You’ve gotta look into the future. . .Does your 5-year plan list what you need, or what is available in terms of resources. And at the end of the day, it doesn’t say what you need. If you’ve got to fund all your capital requirements, all your replacement funds, AND fully fund your pension plans, you’ve got a hole that is HUGE. You need to know what that hole is, even if you can’t solve it right now. Because you’re making short-term decisions, and maybe — we talked earlier about the half-million savings, or the million dollars, how can we use it? — you may need that to do just what you’re doing today, three years from now. And if you don’t have that visibility, you’re gonna get yourself in a box where you spend it now and you don’t have it in three years. Now again, this is my private sector experience; if we didn’t do this THERE, we’d be bankrupt.

Mr. Kujovich also recommended a culture change, in which the focus shifts from the requirements of the organization to an outcomes-based model that asks how best to deliver what the citizenry needs. In other words, he’s asking the bureaucracy to act like less of a bureaucracy.

Watch the full video here. The operations portion begins roughly an hour in, following the discussion of revenue opportunities.

Turns out, that’s not the EPI proposal for the Water Division, and I’m sorry to have led you astray.

It’s a PILOT (not pilot) program. PILOT stands for “payment in lieu of taxes,” and is sometimes spelled PILT as well.

Among EPI’s tasks this round is identification of potential new revenue sources. One of its suggestions is to add up the assets of the Water Division, calculate what Water would be paying in taxes if it were a private company, and then charge us the amount of the calculation.

A preliminary assessment shows net assets and potential annual in-lieu tax payments to be $26 million and $186,000, respectively.

Again, sorry for the error.

Besides retiree compensation rising some $200,000 per fund for the year, much of the startling jump in liabilities in FY2012 probably arose from investment losses (PDF pp. 159-160). In particular, the police fund experienced a net investment loss of nearly $1 million.

Budget Impacts of Pensions
Annual required contributions (ARCs) for the three pension funds rose from $3.1 million in FY2007 to $4.4 million in FY2012. The jump in retiree compensation alone, for police and fire by themselves over the past two years is about half a million — consistent with the FY2014 budget narrative stating pension costs overall are rising another 15% in the coming fiscal year.

These startling increases are especially bad timing laid against the reality of flat revenues. The designated revenue source for DeKalb’s pension costs (which include FICA as well as the union-related pension funds) is property taxes, and the city has had to raise rates several years in a row just to keep each levy at about the same amount as the year before.

Property taxes at this point make up 14% of the revenues of the $30 million General Fund budget, but annual pension costs have reached 16% of expenditures.

It makes sense to expect the financial consultants will address the pension situation in one of their workshops with city officials. Double-digit growth in these costs has got to be another reason DeKalb is casting about for new revenues.

“We have worked with a local realtor and contractor to identify a willing seller of a multiunit house in the neighborhood,” said David Castro, a member of the Ellwood House Neighborhood Group, a group of residents who have worked with the city in the past to restore the area.

Council has put this plan on hold. Good for you, council members! Personally, I would, too. I agree with Ald. Jacobson that DeKalb should not get into the business of property speculation. First and foremost because it is so, so bad at it (see: empty lots downtown).

Secondly, because the Central Area TIF can’t afford all the projects they’ve budgeted for it, but must be subsidized with a few million from TIF 2 this coming fiscal year (PDF p. 116).

Thirdly, because this is a town where rehab assistance for current homeowners is badly needed, and would go so much further to improve neighborhoods than what they are proposing.

And lastly, as longtime readers already know, I do not believe in allowing private organizations to discuss how to spend taxpayers’ money without having to follow the Open Meetings Act.

Speaking of spending, does anyone know how EHN spent the $75,000 it was allocated for “streetscape” purposes? (PDF p. 115). And what about the $100,000 referred to here? (See bottom of table.)

Here is what it has done to personnel expenses.

And here’s what the FY2014 budget narrative (PDF p. 29) says about the increases:

Total Personnel Services reflect an increase of 4.5% percent over FY2013. Most of this increase is attributable to a 15% percent increase in pension costs. Wages reflect increases based on collective bargaining agreements. Our insurance consultant informed us in March that the City’s health insurance premium will increase by 4.5% percent[.]

The latest pension cost increase is distressing, but in terms of dollars it is neither the only source nor the primary source of rising personnel costs, which make up some 83% of the General Fund budget.

So we’re looking at these expenditures going up $2.4 million over a two-year period. However, personnel expenses as a whole are expected to rise only about $1 million. In my opinion, this has given council and others a false sense of security that our revenues are naturally growing to cover the ongoing, rising expenses — so let’s try to tug the curtain away.

First, some news on the expense side:

– The annual transfer from General Fund to the Workers Comp Fund decreased by about $1 million in FY2013 with the introduction of insurance coverage.

– Overtime (much of it used to train new fire fighters last year) will be reduced by $507,000 this year.

On the revenue side:

– New housing registration fees of $227,000 have been introduced.

– Transfers from the Water Fund and the two TIF funds will rise $210,000 this year.

Also, we have seen some growth in our four core revenues, which typically cover 95% or more of the personnel expenses — but they need some explaining.

The increase in sales taxes comes from the elimination of the “sales tax TIF,” meaning these revenues are not new, just going to be funneled into a different fund now. The budget narrative says $500,000 now goes into the General Fund that previously went into a TIF fund. The net is lower than that because we lost more than $100,000 in local sales tax last year.

Meanwhile, the finance people raised the income tax projection 11% because the Illinois Municipal League (again, according to the budget narrative) said so. That’s an awful lot of faith, considering DeKalb’s current rate of employment as well as the state of the state.

Let’s say everything pans out as projected. Will we be in trouble in FY2014? No. But, what do we do for an encore if core revenues continue the essential flatness of the post-recession economy and/or DeKalb continues experiencing population shrinkage?

We’ve also foolishly become very dependent upon temporary revenues for operations. Within a few years, large TIF transfers to the General Fund (currently $942,600) will be a thing of the past, and TIF “surplus” revenues ($533,000) will go away, too. Growth will not just have to cover rising wage and pension expenses, it will have to make up for future known, significant revenue losses as well.

My crystal ball says it won’t be long before we find ourselves in financial straits again and the administrators must know this because EPI is here. As in FY2010-11, they may very well decide to let go a bunch of Public Works employees — only this time, I fear our water utility could go with them for the worst of reasons, which is to say short-term solvency.

My sole source for the numbers is the FY2014 draft budget.

Related post: DeKalb’s Budgetary Reserves Do Not Mean What You Think They Mean

———————–

*Admin absorbed the full-time deputy clerk’s position so it is not a new hire. That makes the total (assuming hires matched those budgeted) 16.25 full time equivalents (FTEs) over the two-year period.

EPI, of course, refers to Executive Partners, Inc., their latest report to the city and the April workshop we talked about yesterday.

Jump for more.

Executive Partners, Inc. (EPI) was hired four years ago to help put the City of DeKalb on a more sustainable path financially.

The fix didn’t take, so they’re back. EPI met with city officials at an April 13 special meeting.

Mr. Nuehring stated he will discuss opportunities for revenues. He noted that there are approximately 375 fines and fees and enforcement can be a challenge. He added that a full review of all may be necessary. The question was asked of staff yesterday, he said, if fines and fees are viewed as revenue or used for public safety and compliance. Staff stated they are meant for public safety and compliance. Mayor Povlsen agreed.

DeKalb’s personnel expenses are going up $1 million in FY2014, but most of its core revenues are slipping. Property taxes are still flat, city sales tax has been reduced more than $100,000 in the past year and the utility tax revenue estimate for FY2013 is $320,000 less than the year before. Are we really supposed to believe the timings of the new rental housing registration program, towing/impounding regulations and steep increases in fines are coincidental and not responses to continuing revenue shrinkage?

The April workshop was used to consider EPI’s latest report and recommendations, which include a proposal to privatize DeKalb’s water utility to create a payment in lieu of taxes (PILOT) program (see more detailed correction here). The consultants are also recommending DeKalb centralize purchasing — which I thought we already did following the 2009 report, since we hired a finance/purchasing director and assistant finance/purchasing director thereafter; in a reasonable world there’d be some explaining to do.

Possibly EPI’s most important message is that DeKalb still needs to pick up the knack for long-range thinking and planning.

I’ve only described a fraction of the report. It is not yet available at the city’s website because it’s only a draft at this point (so is the FY2014 budget, but whatever) and will be finalized after further discussion between Executive Partners and DeKalb officials. I’ve obtained a PDF copy. The file exceeds the WordPress size limit for posting, but I’d be glad to send it to you via email. Request it by using the form below.

The report plus the meeting minutes will get you up to speed in no time.

The DeKalb Chamber of Commerce is requesting $45,000 from the city to create an event coordinator position to take over the events that Re:New DeKalb has run for years…Re:New DeKalb will undergo a fundamental shift later this year, said Frank Roberts, the president of the organization’s executive board. He said the organization will broaden its focus to include economic development in the entire city, public safety, and creating a marketing brand for DeKalb.

First of all, that’s some serious mission creep they’ve got there. Secondly, the Chamber already gets $50,0000 per year from DeKalb’s Economic Development Fund for marketing and tourism.

Speaking of the Econ Fund:

The money would come from the city’s economic development fund, which is funded by the city’s hotel/motel tax. Biernacki said the city expects to see a boost in this fund with the new Hampton Inn and Suites being built at the corner of South Annie Glidden Road and Taylor Street.

No, I’m thinking the money probably wouldn’t come from that fund. Reason(s): the Econ Fund always a) gets a transfusion from the General Fund, and/or b) runs in the red.

Can the Hampton take make up for the shortfall and fund the new venture too?

The Econ Fund was created to capture hotel/motel revenues and earmark them for economic development, but we’ve never collected enough to fully fund these activities, and the problem has worsened since its creation.

Much of its history is online in annual budgets and here at City Barbs.

Starting in FY2009 with a $214,000 budget (PDF p. 113), Econ was to cover the city’s lobbyist expenses, ReNew DeKalb’s activities, DeKalb County Economic Development Corporation (DCEDC) services, and the Chamber’s marketing and tourism efforts.

Hotel-motel tax revenues fell short about $50,000 that year — despite a hike in the rate, mind you — and the General Fund had to make it up.

The next year, the city shifted ReNew DeKalb’s $50,000 allocation out of Econ (PDF pp. 112-113) and into the downtown TIF fund. Yet, here (PDF p. 106) you can see that the General Fund still has had to continually subsidize Econ, because hotel/motel revenues are still slipping.

When DeKalb decided to contract with Hopkins Services for retail marketing a couple years ago, the logical place to budget the $75,000+ expense would have been the Econ Fund, but they didn’t because they couldn’t, and the expenditure has come from the General Fund (Administrative Services) budget instead.

For FY2013 (PDF pp. 99-100) we expect to spend $128,000 from Econ, plus make up for a $33,000 deficit there, plus we’ll see at least $120,000 expended for the same types of developmental/marketing activities that Econ should pay for, but which have been buried in other fund budgets because it can’t.

And that’s just the stuff we know about.

Now they want to sprinkle another $45,000 into this mix? How about we tally up all the costs for these services first, consider the ROIs and the overlaps and then make a decision?

Aldermen Jacobson and Baker were right to try to put the brakes on, and I hope the new council members will agree.

A Freedom of Information Act opinion says that electronic communications made during meetings are public records, but only if they have to do with public business.

Could be Mr. Baker had an actual emergency, in which case I hope everything turned out OK. However, he does this a lot so I’m guessing most days he’s just being rude.

Some municipalities might choose to ban electronic communications during city meetings, but I’m torn. Sometimes it’s better to know without a doubt who the jerks and louts are.