The City of Springfield is on track for a budget surplus in FY 2019. Based on current revenue, the city may have a positive fund balance of $1.7 million. This comes as something of a surprise, considering the original budget had an estimated $2.6 million shortfall. At last night’s city council meeting, Budget Director Bill McCarty explained what caused the turnaround.
Numerous factors played into the turnaround. Early tax payments, a large settlement from Comcast, and a transfer from Fund 095 to the corporate fund were key on the revenue side. Hiring delays and stabilizing healthcare cost increases have been key on the expense side of the equation.
The city’s good management has been noted by outsiders as well. The S&P affirmed the city’s AA bond rating, which helps determine how much interest is paid on new bonds. A higher bond rating is a good indicator of financial health, and so avoiding a downgrade is very valuable for the city.
Clouds on the horizon
But while the current year is better than expected, the council was given several warnings about the future. Director McCarty pointed out that much of the surplus was due to a one time settlement. That extra million helps this year, but doesn’t represent a lasting increase in revenue. While optimistic about the long
Representatives from the Police Pension fund also warned about the growing pension obligations. Pensions already consume all of the property tax revenue in the city. McCarty said that where property tax used to pay for pensions and other things, now they only pay for pensions; and even other revenue sources are being tapped to make the required payments.
The S&P also noted these long-term challenges. So while the current AA rating was affirmed, the city’s outlook was downgraded from “stable” to “negative.” Although this will not impact current interest rates, it might make future borrowing more expensive.
You can watch McCarty’s presentation to the council which starts at 55:00. You can also watch his after meeting Q&A in the player below.
Local Airbnbs to City Council: let us pay taxes
Who wants to pay more in taxes? Normally, business owners point to Illinois’ high tax burden as a problem, but some property owners in Jacksonville actually want to be allowed to pay more. One of these owners is E. Scott DeWolf, who runs an Airbnb location in Jacksonville. But when DeWolf went to the city to voluntarily pay the hotel motel occupancy tax, he was told he wouldn’t be allowed to do so.
Airbnb is a short-term rental service where property owners can rent out rooms or buildings that they own. DeWolf was joined by Professor Kevin Klein and Bryan Leonard to discuss the positive impact Airbnb has had on the local tourism environment. They shared how the experience they can create in their properties fills a niche that regular hotels don’t, and that this draws visitors from across the state and even some from over seas.
However, despite being an internationally recognized brand, Airbnb still operates in a legal grey area. Listings aren’t considered rental properties, because visitors have short stays like at a regular hotel or bed and breakfast. But they aren’t recognized as hotels either because they are otherwise residential properties. As a result, since the start of Airbnb, taxation has been an issue. While Airbnb has taken some voluntary steps to collect the occupancy tax, this collection has varied from jurisdiction to jurisdiction. To further complicate matters, not every area wants Airbnb to operate there. Adding new rooms may impact the viability of existing hotels, and adding new traffic to residential areas can disrupt neighborhoods. In Jacksonville’s case, Airbnb is not recognized as a hotel, which is why they cannot pay the local occupancy taxes.
It may seem strange that Airbnb operators would want this to change. Why ask the council to raise their taxes? There is a very pragmatic reason: if Airbnb locations do not pay the occupancy tax, they cannot advertise with the local tourism boards. This keeps them out of some of the main local referral networks. They cannot even leave brochures with the tourism board.
But their request is also driven by a genuine commitment to the community. These owners have heavily invested in building up their properties and enhancing local tourism. And adding more rooms is necessary for Jacksonville’s busiest tourism days. When sporting events take place, or the college host graduation, visitors often have to room as far away as Springfield or Lincoln. Building up a healthy community is good business for everyone.
In the mean time, DeWolf said that they were still willing to contribute to the community even if they cannot pay taxes directly. He personally offered to donate 5% of his sales, equivalent to the tax he can’t pay, to the Jacksonville Heritage Culture Museum.
You can watch their full presentation in the player above, and the rest of the city council meeting below.
Integrated Resource Plan recommends shift towards renewables
What does the future hold for CWLP? Currently, four coal-fired Dallman units provide almost all of Springfield’s power. But that may change soon. At the Monday meeting of the Public Utility Committee, experts from The Energy Authority (TEA) unveiled the results of their months-long integrated resource plan (IRP), which called for major changes to the utility.
The IRP is based on economic models. Energy markets are impacted by many different factors, including the price of fuel, government regulations, market demand, and even the weather. It is impossible to know how the future will play out, but by running many scenarios, TEA was able to come up with recommendations that fit the most likely futures. By 2031, power generation will be evenly split between renewables and coal (53-43), up from the current 100 percent coal generation. Improvements to energy efficiency will account for the remainder.
Phasing out coal
Coal will play a much smaller role in CWLP’s future. Every scenario called for retiring Dallman units 1 and 2. These units should be retired in the next few years; possibly as early as 2020. Additionally, Unit 3 was also recommended to be retired. However, because of the logistics of the plants, unit 3 will take longer to decommission.
This recommendation was based on the economics of coal. Kevin Galke, who presented for TEA, said that fracking was a “game changer” for energy markets, and one that no one saw coming. At the same time, renewable energy has also become substantially more competitive. This combined with the high capital expenses at the units, made them economically unviable.
But coal is not totally eliminated from the portfolio. Unit 4 is expected to provide energy for the city for at least the next decade. Its ultimate fate depends in large part on the price of coal. If the city can keep coal costs low, unit 4 remains much more viable than if prices continue to climb. However, in the event its capacity needs to be replaced, a gas plant is a more likely choice than a new coal one.
Adding in renewables
Renewables are the source of choice to replace coal. TEA acknowledged that many renewable projects in the past had been motivated by social consciousness rather than economics, but that new technologies were changing that landscape. Under the TEA plan, renewables will account for nearly half of the city’s power by 2023 and into the 2030s.
The transition from the Dallman units to renewables will be facilitated by a few years of heavy market purchases. But after the transition is complete, the city should return to being a net seller of energy.
What comes next
The IRP was just the first step in creating the future of CWLP. Now that the city knows what direction it needs to go, the task of implementing this plan will fall to the city council. Their task will not be easy. Taking coal plants offline is in many respects just as hard as building them, due to the complicated machinery and environmental issues with coal waste. And although CWLP may be eligible for certain Future Energy Jobs Act (FEJA) grants, creating the renewable capacity will also require significant planning.
But there is also a human element to CWLP. The three units recommended for retirement employ a large number of workers directly, and supports the coal mines and trucking companies that keep the units fueled. Even if this move is the right one for CWLP and the city as a whole, many people stand to lose their current employment. The council acknowledged that they will have to find a way to transition these workers to other jobs either in the utility or in the private sector. They cannot simply be abandoned with no plan.
In the mean time, the public comment period for the report is now open. The public is invited to comment either by email to IRP@cwlp.com or by mail to CWLP General Office, 4th Floor, Attention IRP, 800 East Monroe St, Springfield IL, 62757. There will also be an open house May 20th at Lincoln Library from 5:00 to 7:00 PM.
To learn more about the IRP, you can visit CWLP’s website, or watch the live presentation in the player above.
LIVE | Springfield City Council Committee of the Whole April 9th
Follow along live with the Springfield City Council committee of the whole meeting. The council will be discussing proposals to allow businesses to access the local fiber optic network. Fiber optic connections can dramatically increase network speeds over other technologies.
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