City Council

DEKALB CITY COUNCIL AGENDA OCTOBER 28, 2019 DeKalb Municipal Building City Council Chambers Second Floor 200 S. Fourth Street DeKalb, Illinois 60115 COMMITTEE OF THE WHOLE 5:00 P.M. A. CALL TO ORDER AND ROLL CALL B. APPROVAL OF THE AGENDA C. PUBLIC PARTICIPATION D. CONSIDERATIONS 1. Consideration of the Annual Property Tax Levy in the City of DeKalb. City Manager Summary: By the end of the calendar year, the City Council must annually adopt a property tax levy. The combined property tax rate for taxes collected in 2018 and paid in 2019 by residences and businesses located in DeKalb Township was $11.86 per $100 EAV. The following table breaks down that rate across the 10 local taxing bodies receiving operating revenue from property taxes: Taxing Body Tax Rate City of DeKalb 1.188330 County of DeKalb 1.095070 DeKalb Library 0.208090 DeKalb Park District 0.736640 DeKalb Road & Bridge District 0.196090 DeKalb Township 0.168330 Forest Preserve District 0.076560 Kishwaukee College 0.668340 Kishwaukee Water Reclamation District 0.137540 DeKalb CUSD No. 428 7.385370 Total 11.860360 The City of DeKalb has historically used the monies raised through property taxes to fund debt service, pension obligations, and general operations. In Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers. Committee of the Whole Meeting October 28, 2019 Page 2 of 9 recent years, all of the local property taxes received by the City of DeKalb have been used to meet the City’s Police and Fire pension obligations. In fact, in 2019, the City’s Police and Fire pension obligations, as determined by an independent actuary, exceeded the City’s property tax levy so other general revenues (e.g. sales and use taxes) had to be dedicated to meeting these obligations. The City did not levy for its other pension obligations (FICA and IMRF) and abated its levy for bonded debt service, except the portion associated with the Library debt. Calculating the Property Tax Levy and Rate The starting point for each levy discussion is our estimate of the City’s “equalized assessed valuation” (EAV) for the coming year – in this case, 2020. In Illinois, the EAV is one-third of the full assessed valuation of real property (versus personal property). The City’s final rate setting EAV in 2019 was $547,947,687. The 2018 City levy collected in 2019 ($6,510,857), divided by the rate setting EAV, set the tax rate (1.188330). From the taxpayers’ point of view, the rate is the key. Presuming their property’s EAV remains constant, the rate will determine whether they pay more, less, or the same taxes in the new year. At this time every year, the County Supervisor of Assessments completes a preliminary estimate of the EAV for properties in DeKalb Township and portions of other townships that overlap DeKalb’s corporate limits (e.g. Sycamore, Afton, Cortland). This estimate takes into account such variables as the value of homestead and senior exemptions, and any equalizing multiplier established to maintain uniform assessments across all township districts. The preliminary EAV estimate also has to account for TIF district status, and Board of Review actions following appeals arising from re-assessment notices mailed each fall. The final rate-setting EAV is not set until the late winter of the following year, so it is prudent for taxing bodies aiming for a certain rate to set their levies cautiously. After consultation with the office of the County Supervisor of Assessments, our estimate of DeKalb’s rate-setting EAV for 2020 is $592,785,395. This estimate takes into account the recapture of “frozen” EAV totals in TIF #2 and the recovery of EAV from TIF #1 parcels that become TIF #3 parcels in 2020. Levy Options The principal goal of the City’s Five-Year Financial Plan (2018-2022) was the “stabilization” of the General Fund. This involved the following principal assumptions:  holding the Municipal tax rate under 1.5%; and Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers.  Committee of the Whole Meeting October 28, 2019 Page 3 of 9  raising the General Fund Balance to a threshold at or above 25% of annual GF expenditures and sustaining that level of reserve funds. The City staff’s recommended levy option proposes a targeted, level City tax rate of 1.1403% based on an estimated 2019 rate-setting EAV of $592,785,395 and a City levy of $6,759,723. The 2019 City levy option proposed was recommended by the Finance Advisory Committee by a vote of 5-1 on October 21 and is detailed below: Option #2 Capture 2.0% of EAV Growth (CPI), All New Construction, and Recapture TIF #2 EAV 2017 2018 2019 $ % Extended Levy Extended Levy Proposed Levy Difference Difference #001 - Corporate - - - - #003 - Bonds & Interest 493,032 494,117 490,075 (4,042) -0.820% #005 - IMRF - - - - #013 - Firefighter Pension 3,225,814 3,220,117 3,322,914 102,797 3.187% #015 - Police Pension 2,778,807 2,796,623 2,946,735 150,112 5.402% Total Corporate Levy 6,497,653 6,510,857 6,759,724 248,867 3.830% Library 2,050,725 2,132,754 2,265,717 132,963 6.484% #060 - SSA #3 1,000 1,000 1,000 - #061 - SSA #4 5,501 5,501 5,501 - #201 - SSA #6 15,765 16,400 16,400 - 0.000% #209 - SSA #14 2,500 2,500 2,500 - 0.000% SSA #28 - - 8,704 8,704 Total with Bond Debt 8,573,145 8,669,012 9,050,841 381,829 4.454% Total w/o Bond Debt 8,080,113 8,174,895 8,560,766 385,871 4.776% Abatements 4,211,725 4,194,333 4,998,314 803,981 19.089% Total with Abatements 12,784,870 12,863,345 14,049,155 1,185,810 9.275% 2019 % New Growth – 2019 % 2018 Actual EAV Estimated EAV Change TIF Recovery Estimated EAV Change 547,947,687 572,865,507 4.55% 19,919,888 592,785,395 8.18% 2.0% of EAV Growth 498,356.40 New Construction EAV 526,098 2018 Actual Rate 1.1882% 2019 Actual Levy - Opt #2 6,759,723 2019 Actual Rate - Opt #2 1.1403% The recommended Levy Option has the following features:  it captures new construction and 2% of new EAV growth;  it reflects the recapture of TIF #2 EAV, plus the recapture associated with the ascendance of TIF #3 on TIF #1 parcels; and  it provides a cushion to ensure that last year’s tax rate of 1.1882% is not exceeded when appeals are registered against the rate-setting EAV this fall and winter. Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers. Committee of the Whole Meeting October 28, 2019 Page 4 of 9 The recommended option and three other options (see attached) are presented to the City Council for review and a recommendation, to assist staff in the final preparation of the proposed FY2020 City Budget for Council review in several weeks. General Fund Balance The 2019 Levy has to be considered in connection with the other key objective in the Council’s Financial Plan: raising the General Fund Balance to a threshold at or above 25% of annual General Fund expenditures, and sustaining that level of reserve funds. Here is where we stand: With the adoption of the FY2019 Budget on December 18, 2018, a fund balance shortfall of $931,158 versus the 25% threshold of $9,238,043 was projected by FY2019 year-end (or a threshold of 22.28%). Management staffing reductions in February 2019 promised about a $1.1 million in annualized savings. However, in terms of closing the gap in the reserve balance for the General Fund, almost $213,000 of the salaries of the seven positions came from other City funds, and the seven non-bargaining positions all carried substantial accrued leave balances that were fully paid at the time of separation. The net savings in 2019 was therefore closer to $580,000. As a result of the management layoffs, constrained departmental spending, and other savings, the year-end FY2019 General Fund balance should be $9,111,850 or $1,708,993 higher than the actual year-end balance ($7,402,857) in December 2018. As a result, on December 31, 2019 the estimated reserve balance will be 25.17% of annual expenditures. In order to put a floor under this progress, City staff strongly recommend a 2019 levy (Option #2) that does not raise the City tax rate, but does raise as much new property tax revenue as possible to meet a substantial portion of our fiduciary obligations. Even a combined Fire and Police pension levy of $6,269,649 will not entirely cover our statutory Police and Fire pension obligations ($7,397,938) and the balance will need to be covered by other General Fund revenues, as shown in the table below: 2019 Actuarial 2019 Levy Option #2 Difference * % Difference Fire Pension $3,920,907 $3,322,914 $597,993 15.25% Police Pension $3,477,031 $2,946,735 $530,296 15.25% Total $7,397,938 $6,269,649 $1,128,289 15.25% *To be paid from other General Fund revenues Additionally, the recommended levy option will not cover our projected FICA ($539,353) and IMRF ($647,050) obligations. It goes without saying that no property tax revenues will be available for general operations with this option. Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers.  Committee of the Whole Meeting October 28, 2019 Page 5 of 9 Pending Changes in the Pension Funding Landscape Several key factors impact the annual pension calculations:  the actuarial cost method which determines the actuarial accrued liabilities. The Illinois Pension Code uses a closed amortization period that relies on an arbitrary date – 2040 – as the point in time when all funds must be 100% funded. This builds in increasing levels of contribution and volatility as the end of the amortization period approaches.  The fact that there are more than 650 Police and Fire investment funds that are individually managed with varying success, with an estimated shortfall of as much as 200 basis points (2%) per year in investment returns. A breakthrough occurred on October 10 when the Governor’s Pension Consolidation Feasibility Task Force, in conjunction with the Illinois Municipal League, presented its report. The Legislature meets later this month in veto session and may act on the Task Force recommendations, which include the mandatory consolidation of the 650 Fire and Police Funds into two separate statewide funds operating much like the Illinois Municipal Retirement Fund (IMRF), which currently has a funding level of 90%. The two statewide funds would handle the resulting investment pools through equal labor/management governing boards. The 650 pension groups would retain decision-making over the award of pensions. This will greatly reduce the annual costs of financial management with the consolidation of the investing, auditing and actuary services into the two statewide funds. Reform of the actuarial cost method will be a next step and will not likely be considered by the Legislature until the regular session in the spring of 2020. This means the City will need to absorb significant pension funding increases for another fiscal year. Nevertheless, encouraging collaboration involving the Associated Firefighters of Illinois, the Illinois Municipal League, and leaders on both sides of the state legislative aisles is evolving on the pension question. (Click here for further information) 2. Capital Funding Sources. City Manager Summary: As the Finance Advisory Committee (FAC) discussed on October 21, the 2018 Five-Year Financial Plan also provides a detailed “Streets and Fleet” analysis, which is to be reviewed each year by the City Council. Expected service levels and asset inventories have changed little since 2018 because new or alternative capital and infrastructure funding sources have not been approved. The following analysis was offered to the FAC and Council at the joint session on August 16, and to the FAC on October 21. The detailed assessment and revenue options outlined in that joint meeting remain valid. Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers. Committee of the Whole Meeting October 28, 2019 Page 6 of 9 In order to proceed with reliable Budget assumptions for capital spending in 2020, a Council recommendation is requested regarding several options for a new, dedicated capital revenue stream in 2020. The following analysis is divided into “Streets” and “Fleet.” Streets The winter of 2018-2019 had a particularly harsh impact on our local roads because the average daytime temperature often hovered in the “freeze-thaw” range. The resulting explosion of potholes exacerbated the failing condition of streets around the City and accelerated the cracking at pavement joints and along gutter lines of streets in fair or good condition. The street inventory and pavement condition assessment in the 2018-2022 Financial Plan will be updated, but it is a safe assumption that many asphalt streets slipped in their pavement condition index (PCI) rating. The total funds allocated for road repair and re-surfacing in FY2019 was $1,707,421. The sources and uses are portrayed in the table below: MFT Funds CDBG Funds N. First St. $715,341 $0 Tilton Park, Wineberry & Manning $552,080 $0 Harvey/Tyler $0 $440,000 Patching $0 $0 Total $1,267,421 $440,000 The budgeted City MFT revenue in FY2019 was $1,161,757, which also funded salt purchases ($100,000) and annual electrical charges for streetlights ($450,000), so the MFT reserve had to be tapped to take advantage of aggressive pricing by the prime paving contractor on N. First Street. The City owns and maintains about 130 centerline miles of roads, of which 74.8% (97.3 miles) are residential streets. As of January 2019, approximately 25 miles of DeKalb roads (mostly residential) needed immediate maintenance to prevent rapid degradation. In 2019, a total of only 2.75 centerline miles received such maintenance. At this pace, the road mileage needing urgent maintenance is growing much faster than the funds available to maintain good or very good pavement ratings (i.e. a PCI rating above 70). The average street maintenance expenditures required to keep pace total about $3.7 million per year. It is expected that the recent 19 cent increase in the State motor fuel tax will generate about $500,000 in additional MFT revenue for the City in FY2020, for a total budget of about $1.6 million. The following MFT projects are tentatively planned for 2020, pending Council approval: Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers.  Committee of the Whole Meeting October 28, 2019 Page 7 of 9 a) State MFT (Fund 210):  Twombly Road from Edens Garden to Annie Glidden. DeKalb share: $750,000; DeKalb Township share: about $300,000. DeKalb County will do the design engineering at no cost to the City.  Salt. $100,000.  Electricity for Street Lights. $450,000. b) Local MFT (Fund 400):  N. Seventh Street from Lincoln Highway to Sycamore Road, $350,000.  N. Thirteenth Street, estimated $200,000.  N. Fourteenth Street, estimated $200,000.  Macom Drive, estimated $100,000 for aggressive crack-filling and some Class D patching. Total: $2,150,000 Fleet The City’s fleet of Fire, Police, Public Works and other vehicles totals about 170 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. This trend is a consequence of allowing vehicles 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 life. The total fleet’s replacement value is now over $12 million and the annual maintenance cost on that fleet is now over $300,000. Replacing the vehicles rated in declining or critical condition would cost approximately $4.3 million. The preliminary vehicle replacement list for FY2020 includes the following on the “retirement” list:  Police: Replace three squad cars with three Ford Explorer Utility Squad Cars at $55,000 each or $165,000.  Fire: Replace International Navistar ambulance at $150,000 and replace Pierce Saber Engine (#4) at $550,000.  Public Works (non-Water Fund): Replace 2011 Sterling Dump Truck at $150,000; replace 2001 Ford 4x4 one-ton truck at $70,000; replace 2009 Toro 52” riding mower at $11,000; replace 1998 Chevy 4x4 pickup at $40,000; Misc. Equipment = $20,000. Total: $1,156,000 Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers. Committee of the Whole Meeting October 28, 2019 Page 8 of 9 Funding Needs. The table below projects the sources and uses for urgent capital spending in FY2020: Needed Annual FY20 Funding Capital Spending+ Available Gap MFT (210)* Roads/Eng 1,420,000 1,420,000 Electricity 425,000 425,000 Salt 125,000 125,000 Total $ 1,970,000 $ 1,970,000 $ (0.00) CDBG (280)** Infrastructure - Total $ - $ - $ - Capital Projects (400)*** Roads/Alleys 2,280,000 1,325,000 (955,000) Facilities 500,000 310,000 (190,000) Total $ 2,780,000 $ 1,635,000 $ (1,145,000) Capital Equipment (420)**** Vehicles/Equip. 1,075,000 1,156,000 +81,000 Total 1,075,000 1,156,000 +81,000) Total All Funds $ 5,825,000 $ 3,372,245 $ (2,452,755) +Street maintenance: $3.7 million per year. +Vehicles in critical condition: $4.3 million. Because it is unrealistic to hope to replace all of these declining vehicles at once, a 4-year accelerated replacement initiative is proposed. This does not keep pace with annual depreciation but does aggressively reduce the backlog. * Motor Fuel Tax: Funded by State MFT funds. Annual amount increased by about $500,000 due to state MFT increase. Includes $670,000 in engineering fees for all City projects in FY2020. ** Community Development Block Grant: $440,000 was spent on infrastructure in low-to-moderate income neighborhoods in FY2019. This was a one-time shift in accumulated CDBG funds from other annual eligible uses such as housing rehabilitation in neighborhoods with a high percentage of low-to-moderate income families. *** Capital Project Fund: Funded by Local Motor Fuel Tax of $0.04/gallon ($695,000 in FY19). Another $0.015 per gallon goes to Airport Fund ($260,000 in FY19). **** Capital Equipment Replacement Fund: Funded by various small revenues, such as cell tower leases, a reimbursement tied to a sales tax IGA, and a portion of Police fine revenues. The budgeted expenditures in the table, above, attack the longer list of degraded streets and alleys that would fill out the $3.7 million in annual street maintenance spending needed to hold our own. It also reduces the list of aging vehicles and equipment in critical condition, presently valued at about $4.3 million. Funding Options. Some capital funding options to partially close the funding “gap” in road repairs and fleet replacements are offered below:  Property tax rate increase. The City Council and City Manager share a very strong consensus behind a level City tax rate. Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers.  Committee of the Whole Meeting October 28, 2019 Page 9 of 9  Home Rule Sales Tax Increase. The current rate – 1.75% – ranks second highest among the comparable cities established by the Sikich accounting firm in the City’s Five-Year Financial Plan (2018). Carpentersville has a home rule tax rate of 2.00%. A .25% rate hike would produce about $963,411 in new revenue that could be dedicated exclusively to street improvements. With a .25% hike, the total tax on a meal from a local restaurant would be 10.25 cents on the dollar.  Local Fuel Tax Increase. The current rate of 5.5 cents per gallon is split between roads (4 cents) and airport expenses (1.5 cents). In 2019 they are expected to raise $695,000 and $260,000, respectively. The dollars can be spent on any capital item. The table above shows a part of the FY2020 local fuel tax revenue dedicated to the fulfillment of the Barb City Manor agreement in 2020, which calls for an annual allocation of $50,000 plus whatever spending is associated with the “carryover” the Council approved on June 24. Most of that carryover will not be spent in 2019 and cannot be spent from TIF funds in 2020. For every two-cent increase, the local fuel tax produces an estimated $345,000 in revenue. The proposed FY2020 Budget that the Council will review in mid-November will include a four-cent local fuel tax increase of approximately $690,000. This proposed increase would cut the FY2020 funding gap ($2,452,755) by 28%. At their meeting on October 21, the FAC failed to recommend a Capital funding option. City Council direction is requested so the FY2020 Budget provisions for Streets and Fleet allocations can be better defined prior to public review. E. ADJOURNMENT FULL AGENDA PACKET Assistive services available upon request. Hearing assistance devices are available in the Information & Technology Office, which is located to the right, just before entering Council Chambers.