Alderman Dylan Parker arrived at 5:45 p.m. Alderman Ivory D. Clark arrived at 6:07 p.m. 7/23/ Minutes

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1 CITY OF ROCK ISLAND CITY COUNCIL STUDY SESSION July 23, :30 p.m. City Hall 1528 Third Avenue, Rock Island IL Human Resources Conference Room, lower level Present: Mayor Mike Thoms, Alderman Virgil J. Mayberry, Alderman James Spurgetis, and Alderman Stephen L. Tollenaer Alderman Dylan Parker arrived at 5:45 p.m. Alderman Ivory D. Clark arrived at 6:07 p.m. Absent: Alderman Dave Geenen and Alderman Joshua Schipp Staff: City Manager Randy Tweet, City Attorney Dave Morrison, City Clerk Judith Gilbert, and other City staff FINANCE: BUDGET PRESENTATION 7/23/ Minutes City Manager Randy Tweet told Council this presentation was given to all City departments. The presentation will be taken to the public as well. Mr. Tweet said Council has seen most of the information already in bits and pieces. Finance Director Stephanie Masson presented a Financial and Budget Update. The Financial Update will include a recap of all funds in the CY 2018 Budget, detail on the General Fund in the CY 2018 Budget, and a discussion of state revenues, property tax revenues and City debt. The state revenues and City debt portions are from the audited schedules. She will look at some trends. Ms. Masson presented a pie chart of the CY 2018 Budget recap: all expenditures by Fund for a total of $117 million. She reminded everyone there are three types of funds: governmental funds, proprietary funds or business-type funds, and fiduciary funds. The largest portion of the pie chart is the General Fund with $35.1 million; it is a governmental fund. She said governmental funds are supported primarily by taxes (property and income taxes). The next largest portion is Water, Sewer, Storm, and Refuse which are actually four different proprietary funds (business-type funds) managed by Public Works and supported by user charges or fees for service that meet the needs of current and future operations. Ms. Masson reviewed other portions of the pie chart. Insurance at $7.8 million is primarily the Health Insurance Fund of just over $6 million, but it also includes the City's Self-Insurance Fund. The Economic Development Fund is $7.7 million primarily made of TIF Districts; two TIF Districts have expenditures of over $2 million. The Police and Fire Pension Funds of $75. million are fiduciary funds which are held in trust to pay the pensions for police fire personnel; this money is not available for operations. The Parks and Recreation Fund of $6.1 million is an enterprise fund; about one-third of its operations are paid by property taxes. The Debt Service Fund is at $4.8 million. The Library Fund is $2.5 million and is a governmental fund; approximately $2 million is property taxes.

2 Alderman Spurgetis asked about the third largest piece of the pie, "All Other," at $14.4 million. Ms. Masson replied that the City has close to forty (40) funds. She said it is a grouping of smaller funds such as the marina and funds related to the Martin Luther King Center. It is a mix of governmental and proprietary funds. Alderman Spurgetis asked where he could get the detail on the funds. Ms. Masson will send the information to all of Council. Ms. Masson presented a breakdown of the General Fund by departments. There are eight departments that make up the General Fund: Police, Fire, Public Works, Finance, Community and Economic Development, Information Technology, Human Resources, and General Administration. The two largest departments are Police and Fire making up 68% of the total. Public Works is the third largest by expenditures. She said the Finance Department contains expenditures that are related to city-wide business, not necessarily related to the Finance Department operations. Mayor Thoms asked if the Police and Fire expenditures are wages and pensions. Ms. Masson replied yes; it is primarily personnel-related expenses plus all operations expenses. Ms. Masson presented another pie chart broken down into four categories of personnel, supplies, other, and services for the $35.1 million expenditures from the General Fund. Personnel makes up 76.4% which includes salaries, overtime, FICA and Medicare taxes (employer portion), and pension costs. Alderman Mayberry asked if that includes Council and the Mayor; Ms. Masson responded yes. Alderman Spurgetis asked for examples of services. Ms. Masson replied services could be professional contracts, utilities, consultants, and the audit services. It is services paid for, not services the City provides. Mr. Tweet said fleet costs are included; Mayor Thoms added the janitorial contract. Ms. Masson presented an excerpt of a statistical schedule in the back of the audit on major General Fund revenues. She also added the 2018 Budget to the schedule. The various taxes make up almost $15 million or half of General Fund revenue. There has been some volatility, but most of the taxes are flat. The schedule shows the historical trend. The high point was in 2015 with $15.2 million in revenues. Ms. Masson explained Replacement Tax is PPRT and replaces the municipal revenue when the corporate tax went away in the 1970s. In 2017, the tax revenues were $2.9 million. The City was told last fall the state is cutting the PPRT by 23%. Ms. Masson said this tax may eventually go away. The 2018 Budget shows the Replacement Tax revenues at $2.3 million which Ms. Masson said is on track. Sales Tax has been declining lately; the high was in 2016 with $5.5 million in revenues. This tax includes personal sales taxes. Ms. Masson explained there are three pieces of sales tax the City receives: the municipal portion of 1%, the Home Rule portion of 1.25%, and the Food and Beverage Tax. The 2018 Budget has $5.1 million in this category. Kmart accounted for $170,000 in sales tax. Ms. Masson reported Use Tax is trending upward. The high point was in 2017 with $1 million. She discussed the Wayfair Supreme Court decision. In Illinois, online sales tax comes through as Use Tax; however, municipalities only receive a small portion. The state gets 80% and municipalities receive 0.3% of the remaining 20%; it is a per capita tax. She doesn't expect the City to receive much from the online sales tax that could make an impact (approximately $68,000). Ms. Masson stated that Income Tax was at a high in CY 2015; it has been declining since. The state decided in 2017 to cut municipalities' share of Income Tax by 10%; this happened in the middle of the City's fiscal year resulting in the City's deficit. It was only supposed to be for one year; however, it remains now at a 5% cut. Ms. Masson said that Utility Tax is also declining. Gas Tax has been flat for awhile. Ms. Masson reminded Council that one of the budget measures in CY 2018 was to raise the City's gas tax by one cent which should raise $100,000. The Hotel/Motel tax charged by the City is 6% of revenues; the City's Hotel/Motel Tax primarily comes from Jumer's and the Holiday Inn. Mayor Thoms asked what portion of the Hotel/Motel Tax goes to the Quad Cities Convention and Visitors Bureau (QCCVB). Ms. Masson was not

3 Tax goes to the Quad Cities Convention and Visitors Bureau (QCCVB). Ms. Masson was not sure of the exact percent. Community and Economic Development Director Chandler Poole said it was $120,000 budgeted. Mr. Tweet said it was 25% of the tax brought in. Ms. Masson also presented a graphical representation of the major General Fund revenues. Alderman Spurgetis asked about the slight increase in the Hotel/Motel Tax from 2017 to 2018; was that from growth or a rate adjustment. Ms. Masson said the 2018 number is a budgeted amount; there was no rate adjustment. She said they probably did an average of the last two years; it is not a hard number. Alderman Mayberry asked when Jumer's left downtown and built the hotel. Mr. Tweet thought it has been ten years. Alderman Tollenaer said it was in Mayor Thoms asked if the City receives sales tax on comped rooms; Ms. Masson replied she didn't think so. Mayor Thoms stated if a hotel room is rented for thirty (30) days, there is no Hotel/Motel Tax collected. Mr. Tweet said United Airlines has rooms booked for their staff on an ongoing basis. Ms. Masson next presented a chart of the extended tax levy or the dollar amount raised by property taxes for the period from 2011 through She said it has remained pretty level; however, in 2017 the levy rate was increased for funds collected in FY The levy dollar amount decreased from 2011 through It incrementally increased in 2015 and The rate was pretty much the same during those six years. In August, she receives an estimated value of all the properties in the city. There are six (6) portions to the City's tax levy: General Fund, Police Pension, Fire Pension, Library, Park, and Public Benefit. The Police and Fire Pensions portions are the employer contributions which are determined by the City's actuarial consultant based upon assumptions. The Public Benefit amount goes into the City's Debt Service Fund and pays for costs related to the City's bonds and debt service. Ms. Masson stated the General Fund portion has been decreasing; the Library and Park portions are flat. The Police and Fire Pensions contributions naturally keep increasing, so the General Fund portion was decreased to keep the levy the same for several years. In 2017, there was a 9+% increase in the tax levy; the Library and Park portions were increased while the Public Benefit portion was decreased. The General Fund portion was increased to $1.6 million. Ms. Masson noted that the 2018 column is an estimate of what the 2018 levy could be. They are currently working on the 2019 budget. They know what the employer contribution will be for Police and Fire Pensions; the Library and Park Funds will receive a 2% increase to keep up with rising expenditures (mostly personnel related). She said they are estimating the EAV will go up 2%; it is a reassessment year. She is hoping to keep the tax rate the same as in A graphical representation of the tax levy was also shown. Ms. Masson presented a snapshot of the City's debt. It is an excerpt from the 2017 audit. There are two types of funds: governmental activities and business-type activities (proprietary). It shows an 11-year history of the City's debt. Governmental activities debt is at $53 million of General Obligation Bond debt. Ms. Masson explained that business-type activities has two kinds of debt: Loan Payable (IEPA low-interest loans for IEPA mandated projects) and General Obligation Bonds. Ms. Masson stated in 2008 there was $18 million in total outstanding debt and in 2017 there is $122.5 million in total outstanding debt. For the business-type activities debt, when the enterprise funds budgets are prepared, Ms. Masson said they have ten-year cash flow projections for revenues, expenditures, infrastructure need, principal and interest. For governmental activities debt, a lot of the debt is related to the Capital Improvement Plan (police station, street work, TIF Districts (Downtown and Columbia Park), etc.). The last column in the chart is the City's debt per capita using the last census figures of 39,000 residents which works out to $3,139 debt per person. Alderman Tollenaer asked what percent of loan payables are not covered by revenue streams (service fees versus tax dollars). Ms. Masson thought it would be a 60/40 split between business-type activities debt and governmental activities debt. Alderman Tollenaer stated a lot of the debt was due to federal mandates, for example, the Wet Weather Treatment Plant. He said there is $100 million in new debt since he started in He stated the new Water Filtration

4 there is $100 million in new debt since he started in He stated the new Water Filtration Facility is part of the increase in debt too. Discussion continued. Ms. Masson presented a payoff schedule for all debt including the principal and interest from 2018 through The previous chart of debt was principal only. She pointed out that for 2018, debt (principal and interest) is between $6 and $7 million; in 2019, the debt is at a high point. In 2020 and 2021, the debt is still high. In 2022, the debt starts dropping off and by 2036, the debt is almost paid off. She cautioned that would be assuming the City borrows no more money. Mayor Thoms said by 2040, the pensions will be fully funded too. Ms. Masson moved on to a budget update. She reviewed the budget goals from last year which still apply: keep financial impacts to citizens and businesses of Rock Island to a minimum; continue to provide quality services; and be fiscally responsible by following appropriate financial policies and maintaining the City's financial position and improving the financial position in the future. She presented two sets of financial projections for the General Fund. One set had three years of actual General Fund revenues and expenditures with projections for five years from 2019 through The second set of projections factors in a 0% increase in Personnel costs in CY 2019 and 1% increase in CY This set also shows some new revenue; for example, new sales tax from Dunkin Donuts and five new housing starts. These are just theoretical one-time impacts and is only a tool for adjusting impacts and projections in more detail. There are union contracts in place. Mr. Tweet explained that in 2019, there cannot be a 0% increase in Personnel costs because of the union contracts. Ms. Masson presented a chart and graph of Gaming Support CIP. Gaming Tax is distributed to the City. In 2017, tax revenues dropped due to the impact of the 3rd area casino. The budget shows it level at $4,400,000 for the next few years. The Gaming Tax revenues from 2018 are used to fund the 2020 CIP. The City also uses the Gaming Tax revenue to pay for the governmental General Obligation Bonds debt. There is only $300,000 to $400,000 left after debt service to pay for social service agency grants, CIP, body cameras, etc. Alderman Parker noted it looks like it will get better after Ms. Masson emphasized that this chart is based on no new debt. Discussion continued. Ms. Masson presented a schedule of savings for fleet replacement called Fleet Amortization from CY 2015 through CY Ideally, the City needs to save $1 million per year for vehicle replacement. She noted this is where budget cuts have been made. The City is $2 million behind schedule in funding future replacements. They are not replacing vehicles as quickly as originally scheduled. The Fire Department was scheduled to get a new engine this year and the Police fleet will need to be replaced in a couple of years. Discussion continued on maintenance costs versus vehicle replacement. There is a pilot program of leasing the Inspection vehicles. That contract will be up next spring. Ms. Masson said they are working on budgets. Departments have been given guidelines to keep their expenditures the same as the 2018 budget. Mr. Tweet said staff is reviewing the revenue suggestions and will prepare revenue options and expenditure cuts; there will be a list of options or possibilities for Council to choose from. Ms. Masson said departments were told that Council is appreciative of the work that departments are doing. The study session concluded at 6:37 p.m. Judith H. Gilbert, City Clerk

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