January 1, Honorable President McGinley and Village Board of Trustees Village of Glen Ellyn. Subject: Budget Transmittal for Fiscal Year 2019

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1 Table of Contents I. INTRODUCTION Transmittal Letter Strategic Goals Five Year Forecast General Fund Financial Policies

2 January 1, 2019 Honorable President McGinley and Village Board of Trustees Village of Glen Ellyn Subject: Budget Transmittal for Fiscal Year 2019 Introduction Transmitted with this letter is the budget of the Village of Glen Ellyn for Fiscal Year 2019 (FY19), which runs from January 1, 2019 through December 31, This document presents a comprehensive look at major financial and non-financial goals and priorities for the Village both from a near-term as well as a long-range perspective. This document, in many ways, acts as the corporate plan for the Village over the next twelve months. The budget formation was again conducted through a zero-based budget process. The FY19 budget process required all departments to justify all line items and summarize the need for all expenses incorporated in their respective department budgets. The budget consists of 17 different funds, many summarized below. The General Fund continues to be a main focus of the annual budget process. This year, the General Fund shows a small surplus of $ 41,793. The Village Board has committed this surplus for future pension payments. The 2019 budget has a capital focus as the Village embarks on starting many capital projects which have been unscheduled and unfunded, while also maintaining current street and infrastructure programs. The FY19 budget includes $19.84 million in capital projects, 32% of the Village s total budget. The capital program and funding is discussed at length below. During this process, we spent considerable time shaping and refining the budget plan to meet the community s demand for high quality services while delivering these services in an efficient and economical manner. Background (Financial Scorecard and Five Year Forecast) In order to provide context for the merits and challenges of the Village s financial standing as the Village prepared its budget for Fiscal Year 2019, it is important to review the highlights of the Village s Scorecard and Five Year Forecast. The Scorecard compares and contrasts the Village s financial performance to its peers. In the Scorecard, the Village was identified to have a strong financial position with less debt and lower pension liabilities than its peers. The Village was also shown to have lower spending for fire, police, and administration as compared to the peer group. The Village also fared well in its ranking for property taxes going to the Village/Library for a median value home. The Scorecard did underscore the need for the Village to stimulate economic development to increase the non-residential property tax base. Increasing the non-residential property tax base could shift the property tax burden from the residential properties and may also increase sales tax and home rule sales tax revenues to the Village. In contrast to the Scorecard which looks at current and historical trends, the Five Year Forecast is a look into the Village s financial future. It is important to note that the Five Year Forecast is not a prediction of the future; it is a financial model for the Village to identify and understand potential imbalances in revenues and expenditures in order to take strategic action to mitigate those imbalances. The Five Year Forecast identified that the General Fund revenues are growing at a slower rate than General Fund expenditures. Revenues are 1-2

3 forecasted to grow at 2.2% while expenditures grow at 3.2%, which creates a forecasted imbalance in the General Fund. Personnel costs, including salaries, FICA, health insurance, and pension costs are the majority of expenditures in the General Fund (66% of General Fund Expenditures). Personnel costs are projected to increase 2-6%, depending on department, over the next five years. Also, the Five Year Forecast provides a warning with respect to unfunded pension liabilities estimated at over $17.2 million at the end of FY2019. The contribution required to the Police Pension Fund is estimated to grow by 5% annually over the next five years, staying with the current actuarial model. Budget Guidelines, Discussion Topics and Challenges Total FY19 budget (net of interfund transfers) is $61.9 million, about $2.7 million more than the FY18 original budget (a 4.5% increase). The FY19 budget projects an overall increase in net position (i.e. net income) of $1.66 million, largely due to the capital program. Budget Guidelines: Management developed the budget under the following guidelines: General Fund Balanced Budget Over the many years since the recession, the Village has been successful in balancing the General Fund budget before presenting the budget to the Village Board as the goal is for the annual General Fund budget to be balanced. The prior year s budget was unbalanced due to pension pressures and reductions in revenues from the State of Illinois. For FY2019, the General Fund has again been balanced. Cash Reserves The budget maintains the targets outlined in the Village s cash reserve policy. The Village Board revised the cash reserve policies in FY18 and this budget reflects those changes. The General Fund policy is 30% of operating expenditures. Water and Sewer Fund cash reserve policy will increase to $2.308M with a 2.1% CPI increase. For certain other funds, the policy calls for cash reserves of at least 25% of operating costs. Special Service Areas (SSA) for Economic Development The SSA rate will remain the same at 12.5 cents per $100 of EAV. Home Rule Sales Tax The Home Rule Sales Tax is budgeted at 1.25%, the rate that went into effect July The State of Illinois reduced its collection fee from 2.0% to 1.5%, but the fee will still cost the Village approximately $40,000 FY2019. Income Tax The income tax experienced a 10% reduction in FY18, a cost of $290,000 to the General Fund. In FY19, this will be reduced to 5%, a cost of $145,000. The combination of state reductions as well as tax law changes has erased any positive gains in this revenue stream since FY2013, over 5 years ago. The FY19 budget for income tax is down from the FY18 budget by 0.6%. However, the budget is increased by 1.97% from the FY18 estimated actual results. Personnel Costs - These costs are the largest expense for any municipality, so we pay special attention to all components of personnel. We continue to be one of the lowest users of full-time employees per capita in DuPage County. Job sharing and the utilization of seasonal employees and part-time employees allow us to control health insurance and pension costs. o Overall personnel costs (salaries, overtime, FICA, and pension) are increased by 3.8% from FY2018 to FY2019. o o IMRF pension costs (or pensions for non-sworn employees) continue to decrease. The contribution rate for 2019 is 7.15% of covered payroll, down from 9.89%. The Village anticipates saving $134,337 from this rate decrease. The Village has been fortunate for many years to have below market health insurance premium increases. The FY19 budget includes a 4% increase in health insurance premiums, effective July 1-3

4 2019. The budget also reduces the health insurance contributions to the Insurance Fund by $153,000 for FY2019, as positive experience in 2017/2018 produced favorable results. o o The budget includes personnel changes made throughout FY18, including transitioning fire inspections into the village from the Fire Company, transitioning the Stormwater Engineer to a full-time position to incorporate private development plan reviews, and combining two part-time permit clerks to one full-time permit clerk. In the police department, the retirement of two key employees precipitated staffing changes. The department moved from an Assistant Chief of Police and a Deputy Chief to a Deputy Chief and a non-sworn Police Program Coordinator. New in FY19, the budget adds a full time Assistant I.T. Manager, to plan for succession due to retirement of the I.T. Manager. Also, to address additional work in the Finance Department for collecting the new Food & Beverage tax, that department is restructured and added a Staff Accountant. The Village is in the fifth year of a merit based pay system for non-union employees that allows Management to establish a scale and reward top performers more effectively. The FY19 budget includes a merit pool of 2.75%, at a cost of approximately $180,000, which includes payroll tax and pension costs. In addition to the merit pool, the budget also includes an additional funds to address market compensation issues for certain employees. The budget also includes a 2.75% increase for the police union, based upon renewal of the union contract. Village Operations make up 68% of the total budget for all funds in FY19. Operating costs typically are associated with the provision of day-to-day basic Village services. This includes all staffing costs, various contract and consulting services, the purchase of a number of materials and commodities, and expenditures related to the maintenance of Village owned assets and rights of way. Some examples of Village operating expenditures/expenses include: o Police and fire protection o Police and fire dispatch services o Purchase of Lake Michigan water o Treatment of sanitary sewage by the Glenbard Wastewater Authority o ED Awards o Weekly garbage pick-up o Volunteer Fire Company support o General, liability, property and workers compensation insurance o Golf course maintenance o Snow and ice control o Street sweeping o Water and sewer system maintenance o Tree planting, maintenance, removal o Pavement patching, line striping, and roadway signage o Parking facilities o Ambulance service contract o Employment benefits o Retirement benefits administration (Police Pension Fund) In many ways, these costs are non-discretionary, if we want to maintain the same level of services we currently provide. The discretionary portion of the budget: materials, dues and subscriptions, training, supplies, uniforms, postage, etc., has remained flat for many years which limits our ability to control overall costs. Capital improvement plan (CIP) The capital plan was presented to the Village Board in August The budget is based off of this plan and includes funding for previously unfunded/unscheduled projects. The pertinent details of the capital plan are outlined below. Discussion Topics for the Fiscal Year 2019 Budget Process. In addition to the background presented on the Scorecard and Five Year Forecast, Management feels that several items are important to communicate regarding the Fiscal Year 2019 budget: 1-4

5 Property Tax Historically, the Village voluntarily abides by the tax caps laws, meaning the Village historically increases the tax levy based on the lesser of CPI or 5% as well as new growth. In 2014, the Village Board did not increase property taxes towards the General Fund or the Capital Improvement Plan budget. In 2015, the Village Board only increased the levy to account for new growth/annexations, but did not increase the levy for a CPI factor. This was also the path chosen for the 2016 levy (2017 budget). In 2017 (2018 budget), the operating levy was increased only by new growth, but the Capital levy was increased in accordance with tax cap guidance. The culmination of these decisions has created a savings of $562,000 to the taxpayers, or approximately $70 per property owner. The FY19 budget includes a 2.1% growth factor for CPI and a 0.7% growth factor for new construction and annexations. The 2.1% is the CPI growth factor that is set by DuPage County for all taxing bodies. The 0.7% growth factor includes 0.01% for annexations and 0.69% for new construction. It was important that the levy be increased by CPI for the FY2019 budget for the following reasons. O O O In order to meet the debt service and continue to fund the community s capital needs, the capital levy should be increased. The capital plan projections include a 2% annual increase in property tax revenue to meet our capital plan. Also, the increase in CPI also helps the Fund s revenues keep pace with construction cost increases due to similar price inflation. The General Fund levy would increase by $96,600 or 2.8%. The General Fund levy supports the police department; yet the General Fund levy of $3,499,400 only covers 39% of the General Fund police budget. The police pension contribution of $1.959 million is 10% of the General Fund budget. This small increase insures that we continue to meet our public safety obligations. The Five Year Forecast highlights that the growth of revenues is not forecasted to meet the Village s growing expense needs. Increasing the property tax by CPI is a very small measure to ensure that this gap does not widen. By sustaining this revenue source today, we avoid the need to find a different revenue source to fill the projected compounded gap in the future. Water and Sewer Rates The FY19 budget does not include a rate change for water and sewer rates. The fund currently has a healthy net position; however, several large capital projects do decrease that position over the five year forecast. Capital Funding Plan During FY18, the Board and staff worked together to determine a funding plan for several projects which were previously unscheduled and unfunded. Those projects include Civic Center HVAC improvements, a Central Business District (CBD) parking garage, CBD street and streetscape, train station and pedestrian underpass, and Roosevelt Road access improvements. The hallmarks of this plan that are included in FY19 budget as follows: o o o o o Civic Center HVAC is included in the Facilities Maintenance Reserve Budget, budgeted at a cost of $1.5 million. $3 million is included in the Parking Fund to begin construction of the parking garage. It is anticipated that the garage will be completed in FY20 (additional $12-15 million). $250,000 in engineering for the CBD street and streetscape project is included in the Capital Projects Fund. Roosevelt Road access improvements are included in the Capital Projects Fund budget at $700,

6 o o $9.0 million in bonds is slotted to be issued in FY18, while $9.5 million is budgeted to be issued in FY19. As the Village hones the cost of the projects, those amounts may be adjusted accordingly. A new food and beverage tax is budgeted to be in effect starting March There will be costs associated with implementing and collecting the new tax, and therefore revenue is budgeted at $700,000 for FY19. The 5 year Capital Improvement Plan (CIP) plots these projects over the next five years. This document can be found in the Capital section of the budget. Cost Control and Evaluation The Village continually evaluates cost control opportunities. Service modifications or eliminations over the last few years include: o Health Insurance Pool o Eliminated Community Grants and eliminated separate Economic Development Corporation o Shifted legal in-house and consolidated Village Clerk operations o Shifted to a turnkey EMS Operation o Shifted towards outsourcing GIS model o Implementation of administrative adjudication for certain violations o Embraced partnerships with COD (College of DuPage) to offset costs to renovate the Civic Center ($2.5M), Lombard to share future costs of water main improvement on Hill Ave., Lombard to share revenue for a new gas station in unincorporated Lombard on Roosevelt Rd., School District 41 to share costs of water main upgrade near Hadley School; County Forest Preserve to lease building on St. Charles Rd. for salt storage; and other partnerships. Police Pension Funding The FY19 budget maintains the same contribution level to the Police Pension Fund of $1.959 million. Based upon the current actuarial model, the pension contribution could decrease by $188,000 for FY19. However, the budget includes keeping the contribution constant and moving towards a 15 year open amortization model rather than the current closed model. By moving towards an open model, year-to-year volatility should be reduced and more consistent funding of the police pension will be achieved. The Finance Commission and the Police Pension Board will be reviewing the matter and providing a recommendation to the Village Board. 1-6

7 General Fund As with other municipalities, the majority of General Fund costs are borne by the largest departments of Police and Public Works, as well as providing services to the Volunteer Fire Company including ambulance services. When totaled, these three departments make up 70% of General Fund expenditures. The expenditures in our General Fund are dominated by salaries, pensions, and benefits (66%). The Village of Glen Ellyn has a diverse revenue stream; however, much of the revenue base is derived from sales and home rule sales taxes, income tax, and property taxes (65%). Below is a comparison of the FY2019 budget to the FY2018 original budget (in thousands) FY18 Budget FY19 Budget Difference Percent Change Revenues* $18,047 $18,902 $ % Expenditures* $18,648 $18,861 $ % Net* $(601) $41 $642 *In thousands The revenue changes are attributable to the following factors: The home rule sales tax rate was raised to 1.25%, effective July The increase, as well as anticipated new businesses, increases the home rule sales tax to $2.548 million, or a 11.3% increase. Absent these factors, home rule sales tax would be flat year-over-year. Business registration and building permit fee schedules were modified in FY18 to align the cost of the permit with the cost of providing service, as well as to simplify the process for both customers and staff. This change, along with several large projects anticipated for FY19, increases these revenues by $305,000 from the prior year. Due to rising interest rates as well as laddering out certificates of deposit to increase interest income, the budget for interest income has increased by $110,000. Expenditures are budgeted to increase by 1.1%. The chart below by category highlights the changes from the prior year budget: (in thousands) Percent FY18 Budget FY19 Budget Difference Change Personnel Services $9,851 $10,214 $ % Contractual Services $3,565 $3,618 $53 1.5% Commodities $241 $237 -$4-1.7% Capital Outlay $118 $166 $ % Transfers Out $4,872 $4,820 $(52) (1.1)% Personnel Services include a 2.75% merit pool for non-union employees and a 2.75% increase for union employees. The category is also increased by $146,000 for the salary and benefits of an Assistant I.T. Manager. This increase will be somewhat offset by a decrease in contractual services of $40,000 for outside I.T. services. For capital outlay, the police department must update its DACRA records software, budgeted at $70,000. The budget also includes $26,000 to update 65 street lights to LED, primarily on the south side of Glen Ellyn and 1-7

8 $35,000 in equipment and furnishings for the renovated Civic Center spaces. The I.T. capital budget includes $47,000 for I.T. equipment, which includes $8,450 for audio visual and cable channel equipment and $39,500 for annual computer and hardware maintenance and replacements. Transfers out decreased by $52,000. The transfer out to the Corporate Reserve Fund of $48,000 associated with the Fresh Market development was ended for 2019 due to the closure of Fresh Market. Water and Sanitary Sewer Fund The FY19 does not include a rate change for water and sewer rates. The fund currently has a healthy net position; however, several large capital projects do decrease that position over the five year forecast. Village Links Reserve 22 Fund The Village Links/Reserve 22 Fund continues to be a self-sustaining enterprise fund. FY2018 has seen a growth in banquets, a key component in growing Reserve 22; although restaurant growth has leveled. Both the restaurant and golf operations suffered in FY18 due to poor weather. The FY19 budget includes $2.623M in revenues for Reserve 22 with expenses of $ Overall, the FY19 budget includes $5.616M in revenues and $5.584M in expenses for Village Links/Reserve 22. Police Pension Fund The Village has been working diligently to responsibly fund the Glen Ellyn Police Pension Fund while being mindful of the overall financial position and responsibilities of the Village. The Village has decreased the investment return gradually over several years, and now has an assumed rate of return of 6.5%. In FY18, the Village s actuarially determined contribution to the Glen Ellyn Police Pension Fund rose to $1.959 million, over 10% of the General Fund budget. The FY19 budget maintains the same contribution level to the Police Pension Fund of $1.959 million. Based upon the current actuarial model, the pension contribution could decrease by $188,000 for FY19. However, the budget keeps the contribution constant and moving towards a 15 year open amortization model rather than the current closed model. By moving towards an open model, year-to-year volatility should be reduced and more consistent funding of the police pension will be achieved. The Finance Commission and the Police Pension Board will be reviewing the matter and providing a recommendation to the Village Board in FY19. Capital Plan In many ways, FY19 will be focused on achieving the capital goals of the Village, as the Village has spent the past year vetting and devising funding for previously unfunded and unscheduled projects (discussed previously in the memo). FY19 will be focused on moving these projects forward, including beginning engineering and/or construction, issuing bonds, and implementing and collecting a food and beverage tax. These new projects do not diminish the importance of the regular maintenance and improvements to the Village s current streets and infrastructure. Other major improvements planned for FY19 include: 2019 street improvements: $6.3 million Sidewalk program: $262,000 Scott/Clifton/Cumnor rehabilitation: $550,000 Route 53 water main lining: $1.529 million Tax Increment Financing (TIF) Funds 1-8

9 The Village continues to proactively seek economic development opportunities to increase sales tax revenues and create vibrant and diverse commercial districts. The Village has two TIF districts. The Central Business District (CBD) TIF was created in 2012 and the Roosevelt Road TIF district was created in In FY19, the Village has continued to budget for its popular façade, interior, and fire improvement awards and leverage these funds to encourage significant private investement in our commercial districts. The 2019 CBD TIF budget also includes $100,000 to create a pedestrian walkway adjacent to the Civic Center and Main Street businesses. The Village also continues to evaluate potential redevelopment opportunities within both TIF districts, focusing on the Giesche, Duane Street, and McChesney sites in CY19. Conclusion The Village of Glen Ellyn s FY19 budget sustains the Village s current level of services. Striking the right balance between service levels and taxes to pay for those services is debated and decided during the budget process. This process, allocating scarce resources and prioritizing programs and projects, is difficult each year because the demand for municipal services often exceeds the revenues available to pay for those services. Management and thevillage Board work together during the budget process to build a budget which sustains the Village of Glen Ellyn and provides the services that our residents need. Strong cash reserves protect the Village from unforeseen emergencies and strengthen our bond rating and overall financial position. In closing, we wish to extend a thank you to everyone for their hard work in preparing the FY19 budget. The development of the budget could not take place without the commitment and cooperation of many Village employees. Many Management employees actively participate in developing and reviewing budget information which leads to an award-winning budget document for many years. Management will continue to find ways to improve efficiency and control costs and work diligently to bring the FY19 in under budget. We would also like to thank the Village Board for their responsible and progressive manner in which it conducts the fiscal affairs of the Village. Difficult budget decisions are made each year during the budget process, but those decisions are critical in that they provide a game plan for what level of municipal service the Village can provide. The understanding, cooperation and resourcefulness of everyone helps to strengthen this year s budget process. Respectfully submitted, Mark Franz Village Manager Christina Coyle Finance Director 1-9

10 Village Strategic Issues and Critical Goals VISION GOALS Strategic Issue I: INFRASTRUCTURE. Invest in infrastructure to meet key needs, including downtown accessibility, Village facilities, streets, utility, and technology improvements. I 1 Evaluate and implement pedestrian and vehicular traffic improvements in and around the community. I 2 Develop an implementation strategy to invest in Village facilities. Develop and continuously review the 5 year Capital Improvement Plan (CIP) and monitor and enhance funding options as necessary to execute I 3 plan. I 4 VISION GOALS Improve downtown infrastructure including pedestrian accessibility and parking improvements to encourage more pedestrian activity, outdoor dining, and enhance special event space in the CBD to spur future private investment. Strategic Issue II: ECONOMIC DEVELOPMENT. Engage in progressive and proactive economic development to attract and retain key businesses to foster a vibrant business community by strategically increasing the Village's footprint, adding housing variety and increasing downtown commercial growth and residential density. II 1 II 2 II 3 II 4 Implement strategic plan for Economic Development that focuses on overall commercial vitality, EAV growth and sales tax growth. Update Comprehensive Plan to assist in guiding future development, revise codes and regulations that inhibit commercial development and business retention, and continue to make the approval process more user friendly. Review and consider annexation opportunities to increase the tax base, control future development, share costs of infrastructure, and provide and protect high quality of life for neighborhoods. In partnership with our local business oriented agencies, continue to provide progressive and proactive efforts to recruit new businesses and retain current business by creating a favorable, welcoming climate for all businesses. VISION GOALS Strategic Issue III: COMMUNICATIONS AND ENGAGEMENT: Communicate, inform, engage, and involve the community and volunteers to support and act on the Village's high priority needs and opportunities. III 1 III 2 III 3 III 4 Develop and utilize a comprehensive communications plan to educate and inform the community and continue to implement a management strategy that mandates responsiveness and convenience. Utilize multiple communication tools to ensure the Village is engaged with residents, businesses, and intergovernmental partners. Communicate the strategic plan and priorities and ensure the Village Board and Boards and Commissions are aligned. Recruit and identify meaningful roles for volunteers. VISION GOALS Strategic Issue IV: FINANCIAL SUSTAINABILITY. Grow revenue and focus spending in line with anticipated resources to meet the highest priority needs and maintain the Village's AAA bond rating. VI 1 VI 2 Evaluate new revenue concepts and cost controls that continue to deliver high quality services and necessary capital investment. Complete financial monitoring including annual audits, five year forecast, CIP, and Scorecard as appropriate to maintain long term financial stability. VI 3 VISION GOALS Review staffing allocations and create succession plans for all departments focused on talent development/management and protecting the greatest asset in the organization: employees. Strategic Issue V: Village Links/Reserve 22 mission is to enhance the quality of life in Glen Ellyn by offering outstanding recreational and dining opportunities, while providing storm water protection, at no costs to the taxpayer. V 1 Develop and implement business goals and growth options to maximize profits without sacrificing overall quality or resident/community benefits. V 2 Reposition Reserve 22 with renewed focus on quality and consistent food and service. V 3 Sustain the financial stability of the business through capital planning and cash reserve policies. V 4 Develop a comprehensive marketing plan and ensure communication and alignment between Recreation Commission and Village Board. 1-10

11 Village of Glen Ellyn General Fund Five Year Forecast 2019 BUDGET 1-11

12 Goals of Five Year Forecast Understand long term financial trends in revenues and expenditures/expenses. Identify future imbalances (deficits). Identify potential areas where programs can be implemented now to avoid future deficits. Understand how this forecast aligns with past forecasts. Compare past forecasts with actual results

13 Facts on the Five Year Forecast Developed annually as a tool for the budget process. Forecast is a model to project future activity and is not a prediction of what will happen. Each year s experience will vary. ~ The goal is that annual budgets will be balanced. ~ Each year s actual results will vary

14 Executive Summary Revenues are forecast to grow slower than expenses, eventually bringing the Village s fund balance down below policy level without action to the contrary. Key revenues such as sales tax, home rule sales tax, and income tax performed well prior to 2017, which mitigated the losses predicted in earlier forecasts. Those revenue streams have been flat or decreased in 2017 and Pension costs, primarily IMRF but also Police Pension, have moderated in the forecast

15 Composition of General Fund Revenues All Other Revenues 14% 2017 Actual Property Taxes 20% 44% of General Fund revenue comes from our key revenues (sales tax, home rule sales tax, and income tax) Village has no direct influence on income tax or sales tax User Fees 14% 20% of General Fund revenue is from property tax levy All Other Taxes 8% Income Tax 14% Home Rule Sales Tax 11% Sales Tax 19% 14% is from user fees which are designed to charge a fee for services used

16 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% How does our General Fund compare to our neighbors? How do we compare to our neighbors? Lombard has greater sales taxes. Lombard and Wheaton put utility taxes in General Fund. Lombard has a food and beverage tax while Wheaton has a real estate transfer tax in its General Fund. Glen Ellyn has utility taxes, transfer taxes, and soon to be food and beverage tax, but they fund the Capital Fund rather than the General Fund Note: 2017 data Glen Ellyn Lombard Wheaton

17 General Fund Key Revenues Sales Tax $4,000,000 $3,800,000 $3,600,000 $3,400,000 $3,200,000 $3,000,000 $2,800,000 $2,600,000 $2,400,000 $2,200,000 $2,000,000 Sales Tax R² = Sales Tax has grown by an average of 1.5% per year over the past 10 years Preliminary 2019 Budget includes a 1.5% increase in sales tax Sales tax forecasted to grow at 2% in the 5 year forecast Rockefeller Institute estimates the national median sales tax growth forecast for Illinois in 2019 is 2.3%. Largest Business Categories for Sales Tax (2017 data): Drug and Misc. Retail (901K) Food (803K 2016 data) Automotive & Filling (769K) Eating & Drinking Places (536K)

18 Historical Sales Tax by Category $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ Food Drinking and Eating Places Apparel Furniture & H.H. & Radio Automotive & Filling Stations Drugs & Misc. Retail Manufactuers All Other* Food and Drugs and Miscellaneous Retail make up the largest sector of sales tax base

19 Growth of Sales Tax by Category $3.50 $3.00 Growth of $1 of Sales Tax, by Category Largest growth has been in the drinking and eating places category. $2.50 $2.00 $1.50 $1.00 $0.50 $ Food Drinking and Eating Places Apparel Furniture & H.H. & Radio Automotive & Filling Stations Drugs & Misc. Retail Manufactuers All Other* Total

20 General Fund Key Revenues Home Rule Sales Tax $3,000, $2,500, $2,000, $1,500, $1,000, Home Rule Sales Tax R² = Home Rule Sales Tax has grown by an average of 2.3% per year (excepting 2018 when rate was increased) Preliminary 2019 Budget realizes a full year of the 1.25% rate. Forecasted to grow at 2% in the 5 year forecast Largest Business Categories for Home Rule Sales Tax (2017 data): Eating & Drinking Places (538K) Drug and Misc. Retail (514K) Food (280K) $500, $

21 General Fund Key Revenues Income Tax $3,500, $3,000, $2,500, $2,000, Income Tax Income Tax is more volatile than sales tax streams Income Tax has grown by an average of 0.6% per year over the past 10 years Preliminary 2019 Budget includes a 3% increase from 2018 est. The forecast includes 3% growth in income tax The state reduction was reduced from 10% to 5% of income tax. This is included in the 3% growth for $1,500, $1,000,

22 General Fund Key Revenues Property Tax $4,500, $4,000, $3,500, $3,000, $2,500, $2,000, Property Tax Village has adhered to the tax cap rules of CPI and new growth although not required to by its home rule status Average increase over 10 years is 3.45% 2019 preliminary budget includes: 2.1% CPI set by DuPage County 0.7% New Growth (last year s actual growth) Property tax is forecast to grow at 2.5% over the five year forecast $1,500, $1,000, $500, $ SY

23 What would a property tax freeze cost the Village over 5 years? General Fund Property Tax Comparison The Village is a home rule community that is not legally bound by tax caps. $4,400,000 $4,200,000 However, the Village traditionally holds itself to the tax cap philosophy, which means the Village increases its levy for new growth and CPI only. This philosophy favors gradual increases over time rather than creating spikes in property tax rates. $4,000,000 $3,800,000 In 2014 (FY15 collections), the Village did not increase the levy and in 2015, 2016, and 2017 (FY16, FY17, FY18 collections) the Village only increased the levy for new growth (no CPI factor). $3,600,000 The Village levies one general operating levy for the General Fund. The Capital levy goes to the Capital Projects Fund. $3,400,000 This slide shows the yearly impact if the Village does not increase its tax levy. $3,200,000 Over 5 years, the Village has foregone $309,000 in revenue in the General Fund. $3,000, Tax Cap Method Property Tax Freeze New Growth Only If the trend continues, over 10 years, the Village will have foregone $2.8 million in revenue

24 Challenges in Revenue Streams Several challenges and decision points are on the horizon regarding General Fund Revenues: The Village relies heavily upon performance of sales tax, home rule sales tax, and income tax to provide for known increases in costs. The Village has little direct control over these revenues that are highly influenced by the economy. The State of Illinois continues to threaten state shared revenues. Challenges may be mitigated by redevelopment, especially in the Central Business District. Supreme Court decision on Wayfair vs. South Dakota may positively impact the Village; however through use tax but not through sales tax

25 Composition of General Fund Expenditures by Department Fire/EMS, $885,424, 5% Administration, Public Works, $1,153,514, 6% IT, $489,204, 3% $2,849,272, 16% Facilities, $1,162,513, From the % Senior Services, $80,231, 0% History Park, $19,292, 0% Finance, $839,150, 5% Planning, $1,400,963, 8% actual expenses, Police is the largest department in the General Fund at 48% with Public Works at 16%. Police, $8,773,091, 48% Economic Development, $457,726, 3%

26 How does our General Fund Expenditures Compare to our Neighbors? 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Department Percentage of General Fund Budget Compared to Neighbors $ $ $ $ $ $ $ $50.00 $ Per Capita Spending by Department Compared to Neighbors Glen Ellyn Lombard Wheaton Glen Ellyn Lombard Wheaton Note: 2017 Data. Excludes Fire/EMS costs due to different structures across the three municipalities. Every effort has been made to make this as comparable as possible; however, each municipality is unique

27 Composition of General Fund Expenditures By Type Commodities 1% Capital Outlay 1% Contractual Services 17% Health Insurance 6% General Fund Expenditures Transfers 15% Personnel 60% Personnel is the largest portion of the General Fund budget, $10.8 million of $18.1 million in expenses The Village functions accounted for in the General Fund are highly service oriented; therefore, it is expected that personnel expenditures would be the main expenditure type. Personnel expenditures grow at a faster rate than capital or other operating costs

28 Personnel Expenditures by Type Relative Growth $1.90 $1.70 $1.50 Relative Growth Personnel Costs Chart at left portrays the growth rate of personnel expenditures. Pension costs grow at the highest rate, although saw a decrease from 2016 to 2019 due to decreases in IMRF (non sworn) pension costs. $1.30 $1.10 The Village has been fortunate through its health insurance pool to mitigate health insurance cost increases seen in the marketplace. $0.90 $0.70 $ Salaries Overtime FICA Pension Heath Insurance

29 Personnel Expenditures by Category Personnel Expenditures by Category Personnel Split $8,000 Thousands $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $ General Government Public Safety All Other Dept Police Police comprises 53% of General Fund personnel. Public safety personnel costs are projected to grow at a faster rate (4%) than general government (3%). Police pension costs are also forecast to grow at a higher rate (5%) than municipal pension costs (2%)

30 Health Insurance The Village is a member of a health insurance risk sharing pool. Pool champions cost saving initiatives such as wellness and encouraging shopping of health care services. Health insurance costs have increased by an average of 3.4% over the past 7 years, beating the market place trend. Our pool administrators project 4% annual increases, assuming avoidance of the Cadillac Tax. The chart at right evaluates the difference in cost between a 4% trend and a 10% trend. As can be seen, it is important to our financial future to control our healthcare costs to the best of our abilities. 4% Growth Rate 10% Growth Rate Difference 2018 Cost $1,065,200 $1,065,200 $ Cost $1,107,000 $1,621,942 $514,942 Cumulative Cost over 5 Year Forecast $6,000,245 $7,153,467 $1,153,

31 Village Pensions Thousands $25,000 $20,000 $15,000 $10,000 $5,000 $ $(5,000) Village Pensions, Unfunded Liability Village has two pensions, the Police Pension Fund and the Illinois Municipal Retirement Fund (IMRF). Police Pension is 62.5% funded. IMRF is 103.5% funded. IMRF became overfunded in 2017 and the Village has seen decreased IMRF costs as a result. Police Pension liability began decreasing in 2016, as the Village increased contributions and the Pension Board modified investment strategy. Pensions have seen positive movement over the past two years, but the unfunded liability remains at $18.2M. The pension fund has $30M in assets. Police Pension Unfunded Liability IMRF Unfunded Liability/(Overfunded Asset)

32 Annual Village Pension Contributions Police Pension annual contributions are projected to grow at 5% IMRF contributions are anticipated to increase minimally. The anticipated rate change from 2018 to 2019 is from 9.89% of covered payroll to 7.15%, which saves the General Fund $77,000. $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $ Annual Village Pension Contribution Police Pension IMRF

33 Another Option Police Pension Funding Transition to 15 year open amortization What is a 15 year open compared to our current model? Transitioning to a 15 year open model increases funded status and reduces Village contributions over time, rather than the current baseline model which increases over time. Finance Commission and Police Pension Fund will provide a recommendation to the Village Board Several other municipalities are transitioning away from the arbitrary state model and moving towards an open amortization period

34 Other General Fund Expenditure Categories FY18 Est (thousands) Average Historical Growth ( ) Projected Annual Growth ( ) Contractual Services $3, % 3.0% 1 Commodities $ % 3.0% 1 Capital Outlay $ % 5.0% 2 Transfers $2, % 3.0% 3 Footnotes: 1. Commodities and Contractual Services are anticipated to increase at a conservative 3%, also consistent with historical increases. 2. Capital replacement was deferred during the economic downturn; recent purchases have been meeting deferred needs. Capital is incidental in nature, mostly driven by operating initiatives. 3. Transfers are reimbursements to other funds

35 Annual General Fund Forecast $25,000,000 $1,500,000 $1,000,000 $20,000,000 $500,000 Revenue and Expenditures $15,000,000 $10,000,000 $ $(500,000) $(1,000,000) Change in Fund Balance $5,000,000 $(1,500,000) $(2,000,000) $ Revenues $15,921,600 $16,105,939 $16,886,658 $17,290,193 $17,337,822 $17,405,406 $17,846,299 $17,910,885 $18,742,896 $19,146,048 $19,561,725 $19,988,408 $20,425,572 Expenditures $14,736,501 $15,869,009 $15,820,651 $16,394,227 $16,104,865 $17,457,079 $18,054,549 $18,608,315 $18,742,896 $21,241,377 $20,168,986 $20,818,721 $21,491,424 Change in Fund Balance $1,185,099 $236,930 $1,066,006 $895,966 $1,232,957 $(51,673) $(208,250) $(697,430) $ $(2,095,329 $(607,261) $(830,313) $(1,065,852 $(2,500,000) Revenues are forecast to grow at approximately 2.2% per year while expenditures grow at 3.2%, which would decrease the General Fund s fund balance by $3.9 million over the next 5 years. A planned contribution to the Capital Fund of $1.7M is planned for 2020 as part of Capital Plan

36 General Fund Balance Projections Millions $10.0 $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 General Fund Cash Reserves $9.4 $9.4 $9.1 $8.4 $8.4 $8.2 $7.3 $6.0 $6.2 $6.4 $5.7 $4.9 $3.8 70% 60% 50% 40% 30% 20% General Fund Cash Reserves, as a Percent of Expenditures 49.8% 46.0% 40.5% 39.1% 58.4% 53.6% 50.5% 45.4%45.1% 29.9% 28.5% 23.6% 17.9% $1.0 $ Cash Reserves Policy Level % 0% Cash Reserve Policy Projected Cash Reserve Percentage

37 How does this General Fund Forecast Compare? Annual Surplus (Deficit) , Projected Cash Reserves (500.00) Year 1 Year 2 Year 3 Year 4 Year 5 8, , , (1,000.00) 5, , (1,500.00) 3, (2,000.00) 2, , (2,500.00) August 2015 August 2016 August 2017 August 2018 Forecast improved over other forecasts (HRST increase last year, changes in state revenues, moderation of pension costs) $1.7M contribution towards capital projects planned in 2020 Year 1 Year 2 Year 3 Year 4 Year 5 August 2015 August 2016 August 2017 August

38 Forecast Versus Actual/Current Forecast November 2012 Forecast $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $ 2012 Forecast vs. Actual Fund Balance Forecast Actual/Updated Forecast are actual results and 2018 is as currently estimated. Actual results fared better then forecast. Sales, Home Rule Sales, and Income tax have far outperformed expectations in years prior to 2017, but have stagnated in 2017 and Lower salary increases than anticipated. Lower healthcare cost increases than anticipated. Pension costs began to moderate in 2018; especially municipal pension costs. Annual balanced budgets and good fiscal management have allowed cash reserves to increase

39 Highlights of General Fund 5 Year Forecast Personnel costs comprise 66% of General Fund expenditures. It will be necessary for the Village to be focused on controlling and meeting the challenges health care and pension costs. The Village has little direct control over three revenue sources (sales tax, home rule sales tax, and income tax) which are directly impacted by the economy. The Village has started to make changes to user fees in 2018, namely in Planning & Development. It is important to continue to review and change user fees; otherwise a larger part of the burden is placed on taxes. Home Rule Sales Tax increase in 2018 helps the 5 year outlook, but does not solve revenues that are growing slower than expenses Operating costs continue to rise, despite stagnant revenues. The Village s AAA bond rating received in 2015 cited strong reserve balances as a key reason for the rating. It is important to maintain the healthy reserve levels to maintain the AAA rating

40 Village of Glen Ellyn Financial Policies The annual budget is built upon a series of basic financial policies and guiding principles as established by the Village Board and Management. Although these policies are fundamental in nature, they have contributed significantly to the historical financial strength of the Village and demonstrate the Village s ongoing commitment to being a responsible steward of the public s finances. These Board approved policies have served the Village well, not just in good economic times, but particularly in periods of sustained economic downturn and uncertainty. Adherence to these principles help to maintain a position that ensures the Village is able to deliver uninterrupted basic government services on both a near-term and long-term basis. Further, well established and thoughtful policy development contribute toward ensuring services are delivered in a cost-effective manner, maintaining a well-diversified community and economic base, and distributing the cost of government fairly across those it serves. A. General The Village of Glen Ellyn embraces a tradition of sound financial management in the conduct of its financial affairs. The annual Village budget is founded on a set of fundamental policies and principles which contribute toward maintaining an organization with a strong financial condition and a proactive approach to serving the needs of its residents. B. Budget 1. A balanced budget shall be defined (at each individual fund level) as a budget where projected revenues are equal to budgeted expenditures within the current fiscal period. The adopted budget, on an individual fund basis, may or may not be balanced, depending on the availability and appropriateness of utilizing cash reserves. Use of cash reserves are generally determined to be acceptable for one-time or capital expenditures after minimum reserve levels are observed. 2. The Village shall publish an annual budget which serves as a communications tool which demonstrates the government s accountability for the sources and uses of public funds. Expansive narrative discussion should be included to communicate the organization s policies and objectives as well as detailed descriptions of revenue and expenditure line items. The budget should also serve as an operations guide to assist personnel in the responsible management and application of Village resources. 3. The Village desires to annually participate in the Government Finance Officers Association (GFOA) Distinguished Budget Presentation Awards Program. 4. The Village shall approach the annual budget process in a spirit of openness which encourages public information and participation. To that end, the annual budget shall be provided in its entirety on the Village s web-site, and the Village will annually exceed statutory requirements for public discussion and deliberation on the budget. 1-40

41 Village of Glen Ellyn Financial Policies C. Revenue 5. Interim financial reports shall be distributed and reviewed with the Village Board on at least a quarterly basis which track actual experience against budgeted revenues and expenditures in the current fiscal period. 1. The Village endeavors to maintain a diverse and stable revenue base to protect operations from short-term fluctuations in any one revenue source. The mix of various revenues employed will include both elastic and inelastic revenue sources to minimize to the extent possible the effects of economic downturn. 2. The Village will employ, where appropriate, various available economic development incentive tools, which will add to long-term revenue stability and growth. 3. The Village will monitor changes in key revenues on, at a minimum, a quarterly basis, and report on significant changes in collections or emerging trends. 4. The Village will oppose State and/or Federal legislation that would result in unfunded expense mandates to units of local government without providing for compensating authority to increase available revenues to offset such mandates. 5. Village enterprise funds (e.g. Water and Sanitary Sewer, Recreation, Parking, Residential Solid Waste) shall have fees set in such a manner which fully support all direct and indirect (depreciation of capital) costs associated with providing the service. 6. The Village will avoid the use of one-time or otherwise intermittent revenues to support continuing operating expenses. 7. The Village will explore to the extent practicable the award of various local, State and/or Federal grants to support one-time capital or non-recurring expenditures. Consideration of grant opportunities shall include an evaluation of required local matching funds and possible on-going operating costs associated with accepting grant funding. D. Expenditure 1. The Village shall maintain a level of expenditures which will provide for the public well being and the safety of the residents of the community. 2. The Village shall pay for current operating expenses from available operating revenues where possible. 3. The Village should avoid budget practices which balance current costs at the expense or detriment of future years, such as deferring or postponing necessary expenses. 1-41