By Ted Schnell • BocaJump | Oct. 21
With a structural budget deficit now estimated to be nearly three times greater than originally projected, all bets are off on what will be cut, and it’s almost certain the city will have to find new revenues, whether from refuse fees or other alternatives, Mayor David Kaptain said.
In an interview with BocaJump on Thursday, Oct. 20, Kaptain pointed out that the city’s revenue picture has changed dramatically since the start of the year, when it was estimated at just $4.5 million. Now it has ballooned to as much as $13 million.
Given that surge, the city indeed will have to look at far deeper cuts than those the Elgin Budget Advisory Task Force recommended in late September.
“I think we’re going to be discussing everything,” he said.
The mayor also noted that the task force recommended the council consider new fees or tax increases only as a last resort. But word this week that the city’s property values had dropped 20 percent and its corresponding impact on the city’s property tax revenues virtually assures the task force’s choice of “last resort” will be a necessity.
“People’s thoughts as to what was said and what actually was said (by the task force) sometimes are different,” Kaptain said. “People are saying (the task force) said absolutely no revenue changes, and that’s not what they said … Maybe that would have worked at $4 million, but not at $10 (million) or $13 (million).”
Ironically, Kaptain said that while discussing the budget situation with city staff on Wednesday, “I told them that in one way, this may have made it easier. From a decision standpoint, if we had been kind of borderline on what we’re going to do, we’d have had a lot harder discussions.
“But now, this is — big,” he continued. “Are we going to have to find revenue here? Well, yeah, I think we’re going to have to find revenue sources.”
Kaptain added that the bad news on dropping property values will make the council’s direction more clear by eliminating the “gray areas” that in most years might be cause for debate.
City started year in good position
Kaptain noted that Elgin had positioned itself better than many communities heading into the Great Recession, instituting an early retirement initiative and then layoffs several years ago. Entering 2011, the city forecast a $4.5 million structural deficit, and that was the same number the Elgin Budget Advisory Task Force was using when it began its work in early August. That estimate did not change until early September, when Kaptain said he received his property tax bill.
“I knew right away this was going to be a problem,” said Kaptain, noting that his bill was down 22 percent. Compounding his worries on that revenue source, he said, was an email he received from the state, indicating it wanted to divert $1 million of city revenue to education.
It was not until the budget task force was concluding its efforts that the city had an estimate that put the deficit at $8.8 million, nearly twice the original projection, Kaptain said. The new figure was based on an estimate that Elgin property values would drop an average of 10 percent.
Monday’s report from the Kane County Assessment Office that Elgin property values had dropped an average of 20 percent in 2011 required yet another recalculation of the deficit, which now stands at between $10 million and $13 million.
Chief Financial Officer Colleen Lavery said Wednesday even the latest figures are simply estimates, although she said the city will use those as working numbers heading into the city’s budget deliberations.
“This is much worse,” Kaptain said of the Kane County report, adding he met with city staff after the report came in and began calling members of the City Council to break the news to them.
Kaptain added that Elgin has not yet received Cook County property value figures, which could affect the bottom line further.
Everything’s on the table
The severity of the revenue loss will require the city to look at all options, including Elgin’s tax rate, which has remained at about $1.92 per $100 of equalized assessed valuation for nearly 20 years.
But Kaptain expressed concern about one suggestion posed by some task force members related to that rate. Some had favored allowing Elgin’s tax rate to float upward as revenues declined to assure residents were paying the same amount in taxes each year, thus minimizing the ebb and flow effect on city revenue levels.
But Kaptain said he worries that adopting such a tactic will prove unfair to some homeowners, because the projected 20 percent property value drop is an average. As a result, if the city raises the tax rate so that property tax revenues remain stable, many might see their tax bills from the city remain unchanged, while others whose property values have not declined as much could see significant increases.
“We’ll take a look at it — but we still have some time to sort it out” before making a decision, he said.
The mayor dismissed the idea of selling off city assets like golf courses, as has been proposed by the activist group Elgin OCTAVE, which formed to lobby the council to rescind the business license the city approved in late 2009.
Aside from the difficulty of trying to sell off assets in a poor economy, Kaptain said the result would be a onetime revenue boost that in the long run would do little to improve the city’s financial health.
Diversifying the city’s revenue base so it is not so heavily reliant on property and sales taxes has been in discussion for some time, and Kaptain said he wants to press forward in that regard as well. He noted that the lion’s share of the city’s sales tax revenue, for instance, comes from car sales, which take a hit every time the economy lags. But time is short, and there is a lot to consider in trying to resolve a budget gap of as much as $13 million, Kaptain said.
“… Maybe we won’t get that done.”
Cuts to consider
He said the city also will look closely at the task force’s cost-cutting recommendations, but with an eye toward increasing the level of cuts from the $2.4 million it proposed.
One area the city must consider is the $5.8 million Elgin spent on overtime costs in 2010. Kaptain added.
Before he even joined the City Council, city leaders had made a decision that they would rather pay more overtime than hire additional staff. “So that is something that I think we will have to go back and revisit,” he said. “Whether we’re going to get that all done this fall, I don’t know.”
But there are other areas the city can examine for cuts as well, Kaptain said. There are grant programs the city has had for 20 years that ought to be revisited, as well as social services funding. The city has no choice but to consider all options, he said.
The mayor added he wants to avoid the council getting to a point, if it comes to cutting social services, of trying to determine which agency provides the more valued service. “I don’t think we should get into that,” he said, adding if it heads in that direction, he’d rather put off a decision for a year.
The bottom line is that there is a lot for the council to consider, and it may not be possible to go through it all in the coming months leading up to the adoption of the 2012 budget.
Conversely, he said, it also might be good to consider take care of it all in one fell swoop.
“How big do we want to make this for the community? Do we want to try to resolve these things all at one time?” Kaptain asked. “Maybe that’s the best way — say let’s just get the pain over with and have this discussion and do everything we need to do.”
Council budget deliberations
Earlier this week, Kaptain said he planned to discuss the budget situation with the City Council during its meeting Wednesday, Oct. 26, but on Thursday, he said it would be better to wait for the council first meeting in November, as staff budget proposals advance through the city administration.
Kaptain said he and the senior city administration — City Manager Sean Stegall, Assistant City Manager Rick Kozal, Lavery and Corporation Counsel Bill Cogley — met for the first time to discuss the staff budget proposals on Wednesday. Those soon will be heading to the City Council for their review.
“We’ll be looking at some little extra meeting (time), and we’ve done that in the past,” he said. “I think this will be a little more involved.”
