By Ted Schnell • BocaJump
The city faces a $4.5 million general fund deficit and a forecast that its riverboat revenues will continue to spiral for the next several years, but Elgin City Manager Sean Stegall said Wednesday that the city’s financial health is good.
Stegall expressed confidence that the city will weather the budget storm.
Elgin, he said, is ahead of the game in budget planning – so much so that the city is sought after for advice from other communities dealing with declining revenues and pondering cuts.
That’s because the city of Elgin does not budget for one year at a time – it ended that practice in 1994, the year the Grand Victoria Casino opened its doors and immediately began pumping tens of millions of dollars from admission fees and gaming tax receipts into city coffers.
“Since 1994, when the riverboat came into play, the City Council made the wise decision to do five-year financial planning,” Stegall said. “Because of that, we are always thinking long-term when it comes to our budget, and thus the long-term health and planning for our community.”
Stegall said the Great Recession of 2008 has had a devastating impact on the city’s revenue sources. The city’s share of state income taxes was hit by the high unemployment, and the collapse of the housing market took a huge toll on property taxes, which was complicated further by those who were left jobless and no longer able to afford their homes.
“We are projecting over the next five years a structural deficit of $4.5 million,” he said. “The term structural deficit means you have a significant problem. It means your revenues are now to the point where structurally, something has to be done to rectify the situation or, on the expense side, there has to be a structural change.”
Budget cuts began in 2008
But the situation this year comes to a head, Stegall noted, even after the city acted in anticipation of the revenue hits. Starting in 2008, the city began cutting – and it cut between $5 millions and $7 million since then, including the jobs of 80 employees.
“This is primarily a general fund issue, coupled with a need for a tighter focus on the riverboat fund,” Stegall said.
So the city is at a point in which it wants help from Elgin residents in determining what the city’s priorities should be in terms of funding.
By the end of the week, Stegall said, he and Mayor David Kaptain hope to announce the names of the Budget and Financial Planning Task Force, which is being appointed to make recommendations to the council regarding expenditures and revenues. The task force is scheduled to begin its work early in August and have most of its recommendations to the City Council are due by early October, Stegall said.
One thing the task force will have to look at is defining what the city’s core services are. Stegall said the idea of core services has a universal appeal because there is a general perception that there is a consensus on the definition of core services.
But once you sit down with individual residents or groups of residents, he said, you learn there is no such consensus.
“Everyone would say the city has to provide police and fire,” Stegall said. “But that does not mean they want everything that can be found in the departments of our size.”
He noted, for instance, that the city ended its involvement in the DARE program, which came under the aegis of the Elgin Police Department.
So in the strategic planning process leading up to the budget, Stegall said he hopes there will be a consensus on what the city’s core areas are, its priorities for the core services.
“It is really dangerous to assume consensus in that area,” Stegall said. “There isn’t.”
Cities seek Elgin’s budget, finance advice
Stegall said Fitch Investors Service has given Elgin an AAA rating in terms of its budget and finances. That, he continued, is the highest rating possible and puts Elgin among the top 5 percent of communities in the nation.
The city earned that rating, he added, “because we are proactive in dealing with financial and budgetary issues.”
That sets Elgin apart from the state government, whose financial woes continue to make headlines, and even the federal government, where lawmakers appear to be in a stalemate of the nation’s debt ceiling, a matter that if not resolved soon would trigger the first time in the nation’s history in which the United States defaults on its debt.
“So dealing with this issue of a structural deficit is because we are forecasting and projecting what will happen,” Stegall said. “By dealing with these things … when you see the dark clouds come you deal with them, that’s why we are sought after in the municipal finance profession for advice from other communities.”
Riverboat, water-sewer funds
Elgin also operates a number of other funds that are apart from the general fund. Some, like the riverboat fund, have been hit hard by the change in the nation’s economic conditions, as well as by other factors. At its peak, the riverboat generated $24.3 million in 2007, a figure that has dropped dramatically since then. This year’s revenue from the casino is expected to be a little more than $13 million, but the opening of a new casino in Des Plains is forecast to spark another drop in revenue to about $10.54 million a year.
“I choose to look at that as a glass half full – if I were to complain to a group of mayors or other city managers … that we’re only going to get $10 million from the riverboat, I’m not going to gain a lot of sympathy,” he said.
Stegall said the city’s water and sewer funds remain strong, although there are capital needs on the horizon. Also in good shape are the city’s pension funds and bond funds – the city’s debt is considered very low.
“We’re in excellent shape all the way around in those areas,” he said.
Recreation, Hemmens funds
The city’s recreation fund and its general fund are linked together, Stegall said.
“The recreation fund is very subservient to the general fund, so there are some challenges there,” he said.
The Centre of Elgin, for example, gets a subsidy that has ranged from $400,000 to $700,000. Stegall added that The Centre will always need a significant subsidy, although the budget task force may recommend limits to that subsidy.
Hemmens Cultural Center is another fund that relies on an infusion from the general fund, and in that respect is very similar to The Centre, Stegall said.
Some have questioned the city’s spending on parks that don’t generate revenue for the city, but Stegall said that is stating the obvious. The city incurs costs for maintaining parks, which were never designed to make money to begin with, yet they hold a value to nearby residents and are an amenity that can make area properties more marketable, he said.
“They cannot be viewed on that basis,” he said. “They can be viewed on this basis – what should the subsidy be, if any, and is that acceptable. And it is not found to be acceptable to fund a certain park or program, then you get out of the business.
“No one would ever suggest that a police department should make money, or that a fire department should make money,” Stegall said. “Parks are a quality of life amenity.”
“There are so many other considerations of equity, representation, fairness, etc., that don’t lend themselves to private sector jargon and points of analysis,” Stegall said. Even so, he added, the city should endeavor to keep subsidies as low as possible.
The city’s three golf courses are enterprise operations, Stegall said. “They’re supposed to be businesslike and the goal there is to cover their costs,” Stegall said. “But even there, they’re not supposed to make money, and it they do, great, but the goal is to break even or to have some predetermined or predefined subsidy from the City Council.”
“They work in tandem, and the goal for those should be to break even, and/or have a minimal subsidy,” he said. Stegall explained the golf courses have other values as well, in terms of economic development that come with the high rankings that The Highlands of Elgin and Bowes Creek Country Club courses have received.
In other words, having a quality golf course in the neighborhood can draw developers and homebuyers to an area, which reaps its own rewards in terms of property taxes.
“What is achievable, what is possible – they should be looked at in that vein,” Stegall continued, adding that the courses do not serve the general public but the golfing public.
