Saturday, November 21, 2009 East Central Illinois

Four Danville budget plans look far ahead

By Tracy Moss
Thursday, November 5, 2009 9:16 AM CDT

DANVILLE – Aldermen and city officials have focused much of their budget brainstorming in recent weeks on next year's $1.7 million deficit and $700,000 increase in the city's property-tax levy.

But the four financial scenarios presented by city officials on Tuesday chart a course for revenues and expenses over the next three years.

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Through various combinations of cuts and revenue increases, the options target a few main goals:

– Eliminating general fund deficits, including next year's anticipated $1.7 million shortfall, and those likely in the next two years given the city's average annual 7 to 9 percent increase in expenses and annual 0 to 3 percent growth in revenues.

– Setting aside some money each year for the city's infrastructure needs, including the No. 1 concern, the deteriorating Fairchild Street subway.

– Maintaining the city's current level of services despite any additional cuts in expenses.

However, the four options do not include any property tax relief; any cuts in full-time city personnel, which has been suggested by aldermen in recent weeks; or any cuts in city services, also suggested by aldermen.

The options do include $75,000 in cuts to part-time employees – seasonal and auxiliary – and $150,000 in cuts to materials and maintenance for city streets and buildings.

On the revenue side, the four options include a 1 percent increase in the city's current 7.75 percent sales tax. The increase would generate about $1.5 million more a year.

One of the options includes a reduction in the city's food and beverage tax to lessen the effect of the sales-tax increase.

And three of the four options include creating a utility tax on natural gas bills, both residential and commercial.

Many municipalities, including Champaign, Urbana and Rantoul, have utility taxes, which are taxes on electricity, natural gas, water and telecommunications. Communities can tax none, one or all four.

Champaign, Urbana and Rantoul tax all four, and Champaign and Urbana have had utility taxes in place since at least the early 1970s.

Urbana Comptroller Ron Eldridge said it's a dependable tax for a city, because it's fairly well-insulated from the economy, unlike income and sales taxes. He said utility taxes are a good counterbalance to the sales and income taxes.

Eldridge said utility taxes can, however, be a burden to businesses that are large energy users.

Eldridge said that for the current fiscal year, Urbana expects to generate $401,194 on its 5 percent water tax, $624,000 on its 5 percent natural gas tax and $2.5 million from its electricity tax, which works out to be about a 5 percent tax as well.

Champaign has a 2.75 percent tax on water and gas and a tax that works out to be about the same, 2.75 percent, on electricity as well, according to city employee Richard Schnuer. The electricity pulls in just under $2 million a year, the gas close to $900,000 a year, and the water less than the gas, said Schnuer, who didn't have an exact figure for that tax revenue.

Eldridge said the local chamber of commerce has received comments from prospective businesses over the years about the utility tax playing a part in whether a business chooses the area. Eldridge said it's unclear just how much that plays a factor, and although it's not the only thing considered by businesses, it's certainly a negative.

Utilities are a substantial portion of operating costs for larger employers, said Vicki Haugen, president of Vermilion Advantage, Vermilion County's economic development office.

Haugen has gathered this week the annual electricity, natural-gas and water costs of local employers to demonstrate the effect a utility tax would have on local business and industry.

"They are big numbers," Haugen said of annual costs for some of Danville's largest utility users.

Local manufacturers use large amounts of power, but Haugen said utilities are a major operating cost for local distribution companies and large office complexes, too. Haugen said the majority of local distributors use a lot of energy to operate massive refrigeration facilities that keep cold the food products they distribute.

"I'm not unsympathetic to the city's plight, but at the same time, everyone knows how hard we work to be competitive for the recruitment of major employers, and if we are going to price ourselves out of the market when we sit here on the state line, that's a very scary thought," Haugen said, adding that she knows how devastating a utility tax could be to economic development.

She said it's unfortunate the state does not allow cities to incorporate a local income tax.

"I understand the city's hands are tied and the options are few, but it's a balance," she said, adding that the same businesses that would get hit the hardest on a utility tax are the same ones that are paying the most in local property taxes.

Of all the taxable properties in the city, both residential and commercial, the top 1.5 percent who have the highest fair market value are almost all businesses and companies.

 

Summary of budget options

All four options propose cuts in expenses and increases in revenues. But none of the four options propose property-tax relief, and at this point, city officials still anticipate a $700,000 increase in the property-tax levy, which would increase the property-tax rate from the current $1.88 per $100 assessed valuation to just over $2 per $100, if the equalized assessed valuation stays the same.

So the property-tax bill on a $50,000 house would increase about $26; a $90,000 house's bill would increase $48; a $150,000 house, about $80; and a $200,000 house, about $107, according to city officials.

The majority of the increase in the levy will go toward paying increases in fire and police pensions, although there will be a slight increase in bonds and interest as well.

Scenario 1

n Increase sales tax by 1 percent (all four options).

n Increase rental-registration fee from $10 to $100 with a $500 cap, generating $300,000 annually.

n Reduce parks auxiliary and seasonal employees by $75,000 (all four options).

n Reduce materials to maintain streets by $100,000 (all four options).

n Reduce materials to maintain buildings by $25,000 (all four options).

n Reduce maintenance of buildings by $25,000 (all four options).

n Reduce various expenditures back to Fiscal Year 2010 budget level (all four options).

n Implement $35 monthly contribution for health insurance for the city's 22 non-union single employees with no dependents (all four options).

What would this accomplish? The above actions would funnel a total of $1.39 million in additional revenue into the general fund over three years and $685,000 into an infrastructure fund.

Scenario 2

Same as Option 1 except:

n Implement a 4 percent natural-gas tax, in addition to sales tax increase.

n Increase rental registration from $10 to $50 with $500 cap, generating $175,000 annually.

n Reduce city's food and beverage tax from 2 percent to 0.5 percent to lessen effect of sales tax increase.

This would funnel a total of $1.25 million in additional revenue into the general fund over three years and $500,000 into an infrastructure fund.

Scenario 3

Same as Option 2 except:

n Rental registration would increase from $10 to $25 with $500 cap, generating $90,000 annually.

This would funnel a total of $1 million in additional revenue into the general fund over three years and $415,000 into an infrastructure fund.

Scenario 4

Same as Option 3 except:

n No decrease in the food and beverage tax.

This option would funnel a total of $1.71 million in additional revenue into the general fund over three years and $2.3 million into an infrastructure fund.

TRACY MOSS

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