. She recommended that Council focus on the trend more than watching the numbers when you get out five years in the forecast. With regard to the forecast, Interim City Manager Talkington stated she’s looking for guidance from Council for budget strategies to correct the $1.67 million gap by finding thoughtful, long-term budget-balancing measures. Staff has been asked to provide service reductions to close the gap. They are to begin by looking at potential service reductions and how those changes may impact the 10 goals identified by Council earlier this year. The review will begin at a higher level and then work down to minute detail. Some questions she has asked staff to consider are whether the City should partner with other municipalities or enhance some services that could provide greater revenue. Interim City Manager Talkington stated her goal is to have a list of the options staff is gathering for Council to review at the August and September budget workshop meetings. At that time Council can make changes or provide other ideas that staff may not have addressed. Alderman Finucane stated that if staff identifies more than one way to address a problem area of the gap, Council should be advised of any options, so they can decide how to proceed. Interim City Manager Talkington agreed that could be done. Alderman Fagan noted that prior Councils have been good at bringing the fund balance to 25% but questioned whether they had been putting enough into pensions. Interim City Manager Talkington stated in some years the 25% fund balance was not met because those were building years for the fund balance. In the years they did meet the fund balance, the funding requirements may have been met as listed in the actuarial reports, but the assumptions that outline those reports can drastically add or decrease the appropriate funding level. Alderman Fagan asked why there is now a deficit when prior Councils have been able to bring surplus up and eventually meet the required surplus and wondered if the actuarial tables the reason. Interim City Manager Talkington agreed that the change in the actuarial tables is part of the cause of the deficit. She explained that every time pension funding is increased because of changes to the assumptions, additional revenue sources must be found to cover the fund balance policy. Further, if those changes can’t be funded with the levy, there is a shortage. Alderman Fagan also asked if the police and fire pension obligations are being covered by what is being levied. Interim City Manager Talkington replied that they are Special Committee of the Whole Meeting Minutes July 10, 2018 Page 3 of 5 not currently fully covered by the levy. The shortage is approximately $450,000 and is being funded by other revenue sources, mostly by sales tax. Discussion ensued regarding the current funding policy for funding police and fire pensions Mayor Smith asked for confirmation that the current funding policy for police and fire pensions is not an effective way to maintain the 25% fund balance. Interim City Manager Talkington agreed. Interim City Manager Talkington continued, explaining that property tax levies are more stable than sales tax revenue. For that reason, the policy of using the property tax levy for pensions is written to mirror the spirit of using a stable revenue source to fund the most highly obligated expenditures. Alderman Noreiko provided history regarding the Council’s actions several years ago when there was a change in pension obligation information due to changes in mortality rates. At that time, the Council knew they could not increase the level in just one year. To address the issue while maintaining a decent level of City services, a phased-in approach was implemented. Alderman Finucane added to Alderman Noreiko’s comments, stating that the state had offered a funding method to catch up in funding using a lower rate. Interim City Manager Talkington stated that the state had previously required that municipalities be 100% funded by 2020, but now they have changed it to 90% by 2044. Alderman Verbic asked how concerned Council should be with the City’s Moody outlook, wondering if it would help the bond rating to catch up with some of the City’s obligations by using a one-time payment from the fund balance. Interim City Manager Talkington explained that although a one-time payment helps, it does not make a significant impact, as opposed to making other changes. She added that some of the changes made with the last budget could negatively impact the rating, while others could positively impact it. Since there is some momentum on the economic development front right now, that could play positively towards the bond rating by increasing the tax base. Mayor Smith added that he believes a one-time payment from the fund balance would be difficult for Council to look at positively. Alderman Fagan asked for information on the standard for general fund balance for other communities. Interim City Manager Talkington indicated that the balance varies, but 25%, less transfers, is the recommended best practice by the Government Finance Officers Association (GFOA). She also indicated there are different models that can be used relating to fund balances, as an alternative to using a strict percentage. Alderman Noreiko stated she would like to see department heads using energy and creativity on the revenue side, as well as the expenditure side. The City looks pretty good against comparable communities, so she understands it will be very challenging to identify expenditure cuts and potential personnel cuts. She would like a balanced Special Committee of the Whole Meeting Minutes July 10, 2018 Page 4 of 5 discussion and does not want staff or the Council to take a “slash and burn” approach. The staff and Council need to look at consequences to service or personnel cuts. Mayor Smith read from talking points provided by Interim City Manager Talkington, which stated, in part, beginning in July, departments will begin formulating their FY2019 budgets based on the direction received from Council at this workshop, through the identification of new revenue streams, as well as expenditure reductions. Mayor Smith thought the talking points were excellent, giving an executive summary of what the City is challenged to do. He noted it would be wonderful if it those talking points were published for everyone to see. Alderman Verbic stated he appreciates the effort of a Five-Year Plan and addressing the structural imbalance by setting service priorities. He doesn’t want to see an annual lining up of people to save this service or that service. Alderman Fagan stated he would like to see if the City can work with other government bodies to bring in additional revenue and cut costs. He also stated DeKalb is built on service and if it doesn’t have police, fire, or street service, citizens see that. He added that he was disheartened during his first year as alderman to watch everything being axed, starting with water bottles and moving on down the line. Then, after the first of the year, suddenly there’s a half million-dollar software system. He suggested that perhaps it should have taken longer to bring the software on in order to live within our means. He would like to look at any big-ticket items to see if there’s anything the City can hold back on now and save for later. That’s one reason why he wanted to see the line items, so there wouldn’t be surprises. Interim City Manager Talkington stated that Alderman Fagan’s point was taken. She continued by stating the intention of the budget process this year is to get away from what happened last year, and to take the time to make thoughtful and meaningful decisions that will work for the City in the long run. When starting with a service level focus, the Council and the community will understand more of what the City is providing and how changes will impact those services. This provides a better foundation for budget strategy so that corrections don’t need to be made right after a new budget if expenditure reductions were not realistic. Alderman Marquardt asked for clarification on the projections for property tax and pension and whether the FY2019 estimate still uses a portion of the General Fund to pay for that. Interim City Manager Talkington indicated yes, and stated the estimate on the tax levy, with keeping a portion of it through other sources, is about a 7% increase. Preliminary estimates by the County show only a 4% increase, with maybe a $5 million increase in new construction. If Council chose to set the rate to capture Equalized Assessed Value (EAV) growth, then we would be adding to the funding gap and additional revenue sources would be needed to fund the gap. Alderman Noreiko referred to the report and questioned how Champaign dramatically increased industrial assessed value. Interim City Manager Talkington stated Champaign has had significant growth in all areas, such as height of buildings, high- end student housing, and expansion of existing businesses, including a very large Special Committee of the Whole Meeting Minutes July 10, 2018 Page 5 of 5 Kraft warehouse. The University of Illinois is unlike other college towns in that they have managed to weather the storm better and have had increased enrollment. For instance, when they opened up foreign enrollment, the demand for high-end housing increased. Alderman Marquardt inquired about any recommendations from the Finance Advisory Committee. Interim City Manager Talkington stated that at their last meeting there was lively discussion but no recommendations. She stated they would continue discussing the Plan at their next meeting to see if there are any recommendations. Interim City Manager Talkington stated she wants to be sure Council is agreeable with taking the time to address the financial gap and not address the FY2019 one immediately. If Council is comfortable with that, we will continue working under this model. Mayor Smith asked if the Council was comfortable with making the current gap a priority. There was no immediate comment by the Council. Mayor Smith continued that he would be much more comfortable if we were to continue to be as transparent as possible in sharing this with the public all the way through the end of the budgeting process. Council then agreed this plan is doable. Mayor Smith asked if there was anyone who wished to speak to any item on the Agenda. No one requested to speak. D. ADJOURNMENT MOTION Alderman Verbic motioned to adjourn the meeting; seconded by Alderman Noreiko. VOTE Motion carried on a 6-0-2 voice vote. Aye: Finucane, Marquardt, Fagan, Noreiko, Verbic, Smith. Nay: none. Absent: Jacobson and Faivre. Mayor Smith declared the motion passed. Mayor Smith adjourned the meeting at 6:10 p.m. ________________________________ SHELLY JURECZEK, Deputy City Clerk Approved by City Council: August 13, 2018.