The Springfield City Council heard a presentation on the current state of its finances from William McCarty tonight. McCarty is the Director of the Office of Budget and Management and had worrying, but not unexpected, news. Revenue decreases as well as expense increases have put strain on the city’s finances.
Tax revenue for the city has been flat or declining for several years. The rise of e-commerce has been a drain on local sales tax, which is one of the main revenue sources for the city. It is only partly true that online purchases pay zero sales tax. Most major online retailers do collect some sales tax. The problem for Springfield is that money rarely makes it back to the city.
Sales tax money is allocated based on where a transaction takes place. If the online retailer has a distribution hub in the state of Illinois, that city gets all of the sales tax. If they are outside the state, then the State itself collects the sales tax as a “use tax.” That money is redistributed back to the cities, but only on a per-capita basis. This deprives the city of much of what it could be receiving if the purchases were made locally.
The state is also sharing less money from the state income tax. Compared with FY 2015, the city is getting five percent less, or over $600,000 in lost revenue.
At the same time revenues are declining, city expenses are rising. The primary driver of expenses are the police and fire pensions. These rates are set at the state level, and cannot be controlled by the city. That is why they are growing much faster than other areas of the city budget.
For the last several years, the city has cut other expenses substantially. While this has been effective at controlling costs so far, virtually all of the easy cuts have been made. McCarty said that the only areas where significant savings can be made are in public works, police, and fire. The council has worked hard to spare these departments from cuts in the past, but now they represent the vast majority of the city’s budget.
The current situation
The result of rising costs and lower revenue is a structural imbalance. In FY 2018, the Fund Balance saw a 17.2 percent decline. There have not been any negative cash balance days so far, but McCarty warned it was only a matter of when, not if, those days would come. Either cuts are going to need to be made in the public works, police, and fire, or there will need to be more tax revenue.
Although the current situation is not good, there is hope on the horizon. A case making its way to the US Supreme Court may make it easier for states to collect online sales taxes. If this case ends up with a favorable for South Dakota, Illinois could pass a similar law to South Dakota’s and bring back some of the lost revenue.
The city also voted to invest $250,000 in the new Land of Lincoln Economic Development Corporation (EDC). The EDC is a county-wide public/private partnership designed to help recruit new businesses to the county. Most of the large employers in the area have already pledged their support for the EDC.
Overall, the council was very supportive of the EDC. Mayor Langfelder said that the Q5 initiative had run its course, and now it was time for something new. Alderman Hanauer pointed out it had been quite some time since a new business had been successfully recruited to the area, and looked forward to the EDC taking a more active role in that capacity.
Alderman McMenamin was the lone dissenting vote. In pervious meetings he has cited the city’s lack of money for any project, and said the city should focus on municipal services and leave economic development to private businesses. Hy Bunn, who chairs the EDC, responded saying that the best practice for economic development requires a public private partnership.
Southeast branch pickup is tomorrow
Residents in the southeast quadrant are reminded to put out their branches tonight for the fall pickup. Branches need to be out by 6:00 AM to ensure they are picked up. The southeast quadrant is south of South Grand Avenue and east of Walnut Street, and includes the properties around Lake Springfield. This is the only scheduled branch pickup for the quadrant this fall.
You can also check out the city’s map to find out which quadrant you are in and other regulations about the pickup.
City gets good budget news tempered with warnings
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.
LIVE | Springfield City Council October 16th
Follow along live with the Springfield City Council meeting. Local BSA troop 202 is present. Camp Care-a-Lot is being recognized for their work with under privileged students. Director McCarty will present on the city’s finances shortly.
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