Monday night, the City Council voted on the budget and property tax levy for 2011.  The $83 million budget passed with a vote of 5-2.  To cover the costs of the budget, the Council voted 4-3 to increase property taxes by 2.51%. 

We discussed the budget for over 40 hours with an eye towards meeting the needs of our community as fully and efficiently as possible.  No one person saved funding or cut funding for any particular program or department.  For every decision point, at least four Council members needed to reach a consensus. 

Why I Voted Against the Budget, Using Reserves and Increasing Taxes

In this budget, the deficit the City has been running for the last few years is eliminated, but it is accomplished by increasing taxes on our residents.  Some Council members supported using reserve funds for the third year in a row to close the gap, but our Financial and Budgetary Policies (page A-11) state four very clear circumstances in which reserve use is appropriate, none of which currently apply:

1. Settlement of pending labor contract negotiations
2. Temporary funding of unforeseen needs of an emergency or non-recurring nature
3. Orderly budget adjustments in the event of unanticipated revenue shortfall
4. Meet unexpected small increases in service delivery costs.

Our current revenue situation unfortunately is no longer "unanticipated" or "unexpected", but rather a continuation of a market re-set.  To use reserves to fill a budget gap is a practice that cannot be sustained.  The spending creating the gap likely will continue next year; we can't expect to use reserves over and over.  They will diminish and be insufficient for the purposes for which they were created.

The gap between budgeted expenditures and actual spending has widened from $143, 537 in 2008, to $646,329 in 2009, to an expected $1,002,102 for 2010.  While the economic downturn has an enormous hand in this, we need to look at ways to reduce our spending and reverse this trend.  There is still room for improvement.

My Suggestions to Reduce Spending:

1. On three occasions, I have asked the Council to consider selling the movie theater and thus reduce the costs associated with it. The unrestricted capital could be reinvested in much needed infrastructure anywhere in town and the restricted capital from the tax increment financing district could be reinvested in parking or infrastructure in the Central Business District.
2. I asked for a list of all memberships and education/training/professional development costs for City staff, with an explanation of what was required and what was optional.  Clearly, some of these memberships and training are necessary to have professional, certified teams working on behalf of our residents, but are they all necessary?  The total amount spent in 2010 was $353,998.  They may all be required, but we never even discussed it.
3. I requested an analysis of all fees and the administration costs of having those fees.  We should consider what fees are necessary from a policy standpoint versus which fees are not worth pursuing.  Again, a discussion never completed.
4. As we walked through the budget, page by page, my own questions and suggestions included: asking for improved efficiencies where there are redundancies across governing bodies (e.g., Park District-type services being provided by the City, Lakefront Commission efforts overlapping with those of the Environmental Commission - combine the two into one commission); looking for potential opportunities to share personnel with another neighboring community; challenging a reserve fund for redevelopment at Ft. Sheridan that has not occurred in three years and is unlikely to occur this year.   
5. I also questioned the use of our staff resources.  In this 2011 budget, the first objective of the City Manager's Office is:

"Continue exploration of future live performing arts and movie theatre uses within the Highland Park Theatre."

This, to me, is not the first objective of the City Manager's Office.  I suggested starting with the following:

"Coordinate with local taxing bodies to discuss on-going long-term financial needs and ways to minimize the impact on taxpayers.  Specifically coordinate capital improvement needs and prioritization thereof in a city-wide manner."

"Assess impact of continued economic stress on residents and explore means by which the City can help alleviate some of those pressures through improved communication of available resources, volunteers, etc."

Both of these should be, in my opinion, higher priorities for the City Manager's Office than furthering the success of the movie theater. 

Fund Restructuring

Earlier this year, I sat down with the City Manager and the Director of Finance to discuss fund restructuring.  My objective was to ensure that essential city services were being funded by stable revenue sources, specifically property taxes.  This past year, 60% of our General Fund (the portion of the budget that focuses on providing services to all residents that they cannot provide for themselves - essential services) was based on elastic or economically sensitive revenues.  When the economy turned, those resources diminished significantly. 

As a result, we restructured our funds in the 2011 budget so as to tie essential city services to stable revenues.  We also created a direct line between providing variable use services (like water) and their respective fees. 

With restructuring, we gain clarity in terms of what are essential services; we assess whether they are being sufficiently funded; we assure their delivery through stable revenue sources; and we diminish their reliance on revenues that are impacted by the economy like sales and property transfer taxes.  This change will go a long way towards ensuring that we are meeting the most critical needs of the city while providing much desired transparency. 

What We did Well in this Budget

• No use of reserves for the reasons stated above.
• Funds were restructured as discussed above.
• Per my request and the consensus of the Council, we added an inflation factor for infrastructure investment.  For the last ten years, the dollar amount for capital improvements has stayed static.  So in real dollars, every year we have been spending less money on streets, sewers, bridges, etc.  We now will account for increasing costs of construction and maintain a realistic level of infrastructure investment.
• Thanks to your outreach, we were able to keep our building inspectors and plan reviewers.  Concerns about outsourcing those jobs included real cost savings, skill in applying our complex zoning and building codes, and having stakeholders in the community working fully to protect our residents' safety, as opposed to one specific task as assigned.
• As I suggested and a majority of the Council agreed, we combined the Environmental and Lakefront Commissions to create a Natural Resources Commission, resulting in improved efficiencies and realization of synergies at less cost. 
• The Council agreed to change the Traffic Commission to the Transportation Commission, resulting in a broader focus on improving transit in HP, environmental initiatives in transportation, and creating a group which can be more responsive to resident requests for improved greenways use and accessibility.

The Unfortunate Outcomes from the Budget

• Increased taxes by 2.51%.
• Cuts in public safety personnel.
• Spending in areas where services could potentially be provided more cheaply or collaboratively by other government, private or public entities. 
• Reductions in commission budgets which limit the abilities of commissions to achieve their goals.
• The City still owns and needs to cover the projected $534,488 in expenditures associated with the movie theater.

Un-Answered Questions (and why it is important to protect our reserves)

• What is the status of our public safety pension funds?  Will the Governor sign the State pension reform legislation and what is the impact on our funding needs for the future?
• What is the State of Illinois' ability to pay back to Highland Park its portion of our residents' Illinois income tax?  Will there be delays in providing these funds due back to the City?  About $4 million is expected, and payment to Highland Park by the State could be delayed as it was this past year.  This would impact our available liquidity. 
• What will happen with the economy in the near and long-term?  How will it continue to impact revenues from sales tax, building permits, property transfer taxes and property values? What are the short and long-term needs of other local government entities (school districts in particular)? We need to coordinate their needs for debt with ours, while being mindful of the overall tax burden on residents.

All of these issues can significantly impact our budget and demonstrate why it is particularly important at this time to be careful about using our reserves.

In Conclusion

The budget is the most important policy statement our Council can make.  What it says is that we are a community that cares very deeply about providing for our citizens in a way that maximizes the economic stability so desired in our city. 

We were very close to achieving those goals in a manner that is fiscally stable for the long-term and economically sensitive to our residents in the present.  However, I feel strongly that given the economic stress on our residents, we can and must do more.  I urge the Council to start this budget assessment process earlier next year and look at every program and every dollar with a critical eye. 

Feel free to call or email me with comments or issues you see in the community.  It is important that your views are considered as your government makes decisions about your money.