Finance Advisory Committee

AGENDA Finance Advisory Committee Meeting Thursday, October 5, 2017 5:00 p.m. Police Department Training Room #203 (Second Floor) 1. Call to Order 2. Roll Call for Attendance 3. Public Participation 4. Approval of Minutes a. Minutes of the Finance Advisory Committee Meeting of September 21, 2017 5. Preliminary 2017 Levy and 2018 Collection of Taxes In and For the Corporate and Municipal Purposes of the City of DeKalb for the Fiscal Year 2018. 6. 2018-2022 Five Year Financial Plan 7. Committee Recommendations a. Property Tax Levy b. Closure of the Peace Road Interchange Agreement 8. Other Items 9. Confirm Next Meeting Date and Time a. Tuesday, October 17, 2017 at 5:00 p.m. i. TIF & Asset Management Plan 10. Adjournment The Finance Advisory Committee’s role (as listed in Chapter 54-11) is to provide well-reasoned, financially sound recommendations to the Council. Meetings and reporting shall be on a project-by-project basis or as otherwise assigned by the City Council. The Finance Advisory Committee shall work in cooperation with the City Council and the City Manager to analyze the City’s financial policies, long term financial stability, options for greater efficiencies and possible revenue and expenditure modifications.  MINUTES FINANCE ADVISORY COMMITTEE CITY OF DEKALB SEPTEMBER 21, 2017 A. CALL TO ORDER The Finance Advisory Committee meeting of September 21, 2017 was called to order at 5:01 p.m. by Chair Peddle. B. ROLL CALL Committee members present were Tom Teresinski, David Conlin, Steve Parker, Ron Partch and Chair Mike Peddle. Staff present: City Manager Anne Marie Gaura, Assistant City Manager Patty Hoppenstedt (arrived at 5:36 p.m.), Finance Director Molly Talkington, Interim Finance Director Jeff Wilkins, Public Works Director Tim Holdeman, Economic Development Planner Jason Michnick, Assistant Human Resources Director Michelle Anderson and Account Technician III Carri Parker. Staff present in audience: Deputy Fire Chief Jeff McMaster and Management Analyst Aaron Stevens (left at 7:15 p.m.) Committee members not present were Jason Crome and Lynn Neeley. C. PUBLIC PARTICIPATION Dwayne Brown expressed his concerns regarding the four funding options presented previously to improve streets and fleet. Mr. Brown explained the budgeted funding for Streets has been inadequate for a number of years but raising taxes is not acceptable. Mr. Brown suggested the City needs to increase the tax base by concentrating on new businesses and not raising taxes. Bessie Chronopoulos suggested the Committee should meet regularly. Ms. Chronopoulos explained the residents need the Committee’s expertise to give the City Council direction on financial decisions. Ms. Chronopoulos added the TIF is a concern to the community, and if staff is having difficulty pulling historical TIF data they should reach out to community residents that have TIF information available. D. APPROVAL OF MINUTES 1. Minutes of the Finance Advisory Committee Meeting of August 15, 2017 MOTION Finance Advisory Committee Meeting September 21, 2017 Page 2 of 6 Committee Member Partch moved to approve the minutes; seconded by Committee Member Parker. VOTE Motion carried on an omnibus vote. Chair Peddle declared motion passed. City Manager introduced Public Works Director Tim Holdeman, Economic Development Planner Jason Michnick, Assistant Human Resources Director Michelle Anderson and newly hired Finance Director Molly Talkington to the meeting. She thanked Interim Finance Director Jeff Wilkins for his time with the City and efforts on the Five Year Financial Plan and FY2018 Budget. She added that Deputy Chief Jeff McMaster is here to answer any questions with regard to the Fire Pension as well. Staff also thanked Blerta Greicevci and Walker Steinke (MPA Interns), Carri Parker, Michelle Anderson and Patrick DiDiana for their work on the Five Year Financial Plan. E. POLICE PENSION AND FIRE PENSION ACTUARIAL REPORTS AND INVESTMENT RETURN STUDY Interim Finance Director Wilkins introduced the City’s pension fund actuary Heidi Andorfer from Foster & Foster. Ms. Andorfer presented the Fire Pension Actuarial Report. She pointed out the mortality assumptions were updated from 2000. She added there were more retirements than they had projected and the fund was short of the 7.5% investment rate of return assumption. She explained their calculations to project asset valuation is a smoothing process. Committee Member Teresinski asked about the market value cost versus actuarial costs. Ms. Andorfer explained that the City has past losses that are rolling into the fund. She explained that on page 22, the calculation is an annual gain/loss to the fund which are measured to the 7.5% rate of return assumption and explained the loss calculation. She added the assumption is high at 7.5% and the fund will continue to see losses unless rate of return increase or assumption is lowered. Ms. Andorfer continued with explaining the $67.3 million total actuarial accrued liability represents the benefits earned to date by past and current employees. She compared the actuarial value of assets and the unfunded amount of $39.7 million which resulted in a ratio of 41.1%, which increased from last year. Chair Peddle explained the normal cost is the cost for next year when a fund did not have additional liability from past underfunding. He added the $1.1 million additional cost keeps the fund you up to date for the benefits in the next year. Ms. Andorfer added that it would be lower as the individual contributions would be taken into consideration. These minutes have not been approved by the Finance Advisory Committee Finance Advisory Committee Meeting September 21, 2017 Page 3 of 6 Ms. Andorfer mentioned that if everyone were to leave today the fund would need $58.3 million, which the fund is currently 44.8% funded. Ms. Andorfer explained the breakdown of the required $3.2 million contribution to the fire pension fund. Ms. Andorfer presented the payroll assumptions. She explained the 4.5% payroll growth assumption. Chair Peddle stated he is concerned that the pensions are currently the single item on the City’s property tax levy. He added that it is essential that when Committee members are discussing the pensions that we can explain to the taxpayer the process and why. A discussion ensued between the Committee, Staff and Ms. Andorfer with regard to the payroll assumptions relative to amortizing, salary inflation, wage assumptions and other assumptions. Mr. Holdeman left the meeting at 5:53 p.m. Ms. Andorfer continued explaining the statistical data and assumptions of future retirements and stated that there will be 16 retirements in the next 5 years. Ms. Andorfer discussed the GASB 67 Statements and schedules sections. She added many communities are changing their rate of return assumption to 6.5%. She recommend the City begin a process to lower the rate of return assumption for the fire and police pension funds. Mr. Holdeman returned to the meeting at 5:59 p.m. A discussion ensued between the Chair Peddle, Staff and Ms. Andorfer regarding the authority to make decisions for rate of return assumptions. Mr. Wilkins left the meeting at 6:07 p.m. Mr. Wilkins returned to the meeting at 6:09 p.m. Ms. Andorfer began presenting the Police Pension. She stated that there was a 7% increase year over year. She commented that the balance is not as high, but there is a better fund to plan in this plan. She added that the fund balance went from $2.5 million to $2.7 million. She stated that the mortality assumption was updated as well. She mentioned that there were many more retirements than predicted which will increase liabilities. Mrs. Hoppenstedt left the meeting at 6:12 p.m. Mr. Peddle left the meeting at 6:13 p.m. These minutes have not been approved by the Finance Advisory Committee Finance Advisory Committee Meeting September 21, 2017 Page 4 of 6 Ms. Andorfer explained the funding level of $65.5 million which gives a funding liability of 50% which is better than the 41% of the Fire liability. She added that the annual contribution is $1.1 million. Ms. Andorfer mentioned that if everyone were to leave today the fund is currently at 58.1%. Mr. Peddle returned to the meeting at 6:15 p.m. Mrs. Gaura left the meeting at 6:16 p.m. Ms. Andorfer continued explaining the payroll growth assumption. She stated that the assumption for police is the same as fire. She explained that the effects of the amortization calculations. She continued explaining the assumptions, distributions and calculations. She mentioned that as of right now there are 15 more that may retire in the next five years. Mrs. Gaura returned to the meeting at 6:19 p.m. Ms. Andorfer discussed the GASB 67 Statements and schedules sections. She added that the allocation of the fund and long term expected real rate gives us 3.9% return and including inflation provides a 6.5% return. She mentioned that the Police Pension is invested differently than Fire. She added that with different investment advisors the information could be different. Ms. Andorfer summarized the investment return assumption letters. Committee Member Conlin asked how long the long term rate of return is. Ms. Andorfer answered that ideally its 20 years. Interim Finance Director Wilkins summarized the pension explanation. A discussion ensued between the Committee and Staff on the timing of decision making, levy discussions, requirements of public notification, and how they are or are not related and the timing of the budget schedule. Mrs. Hoppenstedt returned to the meeting at 6:30 p.m. F. FIVE YEAR FINANCIAL PLAN Interim Finance Director Wilkins presented a summary of the Five Year Finance Plan. Economic Development Planner Michnick explained the City’s is economic position. A discussion ensued on the current market value on DeKalb homes and the national retailer’s impact. These minutes have not been approved by the Finance Advisory Committee Finance Advisory Committee Meeting September 21, 2017 Page 5 of 6 Interim Finance Director Wilkins summarized the benchmarking section of the Five Year Financial Plan. He explained the comparable communities and university communities. Chair Peddle asked why Bloomington is included and not Normal. The Committee asked that Normal be included in the plan. City Manager Gaura mentioned that any suggestions are welcome. Mr. Holdeman left the meeting at 7:03 p.m. Mr. Holdeman returned to the meeting at 7:04 p.m. Public Works Director Holdeman presented the Asset Management Plan for Streets and Fleet. He discussed the details on fleet condition and replacement process. Mr. Teresinski and Mr. Parker both left the meeting at 7:19 p.m. Due to the lack of a quorum, Chair Peddle called for a 10 minute break at 7:20 p.m. The Meeting resumed at 7:30 p.m. Public Works Director Holdeman continued presenting the Asset Management Plan for Streets and Fleet. He discussed the condition of the City streets and explanation of how the calculations are made. Interim Finance Director Wilkins presented the alternative funding considerations. He summarized the current agreements with DeKalb County with regard to tax sharing. Public Works Director Holdeman continued presenting the Capital Needs. He presented multiple scenarios that are available for a new funding source. A discussion ensued between Chair Peddle and Public Works Director Holdeman on vehicle stickers. Chair Peddle requested information on other communicates that have or had vehicle stickers. Interim Finance Director Wilkins concluded the presentation of the Five Year Financial Plan with a summary of the presentation. City Manager Gaura asked for feedback from the Committee. Chair Peddle expressed that the information has not changed regarding the delays in funding for streets and fleet. Committee Member Teresinski suggested that there be a meeting for each topic. He asked for additional information in the Five-Year Strategic Plan. He claimed that the These minutes have not been approved by the Finance Advisory Committee  Finance Advisory Committee Meeting September 21, 2017 Page 6 of 6 current document is a step, but would like to see ratios between our expenditures, head count and median income. A discussion ensued between the Committee and Staff on median income, services, comparative communities and what additional details the Committee would like to see in the Five Year Financial Plan. G. WATER SALES TRANSFER TO WATER CAPITAL FUND Chair Peddle stated that he is satisfied with the information staff provided. Committee Member Teresinski summarized the calculation and distribution. H. FY2018 BUDGET SCHEDULE Chair Peddle stated that the City Manager and he will work on the budget schedule. He added that they will work on scheduling frequent meetings and discuss the requirements needed for the City Council. I. OTHER ITEMS No other items discussed. J. NEXT MEETING Staff will reach out to the Committee with a multiple dates that are available for future meetings. K. ADJOURNMENT Chair Peddle requested a motion to adjourn, moved by Committee Member Teresinski and seconded by Committee Member Conlin. Motion passed by an omnibus vote. Meeting adjourned at 8:20 p.m. __________________________________________ CARRI PARKER, Account Technician III These minutes have not been approved by the Finance Advisory Committee RETURN TO AGENDA DATE: October 3, 2017 TO: Mike Peddle, Chair Finance Advisory Committee FROM: Anne Marie Gaura, City Manager Molly Talkington, Finance Director SUBJECT: Preliminary 2017 Levy and 2018 Collection of Taxes In and For the Corporate and Municipal Purposes of the City of DeKalb for the Fiscal Year 2018. I. Summary State and federal law mandates the City provide certain pension benefits to all its full-time employees. The City of DeKalb, like most municipalities, uses its annual property tax levy to help finance these costs. The City Council shall determine the amounts of money estimated to be necessary to be raided by taxation annually. For the 2017 levy year (2018 collections), this memorandum outlines options for the Finance Advisory Committee to review and provide a recommendation to the City Council. II. Background State and federal law mandates the City provide certain pension benefits to all its full-time employees. The City of DeKalb, like most municipalities, uses its annual property tax levy to help finance these costs. An independent actuary calculates the levies for Police and Fire pensions. FICA and IMRF rates are set by the state and/or federal governments and are basically a function of expected payroll. At the September 21, 2017 Financial Advisory Committee meeting, Foster & Foster Actuaries and Consultants’ Heidi Andorfer, Consulting Actuary, presented the City’s actuarial reports for Police and Fire Pension Funds. Ms. Andorfer also presented the results of an investment return study that shows lowering the investment return assumption for both Police and Fire Pension funds would increase the funding need from the 2017 levy. However, lowering the investment return assumption would align this assumption closer to the Police and Fire Pension fund investment managers’ targeted returns for the funds, 6.5% target and 7.0% respectively. In the long term, the closer alignment of the assumption and investment targets would alleviate annual increases to the City’s unfunded liability in both funds. The Committee requested an additional meeting to discuss the property tax levy. Other factors to consider when levying the 2018 tax levy is Moody’s downgrade in the City’s bond rating from an Aa2 to an Aa3. While this rating is still a good rating, the negative outlook tells us that Moody’s has a long range concern and they have placed a greater emphasis on pension liabilities and stable funding sources. Property tax is considered a very stable revenue source. However, the City has a reliance on volatile revenues such as Sales taxes to support operations and debt service. The City’s Financial Policies include the Revenue and Expenditure Policy that outlines the City’s desires to maintain a diversified and stable revenue base to reduce the impacts of fluctuations in any one revenue source. The specific principles for the property tax levy as follows: 1. The City prefers to keep its property tax rate as low as possible. The following components shall be followed in priority order each year when establishing the property tax levy: a. Levy for Police, Fire and IMRF pensions per actuary calculations. If the actuarial reports indicated a higher employer contribution is needed, said increase will need to be added to the City’s overall previous year levy request to avoid underfunding problems. b. Levy for FICA. c. Levy for general obligation bond principal and interest less abatements. d. Levy to support General Fund operations including Police, Fire, Public Works, Community Development, Finance, Human Resources, Information Technology, and Administration. The annual increase for this component should not exceed the rate of inflation. e. Levy to fund additional personnel as determined by the City Council. Staff has calculated the recommended levy to fully fund Police and Fire pensions as included in the financial policies point 1a. However, IMRF pension, part of 1a, has not been fully funded through the 2017 levy. As well, the remaining funding priorities for the levy (1b through 1e) have no funding as part of the 2017 levy. The burden to support those priorities has been shifted to other revenue sources. The following explains the amounts of each specific levy for this year: 1. Funding the Police and Fire Pension Funds based on the actuarial valuation received on May 1, 2017 from Foster & Foster Actuaries and Consultants. The funding level used is the Entry Age Normal Method that began with the 2016 tax levy. By using the Entry Age Normal Method this is a first step in reducing the City’s large pension liability in the hopes of having a positive impact on the Aa3 bond rating from Moody’s. The proposed funding for the Police and Fire Pensions is $2,680,967 and $3,183,910 respectively. The actuarial reports from Foster & Page |2 Foster were on the Financial Advisory Committee’s September 21, 2017 meeting agenda. The proposed funding for the Police Pension is $301,348 greater than the amount required by the State of Illinois. As well, the Fire Pension funding is $368,549 greater than required by the State. This is a positive for the City since the State’s funding requirement is not consistent with best practices established by actuarial organizations and the Government Finance Officers Association, the largest membership organization for public finance professionals. An adjustment to the investment return assumption to bring the current assumption of 7.50% rate of return more in line with the targeted rate of return for the pension funds would further address Moody’s concerns by avoiding future increases to the unfunded liability when the funds do not reach the current 7.50% investment return assumption. The Police and Fire Pension funds’ targeted rate of return by their financial advisors is outlined in the GASB 68 requirements as 6.50% and 6.98%, respectively. The below table shows the funding requirements at three investment rate of return assumptions: 2016 2017 Levy Difference to Option 1 Extended Levy 7.50% Return 2016 Ext Levy Fire Pension $2,990,000 $3,183,910 $193,910 Police Pension $2,502,904 $2,680,967 $178,063 Total $5,492,904 $5,864,877 $371,973 Difference Difference to 2017 Levy at 2017 Levy 2017 Levy at 7.25% Return 7.25% Return 7.50% Return to 2016 Ext Option 2 Levy Fire Pension $3,320,583 $136,673 $330,583 Police Pension $2,830,983 $150,016 $328,079 Total $6,151,566 $286,689 $658,662 Difference 2017 Difference to 2017 Levy Levy at 7.00% 2017 Levy at 7.00% Return Return to 7.25% Return Option 3 2016 Ext Levy Fire Pension $3,463,310 $142,727 $473,310 Police Pension $2,987,254 $156,271 $484,350 Total $6,450,564 $298,998 $957,660 Page |3 2. The City has not fully funded the IMRF and Social Security (FICA) employer contributions since the 2007 levy. This has been a deviation from the financial policy. The chart below shows the IMRF and Social Security levies over time. Historical IMRF and Social Security Property Tax Levy Funding 1,400 1,200 1,000 800 Thousands 600 400 200 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 IMRF Social Security The chart shows a downward trend in funding from the levy, meaning other revenue sources funded the remaining need annually. Also, the chart shows a two-year attempt to restore funding in the 2010 and 2011 levy years. However, beginning with the 2012 levy forward, levy support for IMRF and Social Security declined. In 2007, IMRF funding was $795,624 and Social Security funding was $556,575. As of the 2016 levy, IMRF funding was $72,506, a $723,118 reduction from the 2007 levy. No funding for Social Security was included in the 2016 levy. For the 2016 levy, the focus was on funding the Police and Fire Pension levies without increasing the overall tax levy. Therefore, the IMRF and Social Security levies were again reduced to cover the additional need of the Police and Fire Pensions. During Fiscal Year (FY) 2017, other City revenues are absorbing an estimated $1.3 million for IMRF and Social Security. Continuing minimal funding in the 2017 levy means the other City revenues will absorb an additional $1.8 million as shown on the table below. 2016 2017 Levy Difference to Extended Levy at Full Funding 2016 Ext Levy IMRF $72,506 $1,071,286 $998,780 Social Security $0 $798,408 $798,408 Total $72,506 $1,869,694 $1,797,188 Page |4  Difference to Difference 2017 2017 Levy at 2017 Full Min Funding to Minimal Funding Funding 2016 Ext Levy IMRF $72,480 ($998,806) ($26) Social Security $0 ($798,408) $0 Total $72,480 ($1,797,214) ($26) The establishment of a multi-year plan to bring these levies in line with the financial policies and to alleviate the financial burden on other sources would be a realistic approach. 3. Continue to keep the debt payment for the 2013A bond series principal and interest for the library expansion. The 2017 levy amount is $482,826. 4. Continue to abate all other debt payments and cover the costs out of the General Fund. While some revenue has been dedicated to cover a portion of the payments to 2012A and 2013B it is not enough to make the full principal and interest payment. The additional two dedicated revenues are 1% of hotel/motel and 50% of Police fines revenue estimated at $85,300 combined to pay off a portion of our annual debt payments. Transfers from the General Fund cover the remaining payments. For FY2018 this transfer totals $1,801,827. 5. The Corporate levy supports the General Fund operations for the City. In the 2016 levy, the funding levied under this went to support fully funding the Police and Fire Pensions as shown throughout this report. This means other more volatile revenues support General Fund operations. General fund operations are the core City functions of Public Safety, Public Works, Development and Administration. The projections in the Five-Year Financial Plan indicated a dramatic decline in fund balance and depleted by 2023, if no changes are made to the General Fund structure. A Corporate property tax levy of $900,000 could be considered for FY 2019 and increased annually by 2.0% to stabilize the General Fund. By levying for operations, this would bolster the City’s position with Moody’s since this would shift a portion of the volatile revenue support of operations to a stable revenue source. 6. The Library dollars are included in this levy. The DeKalb Public Library is a component unit of the City and therefore the City is required to levy on their behalf each year. The DeKalb Library Board voted to hold their levy amount at the same level from 2016 at $2,298,500. Based on the average increase in the equalized assessed value (EAV) for the past two levy years, staff estimates the taxable property within the City, at $523,309,553, an increase of 3.9%. Growth in the EAV from new construction and other building improvements alleviates a portion of the tax burden on existing tax payers since the tax base increased overall. Page |5 While residents live within the City limits, their property tax bill is comprised of no less than 10 separate taxing districts. Each taxing district determines the total dollar amount to levy on the property which resides within the taxing district boundaries. A tax rate is calculated based on this total dollar request and the total assessed value of property within the taxing districts boundaries. The tax rate is what a resident sees on their tax bill for each entity having authority to place a levy on their property. The EAV of an individual resident’s property is multiplied by each tax rate to determine the amount of tax owed for the respective calendar year. The City of DeKalb is a home rule community and levies for dollars. The tax rate becomes a calculation based on the EAV (EAV x Rate = Total Levy Dollars). The chart on the following page shows the total 2016 tax bill percentage break-out for a current resident living in the City of DeKalb. AGENCY RATE AGENCY RATE CC 523 Kishwaukee 0.66998 DeKalb Park 0.75586 City of DeKalb 1.20211 DeKalb Road & Bridge 0.20200 County 1.14289 DeKalb Township 0.17235 DeKalb Library 0.45619 Forest Preserve 0.07990 DeKalb Sanitary 0.14252 School District 428 7.81316 TOTAL TAX RATE 12.63696 1.6%, DeKalb Road & 0.6%, Forest Preserve 5.3%, CC 523 9.5%, City of DeKalb Bridge Kishwaukee 1.1%, DeKalb Sanitary District 1.4%, DeKalb Township 61.8%, School District 6.0%, DeKalb Park 3.6%, DeKalb Library 428 District 9.0%, DeKalb County About 9.5% of a resident’s current tax bill goes to the City. Total dollars levied equal the EAV x Rate (EAV x Rate = Levy Dollars). The EAV is determined by the Township Assessors office, the dollars are requested by the City for Page |6 the City’s portion of a resident’s tax bill. Therefore the rate is a factor of these two amounts. The preliminary estimated EAV based on the average growth in the last two levy years shows a potential increase from the 2016 levy of 3.9%. The below tables show the levies with Police and Fire Pension funding at the three investment assumption options. Option 1 – 7.50% Investment Assumption 2017 % Estimated $ Increase/ Increase/ 2017 ESTIMATED TAX 2016 Tax Tax Levy 2017 Tax Decrease Decrease LEVY Levy before Levy after over prior over prior Extensions Abatements Abatements year year AGGREGATE LEVIED FUNDS Corporate* $46 $46 $46 ($0) 0.00% IMRF $72,506 $1,071,286 72,506 $0 0.00% Social Security $0 $798,408 $0 $0 100.00% Public Library $2,298,567 $2,298,500 $2,298,500 ($67) 0.00% SSA #3-Heritage Ridge $1,000 $1,000 $1,000 ($0) -0.01% SSA #4-Knolls $5,500 $5,500 $5,500 ($0) 0.00% SSA #6 - Greek Row $14,000 $14,000 $14,000 ($0) 0.00% SSA#14 Heartland Fields $2,500 $2,500 $2,500 ($0) 0.00% Aggregate Levy Totals $2,394,120 $4,191,241 $2,394,053 ($67) 0.00% PUBLIC SAFETY 7.50% Interest PENSION LEVIES Assumption Fire Pension* $2,990,000 $3,183,910 $3,183,910 $193,910 6.49% Police Pension* $2,502,904 $2,680,967 $2,680,967 $178,063 7.11% Public Safety Pension Totals $5,492,904 $5,864,877 $5,864,877 $371,973 6.77% DEBT SERVICE LEVIES G.O. Bonds 2013A-Library $491,517 $650,000 $482,826 ($8,691) -1.77% G.O. Bonds 2013B&2012A- Police $0 $888,306 $0 $0 0.00% G.O. Bonds 2010A - TIF $0 $1,192,400 $0 $0 0.00% G.O. Bonds 2010B&2010C- Refunding $0 $345,623 $0 $0 0.00% G.O. Bonds 2014- Refunding $0 $0 $0 $0 0.00% Bond & Interest Levy Totals $491,517 $3,076,329 $482,826 ($8,691) -1.77% TOTAL $8,378,541 $13,132,447 $8,741,756 $363,214 4.34% *2016 Extended Corporate Levy included Police & Fire Pension funding of $357,171 and $466,899 respectively. These amounts are shown in the Police and Fire levies for comparison. Based on the prior table’s information, the chart on the following page shows the impact on a resident’s tax bill for tax dollars collected in 2018 for Option 1. Page |7  PROPERTY TAX COMPUTATION CALCULATION COMPARISON BETWEEN 2016 AND 2017 FULL PENSION CONTRIBUTION OPTION 1 - 7.5% Investment Assumption % Increase/ 2016 Market Value 2016 2017 Difference Decrease Home $ 100,000.00 EAV 33,333 34,633 $0.48 - Per Day Tax Rate 1.2021% 1.6705% $14.82 - Per Month Tax Bill $401 $579 $178 - Annually 44.38% Home $ 150,000.00 EAV 50,000 51,950 $0.73 - Per Day Tax Rate 1.2021% 1.6705% $22.23 - Per Month Tax Bill $601 $868 $267 - Annually 44.38% Home $ 200,000.00 EAV 66,667 69,267 $0.97 - Per Day Tax Rate 1.2021% 1.6705% $29.64 - Per Month Tax Bill $801 $1,157 $356 - Annually 44.38% Option 2 – 7.25% Investment Assumption 2017 % Estimated $ Increase/ Increase/ 2017 ESTIMATED TAX 2016 Tax Tax Levy 2017 Tax Decrease Decrease LEVY Levy before Levy after over prior over prior Extensions Abatements Abatements year year AGGREGATE LEVIED FUNDS Corporate* $46 $46 $46 ($0) 0.00% IMRF $72,506 $1,071,286 72,506 $0 0.00% Social Security $0 $798,408 $0 $0 100.00% Public Library $2,298,567 $2,298,500 $2,298,500 ($67) 0.00% SSA #3-Heritage Ridge $1,000 $1,000 $1,000 ($0) -0.01% SSA #4-Knolls $5,500 $5,500 $5,500 ($0) 0.00% SSA #6 - Greek Row $14,000 $14,000 $14,000 ($0) 0.00% SSA#14 Heartland Fields $2,500 $2,500 $2,500 ($0) 0.00% Aggregate Levy Totals $2,394,120 $4,191,241 $2,394,053 ($67) 0.00% PUBLIC SAFETY 7.25% Interest PENSION LEVIES Assumption Fire Pension* $2,990,000 $3,320,583 $3,320,583 $330,583 11.06% Police Pension* $2,502,904 $2,830,983 $2,830,983 $328,079 13.11% Public Safety Pension Totals $5,492,904 $6,151,566 $6,151,566 $658,662 11.99% DEBT SERVICE LEVIES G.O. Bonds 2013A-Library $491,517 $650,000 $482,826 ($8,691) -1.77% G.O. Bonds 2013B&2012A- Police $0 $888,306 $0 $0 0.00% G.O. Bonds 2010A - TIF $0 $1,192,400 $0 $0 0.00% Page |8  2017 % Estimated $ Increase/ Increase/ 2017 ESTIMATED TAX 2016 Tax Tax Levy 2017 Tax Decrease Decrease LEVY Levy before Levy after over prior over prior Extensions Abatements Abatements year year DEBT SERVICE LEVIES (continued) G.O. Bonds 2010B&2010C- Refunding $0 $345,623 $0 $0 0.00% G.O. Bonds 2014- Refunding $0 $0 $0 $0 0.00% Bond & Interest Levy Totals $491,517 $3,076,329 $482,826 ($8,691) -1.77% TOTAL $8,378,541 $13,419,136 $9,028,445 $649,903 7.76% *2016 Extended Corporate Levy included Police & Fire Pension funding of $357,171 and $466,899 respectively. These amounts are shown in the Police and Fire levies for comparison. Based on the prior table’s information, the chart below shows the impact on a resident’s tax bill for tax dollars collected in 2018 for Option 2. PROPERTY TAX COMPUTATION CALCULATION COMPARISON BETWEEN 2016 AND 2017 FULL PENSION CONTRIBUTION OPTION 2 - 7.25% Investment Assumption % Increase/ 2016 Market Value 2016 2017 Difference Decrease Home $ 100,000.00 EAV 33,333 34,633 $0.54 - Per Day Tax Rate 1.2021% 1.7253% $16.40 - Per Month Tax Bill $401 $598 $197 - Annually 49.12% Home $ 150,000.00 EAV 50,000 51,950 $0.81 - Per Day Tax Rate 1.2021% 1.7253% $24.60 - Per Month Tax Bill $601 $896 $295 - Annually 49.12% Home $ 200,000.00 EAV 66,667 69,267 $1.08 - Per Day Tax Rate 1.2021% 1.7253% $32.80 - Per Month Tax Bill $801 $1,195 $394 - Annually 49.12% Option 3 – 7.0% Investment Assumption 2017 % Estimated $ Increase/ Increase/ 2017 ESTIMATED TAX 2016 Tax Tax Levy 2017 Tax Decrease Decrease LEVY Levy before Levy after over prior over prior Extensions Abatements Abatements year year AGGREGATE LEVIED FUNDS Corporate* $46 $46 $46 ($0) 0.00% IMRF $72,506 $1,071,286 72,506 $0 0.00% Social Security $0 $798,408 $0 $0 100.00% Page |9  2017 % Estimated $ Increase/ Increase/ 2017 ESTIMATED TAX 2016 Tax Tax Levy 2017 Tax Decrease Decrease LEVY Levy before Levy after over prior over prior Extensions Abatements Abatements year year AGGREGATE LEVIED FUNDS (continued) Public Library $2,298,567 $2,298,500 $2,298,500 ($67) 0.00% SSA #3-Heritage Ridge $1,000 $1,000 $1,000 ($0) -0.01% SSA #4-Knolls $5,500 $5,500 $5,500 ($0) 0.00% SSA #6 - Greek Row $14,000 $14,000 $14,000 ($0) 0.00% SSA#14 Heartland Fields $2,500 $2,500 $2,500 ($0) 0.00% Aggregate Levy Totals $2,394,120 $4,191,241 $2,394,053 ($67) 0.00% PUBLIC SAFETY PENSION LEVIES 7.0% Interest Assumption Fire Pension* $2,990,000 $3,463,310 $3,463,310 $473,310 15.83% Police Pension* $2,502,904 $2,987,254 $2,987,254 $484,350 19.35% Public Safety Pension Totals $5,492,904 $6,450,564 $6,450,564 $957,660 17.43% DEBT SERVICE LEVIES G.O. Bonds 2013A-Library $491,517 $650,000 $482,826 ($8,691) -1.77% G.O. Bonds 2013B&2012A- Police $0 $888,306 $0 $0 0.00% G.O. Bonds 2010A - TIF $0 $1,192,400 $0 $0 0.00% G.O. Bonds 2010B&2010C- Refunding $0 $345,623 $0 $0 0.00% G.O. Bonds 2014- Refunding $0 $0 $0 $0 0.00% Bond & Interest Levy Totals $491,517 $3,076,329 $482,826 ($8,691) -1.77% TOTAL $8,378,541 $13,718,134 $9,327,443 $948,901 11.33% *2016 Extended Corporate Levy included Police & Fire Pension funding of $357,171 and $466,899 respectively. These amounts are shown in the Police and Fire levies for comparison. Based on the prior table’s information, the chart on the following page shows the impact on a resident’s tax bill for tax dollars collected in 2018 for Option 3. PROPERTY TAX COMPUTATION CALCULATION COMPARISON BETWEEN 2016 AND 2017 FULL PENSION CONTRIBUTION OPTION 3 - 7.0% Investment Assumption % Increase/ 2016 Market Value 2016 2017 Difference Decrease Home $ 100,000.00 EAV 33,333 34,633 $0.59 - Per Day Tax Rate 1.2021% 1.7824% $18.05 - Per Month Tax Bill $401 $617 $217 - Annually 54.05% Home $ 150,000.00 EAV 50,000 51,950 $0.89 - Per Day Tax Rate 1.2021% 1.7824% $27.07 - Per Month Tax Bill $601 $926 $325 - Annually 54.05% P a g e | 10  % Increase/ 2016 Market Value 2016 2017 Difference Decrease Home $ 200,000.00 EAV 66,667 69,267 $1.19 - Per Day Tax Rate 1.2021% 1.7824% $36.10 - Per Month Tax Bill $801 $1,235 $433 - Annually 54.05% III. Community Groups/Interested Parties Contacted An independent actuarial has been utilized to calculate the results for the Fire and Police Pension Levy. The actuarial reports were discussed at the September 21, Financial Advisory Committee meeting. A public hearing on the tax levy is scheduled for November 13th City Council Meeting. IV. Legal Impact State statute requires that the City adopt a resolution estimating the amount to levy, comply with Truth-in-Taxation Act requirements, and adopt and file the levy before the last Tuesday of December. If the estimated tax levy is 105% or more than the prior year’s extended rate, the City is required to comply with certain requirements set forth in the Truth-in-Taxation Law. Since staff estimates the levy amount will increase the overall levy by greater than 5%, there is a legal requirement to publish notice of the estimated levy in the newspaper and hold a public hearing. The Truth-in-Taxation notice is scheduled for publication on November 5. Of course, citizen input is welcome when the Council considers the estimated and final levy adoption. V. Financial Impact While residents live within the City limits, their property tax bill is comprised of no less than 10 separate taxing districts. Each taxing district determines the total dollar amount to levy on the property which resides within the taxing district boundaries. A tax rate is calculated based on this total dollar request and the total assessed value of property within the taxing districts boundaries. The tax rate is what a resident sees on their tax bill for each entity having authority to place a levy on their property. The EAV of an individual resident’s property is multiplied by each tax rate to determine the amount of tax owed for the respective calendar year. The City of DeKalb is a home rule community and levies for dollars. The tax rate becomes a calculation based on the EAV (EAV x Rate = Total Levy Dollars). The EAV is determined by the Township Assessors office, the dollars are requested by the City for the City’s portion of a resident’s tax bill. Therefore the rate is a factor of these two amounts. The preliminary estimated EAV based on the average growth in the past two levy years shows a potential increase from 2016 of 3.9%. For informational purposes, the City’s levy is comprised of the following categories: 1) General Corporate; 2) Debt Service; 3) IMRF; 4) Police Pension; 5) Fire Pension; and 6) Social Security. This levy will apply to the FY 2018 Budget. This levy will not affect the current FY 2017 Budget. P a g e | 11  VI. Options Option 1, Tax levy increase of $363,214 which adheres to the City’s Financial Policies to fully fund the City’s Police and Fire pension obligations through the levy at the current 7.50% investment return assumption. Continue minimal levy funding for the IMRF levy and no levy funding for the City’s Social Security employer obligations. The City’s debt obligations continue to be fully abated and funded through other revenue sources. Option 2, Tax levy increase of $649,903 which adheres to the City’s Financial Policies to fully fund the City’s Police and Fire pension obligations through the levy and reduce the investment return assumption to 7.25%, a 0.25% decrease. Continue minimal levy funding for the IMRF levy and no levy funding for the City’s Social Security employer obligations. The City’s debt obligations continue to be fully abated and funded through other revenue sources. Option 3, Tax levy increase of $948,901 which adheres to the City’s Financial Policies to fully fund the City’s Police and Fire pension obligations through the levy and reduce the investment return assumption to 7.00%, a 0.50% decrease. Continue minimal levy funding for the IMRF levy and no levy funding for the City’s Social Security employer obligations. The City’s debt obligations continue to be fully abated and funded through other revenue sources. Option 4, Levy a different dollar amount. P a g e | 12 RETURN TO AGENDA DATE: October 3, 2017 TO: Mike Peddle, Chair Finance Advisory Committee FROM: Anne Marie Gaura, City Manager Molly Talkington, Finance Director Jeff Wilkins, Finance Department SUBJECT: Five Year Financial Plan Recommendations I. Summary The inaugural Five Year Financial Plan was presented to the Financial Advisory Committee at the September 21, 2017 meeting. The Committee has had an opportunity to review the Plan’s information and recommendations. Staff is seeking policy recommendations from the Committee. II. Background The development of the City’s inaugural Five Year Financial Plan is an extension of the analysis, capital planning and alternative policy considerations. The Plan will allow continued and progressive path of effective financial management. The Five‐Year Financial Plan is a process and strategy for long‐term strategic financial planning that includes economic position analysis, benchmarking to comparable communities, revenue and expenditure the City to address the individual or compounded effects of various policy choices and to demonstrate their impact on the City’s financial future. This information enables City Council and the community to discuss policy decisions with greater awareness of their long‐term financial implications. Through this process and strategy, the City seeks to achieve the balance of fiscal strength, accountability and results that the community values. The elements of the Five‐Year Financial Plan include: 1. Summary of DeKalb’s current economic position 2. Benchmarking DeKalb to comparable communities 3. Revenue and expenditure projections 4. Streets and Fleet Preliminary Asset Management Analysis 5. Alternative funding policy considerations As part of the summary on DeKalb’s current economic position, DeKalb’s economic strengths are summarized. Information is provided regarding DeKalb’s population, education attainment, housing and land use. This section also describes Northern Illinois University and its general impact on the community’s workforce. A commentary is also provided on retail and commercial real estate. Information is also provided describing DeKalb’s recent downgraded bond rating and debt obligations. In benchmarking DeKalb to comparable communities, 13 comparable communities and four university communities were analyzed. Information was gathered from the Comprehensive Annual Financial Reports for data points of 2016, 2011 and 2006. This section compares population, per capita personal income, full time employees, employees per 1,000 population, General Fund expenditures, General Fund Expenditures per capita, General Fund revenues and General Fund revenues per capita. General Fund revenues is further summarized by category – sales tax, income tax, utility tax. This section provides each communities’ information for property taxes levied, tax rates, assessed valuation and assessed valuation categories between 2006 and 2016. The last part of the benchmarking section contains comparable information for pension contributions, funding rate and unfunded liability for each community between 2006 and 2016. Summaries are provided for each detailed chart and table. The Revenues and Expenditures Forecast section includes historical fund balances, revenues and expenditures, and forecasts. Baseline forecast and alternative forecast is provided utilizing inflation assumptions. Each forecast contains a summary of the impact on fund balance and property tax rate. This section contains additional information describing the cost centers with significant effect on expenditures such as personnel costs, employee salaries, union contracts, health insurance and retiree health insurance. The Streets and Fleet Preliminary Asset Management Plan is outlined. For streets and fleet, this section includes detailed summaries of asset inventory and condition assessment, level of service evaluation, asset management strategy and financial strategy. Alternative Funding Policy Considerations sections includes detailed history of intergovernmental agreements with DeKalb County and the City of Sycamore. The current and projected impact of each agreement is provided. This section includes funding scenarios for streets and fleet. A forecast and policy consideration for General Fund stabilization is also provided. III. Alternative Funding Policy Considerations for Committee Recommendation: Closure of Peace Road Interchange Agreement Staff recommends approaching the County to secure a prompt end to the intergovernmental agreement with final payment December, 2017. The City has fully paid the debt intended by this agreement. Otherwise, if the agreement and trend continues until expiration of the original 1993 Intergovernmental Agreement, the City could pay a Page |2 total of approximately $7.8 million through Year 2033 for the benefit of $2.3 million received in 2004. The City would utilize the retained revenue to support General Fund operations. Streets and Fleet Funding This topic is scheduled for discussion at the October 17 Committee meeting. Staff would like the Committee to review the proposed options and request information that enables members to make recommendations for Streets and Fleet Funding on October 17. The recent downgrade of the City’s bond rating will impact the ability to issue bonds for capital improvement prior to 2020. The City could implement the capital improvement program as a pay-as-you-go program in 2018 and 2019 with an issuance of bonds in 2020 or later. Revenues from the following four options could be utilized for the initial pay-as-you-go program. Option 1: Increase the Local Motor Fuel Tax  Current local tax is 2 cents per gallon  Generates $360,000 per year  Model assumes a 4 cent increase per gallon for a total local tax of 6 cents per gallon  Will generate an additional $720,000 per year The arguments for this option are drivers will pay for streets and this represents about $0.68 on a tank of gas. The arguments against this option are revenue does not increase over time and it’s a tax increase Option 2: Vehicle Stickers  Residents would purchase vehicle stickers  Model assumes sticker is $50 per year  Estimated to generate $1,000,000 per year The arguments for this option include: drivers will pay for streets; it is increasingly common in Illinois communities; and it can increase over time with fee adjustments. The arguments against this option include: it does not capture revenue from non-residents; it is a significant time to administer; and it’s a fee increase. Option 3: Trash Hauler Fee  Rationale: Trash haulers create disproportionate wear on residential streets  Fee would be established to generate $400,000 per year  If passed through to customers staff estimates would be about $4 per billing cycle Page |3  The arguments for this option include: in a competitive environment, the full cost may not be passed on to residents and businesses; and it can increase over time with fee adjustments. The arguments against this option include: it does not capture revenue from non-residents; and it’s a fee increase. The following graph illustrates the revenues generated by implementing options 1, 2 and 3. This amount is shown in addition to the existing funding sources and the total proposed capital expenditures to illustrate the gap between sources and uses of funding. The fourth and final option considered in the financial management plan is a sales tax with resident rebate. The characteristics of this option are described below along with the pros and cons. Option 4: Sales Tax with Resident Rebate  Goal is to generate revenue from all people who put demands on City infrastructure, not just residents  Increase Home Rule Sales Tax from 1.75% to 2.75%  Rebate a portion of sales tax to residents  Rebate based on $4,500 purchases within City per year  Rebate may be given as credit on utility bills  Not provided if past due on utilities  Requires annual application and administration  Estimated to generate $3,155,000 per year  Would be applied to pay debt service on bonds that finance streets and fleet The arguments for this options include: all users of City infrastructure help pay for it; and a rebate program softens impact on residents. The arguments against this option include: it is a tax increase; and a new administrative process would be needed for rebate program. Page |4 RETURN TO AGENDA