November 8, 2023: Elgin City Council Budget Discussion (1 of 4)
Glossary of Basic Terms
- Revenue: Money earned
- Expenses/expenditures: Money spent
- Budget (verb): Planning for a certain dollar amount
- Bond rating: A score of how well a governing body can manage their debts. Basically, it’s the city's credit score. Elgin has the highest possible bond rating of AAA (triple A).
- Reserve fund/Cash reserves: Basically, emergency savings.
- Infrastructure: Structures that a city owns and maintains that provide essential services to its residents. Examples are roads, public buildings, power lines, parks, etc.
- Capital improvement: Construction projects to improve infrastructure not related to water and sewage. A separate Utility Fund is used specifically for water and sewage infrastructure.
- Lead service line: Pipes that supply water to buildings. These pipes may contain some amount of lead. The City of Elgin plans to replace all publicly-owned water pipes to ensure no part has lead.
- TIF: Tax Increment Financing. Refer to the How a TIF works section for more information.
Notes at Beginning of Meeting
Public Comment
A citizen brought concerns about climate change to the council and suggested implementing small taxes or surcharges to build a fund specifically for a climate action plan. The mayor suggested he raise these ideas to the sustainability commission to create a formal proposal.
Online Budget Portal
The budget can be viewed online via an interactive budget portal. It can be translated into other languages and it is best used on a desktop or tablet.
Future Budget Meetings
November 15 at 5 pm. Discussion will include:
- The Riverboat fund
- Special Events funding
- Truth and taxation hearing
- Regular City Council meeting afterwards
December 6 at 5 pm. Discussion will include:
- Addressing follow-up items
- Public hearing on the adoption of the 2024 budget
- Public hearing on the adoption of the 2024 to 2026 financial plan
December 20 at 6 pm. Discussion will include:
- Addressing final follow-up items
- Adoption of 2024 budget
General Fund Discussion
Revenue
Overview
The largest sources of revenue come from:
- Sales tax
- Property tax
- State Income tax
In 2023 the City of Elgin earned $10.3 million (estimated) more than they planned. Extra revenue came from these sources:
- Investments: The city invests some amount of money in stable CDs to earn passive income. Higher interest rates this year have led to a higher return on investment.
- Sales tax
- State income tax
2024 Budget
Elgin is budgeting for $164.5 million in revenue. This is $6.2 million more than the expected earnings for 2023.
The increase is mostly related to increasing pension contributions from police and fire personnel (editor’s note: likely due to more hiring).
2025 Budget Plan
At this point, the City is planning for revenue to go down by $20 million between 2024 and 2025.
This decrease is mostly because grant money received in 2024 does not carry over to 2025. The City might receive money from other grants by the time budgeting for 2025 occurs.
Note: The funds impacted by this are "Intergovernmental" and "Other."
Sales tax
In 2023, the city earned about $4.3 million (estimated) more than they expected.
This is likely due to rising prices due to inflation and the continuing boost in spending after the pandemic.
Mayor Kaptain points out that this boost is likely to be temporary, and we may see spending activity return to pre-pandemic levels soon.
2024 Budget
Though the City earned about $38.9 million in sales tax in 2023, the 2024 budget accounts for $37.2 million in sales tax revenue. This is just to keep a conservative estimate.
Income tax
How it works
Income taxes are paid into a state fund. The state then distributes this money to towns based on its population in proportion to the total state population. Elgin’s portion of the state fund is 6.06% of taxes from individuals and 6.85% of taxes from corporations. The city budget bases its revenue predictions on this portion.
Budget predictions
In 2023, the city budgeted for $16.5 million from state income tax. The actual amount is estimated at $18.1 million.
For 2024, Elgin’s share of the income is expected to increase. The city has budgeted accordingly for $19 million in revenue.
Expenditures
Overview
In 2023, the city spent about $168 million. 67% of expenses pays for the wages and benefits of city employees.
The city spent $5.9 million less than they expected. The causes of low spending are:
- Open positions have not been filled.
- Contingency funds: When other funds go over budget, the city uses money from this fund to cover expenses. These haven’t been spent, which is typical.
- Capital expenditures: Some construction projects have been delayed (editor's guess: likely due to supply-chain issues or other unforeseen circumstances). Delayed projects are:
- Elgin Sports Complex
- US-20 and Reinking roundabout
2024 Budget
The budget accounts for an increase of $15.7 million in expenditures than what was budgeted for 2023.
$10 million of this increase will go towards employee wages and benefits. This is because the City is budgeting for:
- Current vacant positions being filled
- Creation of 23 new positions
- $2 million for police fire pensions
- Increasing health insurance costs
- Increasing cost of living
There are also increases in expenditures for other funds to account for these projects:
- Contractual fund
- New waste management contract
- Technology Replacement
- Special events fund increase
- Financing fund
- Wage increases to recreation employees
- Fleet division
- Other fund
- Council initiatives
- Redevelopment agreement with Judson University
- Climate action plan
The budget actually decreases by $2 million for capital expenditures because the cost of the Hemmens renovation will not carry into 2024.
Funding for four projects from 2023 will be carried over into 2024.
- Housing initiative
- Us-20 roundabout
- Purchase of emergency command vehicle
- Expansion of sports complex
2025 and 2026 Budget Plans
Capital improvement expenditures will decrease more in 2025 and 2026 because most projects are expected to be complete by then. Increases to the 2025 and 2026 budget are largely to account for inflation.
Utility Fund
The utility fund is the money allocated towards water and sewer infrastructure. It covers costs related to service, maintenance, repair, staffing, and treatment. This fund is a significant concern to the City, mainly due to the mandatory lead service line replacement project.
Background of lead service line replacement project
- In 2022, the City detected higher than normal levels of lead during regular testing.
- The Environmental Protection Agency (EPA) mandates the the City replace the whole water system for safety.
- The City needs to replace at least 872 service lines per year until 2036.
- The IEPA granted a forgivable loan of $4 million in 2023, but this money cannot carry over into 2024.
- The Utility Fund for 2024 is short about $21 million in revenue.
- To make up the deficit, the City will have to find funding in the form of:
- Grants
- Forgivable loans
- Reserve funds
- Debt
The top line of the chart in the following image, “Bond Sale,” shows how much debt the City will have to take on. $23.3 million is listed in 2025; $25.2 million in 2026; $23.8 in 2027; and $27.0 in 2028.
Worst-case scenario
- No grants or forgivable loans available
- The city has to cover the full deficit by taking on an average of $20 million in debt each year
- By 2028, the City is $125.9 million in debt (currently, the debt amounts to $54.6 million)
Mayor Kaptain is concerned how this debt might affect the city's AAA bond rating because it will be difficult to get the rating back. This could cause issues for getting funding in the future. He urges that the city does everything it can to ensure that the lead service lines are replaced without risking the high financial rating.
How this affects you
- Water rates are planned to increase by 8-9% each year.
- The average water bill today is $64.57. Refer to the table in the editor's note for a yearly cost breakdown.
- The actual rate increases might differ depending on how much debt the city has to take on.
- You may want to conserve water to keep your water bill down.
- You continue to have safe drinking water.
Editor’s notes
For more information about the lead service line replacement, Elgin has an FAQ page. Important note: Get your water tested if you live in a building that was built before 1986 and you drink from the tap. You can get a free lead testing kit from the City to check your home’s supply.
(my math could be wrong)
| Year | Percent Increase | Dollar Amount Increase | You Pay |
|---|---|---|---|
| 2023 | Base amount | Base amount | $64.57 |
| 2024 | 8% | $5.17 | $69.74 |
| 2025 | 8% | $5.57 | $75.31 |
| 2026 | 9% | $6.78 | $82.09 |
| 2027 | 9% | $7.39 | $89.48 |
| 2028 | 9% | $8.05 | $97.53 |
TIF discussion
The City of Elgin currently has three Tax Increment Financing (TIF) Districts:
- Central Area (currently there are $1.8 million in funds)
- Route 20 (currently there are $1 million in funds)
- Bluff City (currently there are $1.5 million in funds)
Click here to view a map of the TIF Districts.
How a TIF works
Basics
- The city defines an area in need of redevelopment - this is a TIF district.
- A TIF period lasts for 23 years.
- Taxing bodies freeze collection of property tax in the TIF district.
- Taxing bodies are public service organizations such as the school and library district
- The amount of money they collect from property taxes at the beginning of the TIF period will remain the same for 23 years.
- As property values rise, the property owner pays more in taxes.
- Taxing bodies only receive the original amount at the beginning of the TIF period.
- Instead of going to the taxing bodies, the TIF fund receives the difference between the original amount and the amount the property owner pays.
- Money in the TIF fund is used for redevelopment projects.
- New building construction is not allowed to receive TIF funds.
- Rehabilitation of current buildings can receive TIF funds.
- Private entities can receive TIF funds if the project is for the overall benefit of the public (i.e. more jobs, more housing, etc.).
Example
For example, at the start of a TIF, a homeowner pays $1,000 in taxes that goes to the library. Let’s say the house’s value increases so that each year they pay $100 more in taxes. Therefore, in year one they pay $1,000, in year two they pay $1,100, in year three they pay $1,200, etc. However, the library only ever receives $1,000 from that homeowner. Instead of going towards the library’s fund, the extra $100 and $200 the homeowner pays goes towards funding redevelopment of the area the house is in.
Refer to the following table to see how this example would affect a TIF fund after five years.
| Year | Amount the homeowner pays in taxes | Amount the library receives from the homeowner | Amount the TIF fund receives |
|---|---|---|---|
| 0 | $1,000 | $1,000 | $0 |
| 1 | $1,100 | $1,000 | $100 |
| 2 | $1,200 | $1,000 | $200 |
| 3 | $1,300 | $1,000 | $300 |
| 4 | $1,400 | $1,000 | $400 |
| 5 | $1,500 | $1,000 | $500 |
| Total amount the homeowner generates for the TIF fund | $1,500 | ||
Central Area TIF
The TIF period for the Central Area district was established in 2002 and ends in 2025.
Currently, redevelopment projects in the Central Area include:
- Dundee Avenue reconstruction between Summit Street and Page Avenue
- Some delays may extend the construction beyond the expiration of the TIF period. The project will not lose TIF funding if this happens.
- TIF funds contribute $9.7 million.
- Courtyard 40 at 40 DuPage Court in downtown
- The project is for converting an old office building into 40 rental residences (studio, 1 bedroom, 2 bedroom units).
- Project is expected to complete in summer 2024.
- TIF funds contribute $6.77 million.
Since the TIF period is almost over, the City has to decide whether or not to ask the State of Illinois to allow for an extension.
Considerations for extending the TIF
- The TIF period can last an additional 12 years.
- The other taxing bodies should agree to an extension, though it is not required to get their approval to do so.
- Property values decreased during the recession (2008 to 2015) and the pandemic (2020 to 2021), so the TIF didn’t earn much funding for about ten years.
Considerations for not extending the TIF
- Money leftover in the Central Area TIF fund will transfer to the Route 20 TIF fund.
- The Route 20 TIF fund could go towards the expansion of the Elgin Sports Complex
- The City could explore the option of creating a different TIF district.
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