The City of Highland Park continues to provide fiscally responsible, high-quality services through effective, transparent and collaborative governance. The budget reflects the commitment of the Mayor, City Council and staff to fiscal stability, public safety and continued investment in the City’s infrastructure while supporting our vibrant community. Management of the City’s finances occurs every day and the Council and staff are applauded for their diligent work effort. For the first time, the City has expanded it’s five-year capital improvement plan and has established a 10-year balanced plan to help guide the City’s infrastructure investment and facility planning. The City also continues to proactively seek highly efficient ways to provide services, including shared service partnerships and use of technology in anticipation of a potential decline of State-shared revenues. This situation has the potential to have a tremendous impact on the revenues received by municipalities throughout the state, thereby affecting the City’s ability to fund operations at current levels.
1. Identify infrastructure improvements proposed in 2019.
As identified in the City of Highland Park 10-year Capital Improvement Plan (CIP), proposed 2019 capital improvements total $16 million, including $7 million for water and sewer infrastructure improvements, $6 million for street, bridge, bike-walk, sidewalk, parking and ravines infrastructure improvements, $2 million for public safety, community vibrancy and technology upgrades and $1 million for facilities upgrades.
2. What are sources of revenue and the breakdown of those sources?
It is City policy to ensure the City maintains a diversified portfolio of revenue, to minimize the cost of providing services to the taxpayer. The City of Highland Park proposed 2019 revenue budget of approximately $82 million was presented at the August 27, 2018, City Council Committee of the Whole meeting. The revenue is comprised of: Sales Taxes, Charges for Enterprise Services (Water, Sewer, and Parking), Property Taxes, Utility, State Income, Real Estate Transfer and Other Taxes, Bond Proceeds, Building Permit Revenue, Vehicle License Revenue, Grants/Reimbursements, and Other Revenue.
3. What is the City’s approach to revenue estimation? What are the City’s top 10 revenues?
Revenue estimation is a key component in developing the City’s annual budget. The overall approach is to make conservative projections, with an objective of attaining collections between 100% and 102% of the budget. The actual collection of individual revenue sources is expected to vary from the estimate. The City strives to maintain diversified sources of revenue, balancing elastic and inelastic revenue sources, particularly in the General Fund, while recognizing that cyclical, sectoral and population shifts could impact revenue diversification.
Staff's approach to estimating revenues is to consider total fund revenues as a "basket" of individual revenues, each with its own history of predictability, stability or volatility. Revenue forecasts have been developed using a specific methodology based on the materiality of the forecast, the availability of historic data, the quality of available data, the time period of the forecast and the clarity of the forecast. Time-Series-Analysis and/or pre-established formulas have been used whenever possible.
Although Highland Park is a very stable community, with nearly seven billion dollars in real estate value, macroeconomic trends such as inflation, unemployment, and in particular retail sales, do affect the City's financial condition. Other independent variables such as weather also affect collections of certain revenues.
Special attention is focused on the major ongoing revenue sources which comprise the City's budget (bond proceeds are excluded as non-recurring revenues).
Top Operating Revenues in the City’s General Fund:
4. What fee increases are proposed in 2018 and why?
The proposed 2019 budget includes a 5% water rate increase to help offset the capital investment in the City’s water infrastructure. The resulting water rate continues to be one of the lowest water rates and in the bottom quartile in the Chicagoland area. Also included in the proposed budget are Admin Hearing Fee increases from $40 to $50; increases in specific citation minimums and flat fees for specific citations; Liquor License Application Fee increases from $200 to $250, new renewal application processing fee of $100 to offset processing costs, along with increases to other out-of-date liquor license fees; the establishment of Catering Liquor Licenses with associated fees; an Overweight Truck Permitting Fee; and an increase in Demolition Tax, which will be presented more comprehensively at the September COTW Budget Workshop.
The City continues to work diligently to reduce our operating expenses. Staffing levels have decreased over the last ten years, we have advanced shared services agreements with other municipalities and regularly seek opportunities to reduce expenses yet maintain service levels for the community.
5. What is the State mandate pertaining to public safety pensions?
The State mandates that public safety pension funds be 90% funded by the year 2040, as determined by a third-party actuary. State-mandated contributions are made annually with higher contributions provided as funds are available.
Over the last 6 years, City contributions have exceeded statutory obligations. Going forward, the State-mandated annual contribution curve results in an increasingly steep annual City contribution. In 2016, the City began to contribute to the public safety pensions on an accelerated basis with a contribution of almost $7 million versus the actuarially determined contribution of $5.2 million, with a goal of minimizing the City’s long-term contribution cost. Starting with 2018, the City reached its accelerated funding annual goal of $8.1 million. The contributions for 2018 and proposed for 2019 are $8.1 million per year versus the actuarially determined contribution of $5.7 million for 2019, with a continued goal of minimizing the City’s long-term contribution cost.
6. What are actuarial assumptions and how do they impact pension funding?
The purpose of an actuarial valuation of pension plans is to report the City’s actuarial contribution requirement. The valuation results involve actuarial calculations that require assumptions about future events. The Pension Boards select certain assumptions, while others are the result of City guidance and/or judgment. The actuarial valuation for the City’s pension plans include calculations, procedures, and presentation consistent with funding requirements and generally accepted actuarial principles and practices.
The actuarial results are estimates based on data that may be imperfect and on assumptions about future events. Certain plan provisions may be approximated or deemed immaterial, and, therefore, are not valued. Assumptions may be made about participant data or other factors. Reasonable efforts are made to ensure that significant items in the context of the actuarial liabilities or costs are treated appropriately, and not excluded or included inappropriately. Actual future experience may differ from the assumptions used in the calculations. As these differences arise, the expense for accounting purposes will be adjusted in future valuations to reflect such actual experience.
A range of results different from those calculated could be considered reasonable.
Actuarial assumptions for the Public Safety Pension Funds include:
- Expected Return on Investments 7.00% net of administrative expenses
- CPI-U 2.50%
- Ad-hoc Cost-of-living Increases 3.0% (1.25% for hires after 1/1/2011)
- Annual Pay Increases 3.0% to 12.0%, varying by service
- Retirement Rates 100% Assumption Study 2012, Cap Age65
- Withdrawal & Disability Rates IDOI experience study published in 2017
- Mortality Rates RP-2014 mortality table with blue-collar adj., Projected generationally with mortality improvement scale MP-2017 applied from 2013
- Married Participants 80% of Active participants are assumed to be Female spouses are assumed to be 3 years younger than male spouses.
7. How does the City determine actuary assumptions?
The City’s pension obligations are actuarially determined, using several standard assumptions, such as a 7% long-term rate of return assumption and mortality tables. The 7% long-term rate of return assumption is consistent with the average long-term rate of return used by many local municipalities in the Chicago area. It also continues to be cited as a reasonable long-term rate of return assumption by the public safety pension funds’ investment manager and actuary.
Actual realized market returns less than the actuarially assumed 7% long-term rate of return coupled with increasing mortality assumptions have resulted in actuarial losses, challenging the City’s ability in recent years to increase the percent funding of its long-term pension obligation for public safety pension funds.
8. Is there any other way to raise revenues?
The City has a diversified revenue portfolio and generally taxes services to the fullest extent allowed by statute. The City funds the pension contributions from a combination of property tax levy, partial state income tax receipts, and other revenue sources, as identified, with a goal of minimizing the impact to the taxpayer. The City continues to review revenue opportunities, annually to ensure it levies a fiscally responsible level of property taxes and other taxes while meeting or exceeding its statutory pension obligations.
9. How do interest rates impact pensions and what are the projections in the future?
The City’s pension obligations are actuarially determined, using several standard assumptions, such as a 7% long-term rate of return assumption, which is consistent with the average long-term rate of return used by most local municipalities in the Chicago area. It also continues to be cited as a reasonable long-term rate of return assumption by the public safety pension funds’ investment manager. Actual realized market returns less than the actuarially assumed 7% long-term rate of return have resulted in actuarial losses, challenging the City’s ability, in recent years, to increase the percent funding of its long-term pension obligation for public safety pension funds.
10. Why is an Aaa rating so important?
The City of Highland Park continues to reaffirm its Aaa bond rating by Moody’s Investors Service, ensuring optimum interest rates and bond pricing. A bond rating is a grade given to bonds that indicates bond credit quality. Private independent rating services such as Moody's Investors Service, Standard & Poor's and Fitch Ratings Inc. provide these evaluations of a bond issuer's financial strength and its ability to pay a bond's principal and interest in a timely fashion. The bond rating is an important indicator, given the City has economically sensitive sales and large and pension liabilities. If the bond rating is jeopardized, the City’s cost of borrowing will increase, resulting in an increase to the taxpayer for the City’s long-term infrastructure investments.
11. What is the relationship between the City and Library in terms of tax levy?
The City and the Library are separate governing bodies, each having separate lines for property tax on a resident’s property tax bill. By Illinois Statute, the City levies for the Library’s property tax along with the City’s property tax, but the levies are separately governed. Unlike a home rule unit of government, the Library has limited opportunities to sustain its operation beyond a tax levy.
The Library budget includes a 1% tax increase, which will be used primarily for capital needs within the Public Library. The budget includes completion of the Youth Services Department remodeling project, computerization, and furniture and equipment upgrades.
12. Will any services be decreased or impacted?
After a thorough and thoughtful review and discussion of the Youth Services program and specifically noting low enrollment and the overall budget impact of the program, the City decided to discontinue the Youth Services’ After School program and began transitioning participants to alternative after-school programs for the 2018 -2019 school year.
All other services offered in 2018 will continue to be offered in 2019.
The proposed budget focuses on the City’s mission to provide fiscally responsible, high-quality services through effective, transparent and collaborative governance. The priorities guiding the City for the year are fiscal stability, public safety, infrastructure investment and community vibrancy.
13. Where can I view budget information?
PowerPoint presentations for the budget workshops conducted by the City Council are available the day following each workshop. These documents can be found at www.cityhpil.com/budget. For questions on the City’s budget, please contact the Finance Department at 847.432.0800 or email email@example.com.