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EXECUTIVE OVERVIEW The Village of Gurnee’s Fiscal Year (FY) 2010/2011 budget of $47 million was prepared consistent with the Village’s primary financial goal – the preservation of the highest possible services provided to our citizens, visitors, and businesses while keeping taxation and other charges at the lowest possible level. The budget enables the provision of services in the areas of administration, public works, building inspection, civil engineering, urban planning / zoning, police protection, and fire prevention. In light of the prolonged economic recession, cuts in positions, programs, and capital investments will be necessary to balance the general fund budget. This will be the tenth consecutive year the Village does not levy a property tax. Further detail on the Village’s budget proposal is provided on the following pages. It is the intention of Village management to continue offering services at the highest possible level even with these budget reductions. The budget is designed to serve the following four major purposes: To define policy, as promulgated by the Village Board; To serve as an operating guide for management staff to aid in the control of financial resources, while complying with generally accepted accounting principles for government; To present the Village’s financial plan for the fiscal year, illustrating expenditures and projected revenues by which the budget is funded; and To serve as a communication document for the citizens of Gurnee who wish to understand how the Village operates and the methods used to finance those operations. It is always our goal to have a balanced budget and not increase taxes. However, this is the second consecutive year that the economic recession has severely impacted our key revenue sources, all of which are discretionary in nature. Despite our Department Heads bringing in their operating budgets flat from last year, we are looking at a $1.11 million deficit in the General Fund. To balance the budget would require the elimination of 17 full-time positions, the Gurnee Days fireworks and our Keeping Posted newsletter. We do not believe we can maintain the service levels our residents expect with this strategy. Instead, we are recommending an increase in the Telecommunications Tax from 1% to 6% that would generate an additional $650,000 in revenue for FY 10/11. The Village currently has over $20 million in our General Fund reserves, which is about twice the Village policy. These reserves may be used in the event of a “rainy day.” Due to the prolonged effects of the economic recession, it’s raining. The following table shows projected revenues, expenditures, and the net surplus/(deficit) by fund for the FY 10/11 budget:
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Fund General Fund (101) 911 Fund (203) Motor Fuel Tax (205) Impact Fee (214) Asset Forfeiture (217) 2000 Capital (312) Police Station Construction (315) Capital (304) Bond (410) Special Service Area #2 (423) Golf Course (511) Utility Operating (521) Utility Capital (523) Sub Total Fiduciary Funds Police Pension (707) Fire Pension (708) Sub Total Fiduciary Grand Total
Proposed Revenues FY10/11
Proposed Expenditures FY10/11
Net Surplus / (Deficit)
31,750,800 347,000 837,300 6,650 100 684,100 1,246,200 41,400 150 7350300 21,000 42,285,000
32,217,916 380,600 1,895,000 50,000 2,286,000 1,244,050 41,300 2,000 6,520,061 180,000 44,816,927
(467,116) (33,600) (1,057,700) (43,350) 100 (1,601,900) 2,150 100 (1,850) 830,239 (159,000) (2,531,927)
2,572,700 2,047,000 4,619,700
898,700 639,700 1,538,400
1,674,000 1,407,300 3,081,300
46,904,700
46,355,327
549,373
In FY 09/10, the Village eliminated 13.75 full-time equivalent positions. This year, 3.5 additional vacancies are proposed to be eliminated. This includes two police officer positions and one fire-medic position which have occurred due to attrition. We will review this in greater detail in the Personnel History summary in the Executive Overview. The Village of Gurnee continues to be highly dependent upon sales tax, having eliminated a property tax levy in 2000 in exchange for a 0.5% home rule sale tax. The elimination of a relatively inelastic revenue source for an elastic revenue source supported Village operations while reducing the tax burden on residents for the past nine years. During times of economic prosperity elastic revenues increase. However, the downturn in the economy over the past two years has dramatically impacted the Village’s main revenue source. The economic recession has changed consumer spending, perhaps permanently. This directly impacts the Village’s ability to fund operations, however citizens expect the same level or increased services even though there is a severe economic downturn. Sales Tax revenue for FY 10/11 is estimated at $14.9 million. This is the lowest level Sales Tax revenue has been at since FY 00/01. In fiscal year 08/09, combined sales tax receipts decreased by $1.07 million from the previous year. In addition, despite conservative estimates for FY 09/10, Village management anticipates sales tax revenue to end the year $859,000 under budget. As a result, over the past two fiscal years, the Village’s main revenue source has decreased by nearly $2 million. Regardless of this decrease, we expect to provide existing or increased services.
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REVENUE SUMMARY The budget is prepared on a fund account basis. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The following table presents total revenues by fund for FY 07/08 and FY 08/09 actual, FY 09/10 budget and year end estimates and FY 10/11 proposed budget. Total Revenues by Fund FY07/08 Actual 32,915,227 408,352 1,007,707 481,068 23,915 847 1,503,523 1,290,589 42,679 413 6,056,440 34,942 2,251,260 1,981,054
General Fund 911 Fund Motor Fuel Tax Impact Fee Asset Forfeiture 2000 Capital Police Station Capital Bond Special Service Area #2 Golf Course Utility Operating Utility Capital Police Pension Fire Pension
$
Grand Total
$ 47,998,016
FY08/09
$
Actual 31,760,108 370,707 891,989 35,442 3,650 309 449,420 1,271,092 41,348 113 6,179,495 81,906 252,137 458,213
$ 41,795,928
$
FY09/10 Year End Budget Estimate 31,878,855 $ 30,006,917 344,500 361,203 865,000 880,100 40,000 7,005 100 4,660 25 490,000 1,701,243 1,180,000 1,158,935 42,500 41,250 150 15 5,756,390 5,975,000 70,000 9,900 2,230,000 4,090,750 1,809,000 2,578,086
$ 44,925,105
$ 46,596,479
FY10/11
$
Budget 31,750,800 347,000 837,300 6,650 100 684,100 1,246,200 41,400 150 7,350,300 21,000 2,572,700 2,047,000
$ 46,904,700
$ Change vs. Prior Yr Budget $ (128,055) 2,500 (27,700) (33,350) 194,100 66,200 (1,100) 1,375,300 (49,000) 342,700 238,000 $
1,979,595
% of Prior Yr Budget 100% 101% 97% 17% 100% N/A N/A 140% 106% 97% 100% 123% 30% 115% 113% 104%
Including inter-fund transfers, the Village is projecting a total of $46.9 million in revenues for the FY 10/11. The General Operating fund and the Utility Operating fund are the Village’s two largest funds and receive 83% of all projected revenues. As the Village has abated property tax levies for debt service and pension obligations, the General Operating Fund transfers money to the Bond Debt Service Fund and to Police and Fire Pension Funds. The Village funds operations by levying taxes, imposing fees and fines, and investing income. The listing of the various fees and taxes can be found in Section 8: Comprehensive Fee Schedule of the budget document.
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Revenues by Fund Type
Other Funds 1% Pension Funds 10% General Fund 67%
Bond & SSA Funds 3% Capital & MFT Funds 3% Utility Funds 16%
Total Revenues by Category FY07/08
FY08/09
Actual 22,861,227 1,981,295 6,479,397 7,646,107 659,045 3,048,781 2,497,917 361,767 2,462,480
Taxes Licenses & Permits Intergovernmental Revenue Charges for Services Fines & Forfeitures Investment & Rental Income Contributions Proceeds Other Income (Transfers)
$ $ $ $ $ $ $ $ $
Grand Total
$ 47,998,016
$ $ $ $ $ $ $ $ $
Actual 22,624,889 $ 1,022,441 6,558,240 8,228,800 611,860 (1,524,989) 2,662,098 60,389 1,552,201
$ 41,795,928
FY09/10 Year End Budget Estimate 22,237,400 $ 20,887,396 886,400 703,395 6,992,980 7,671,234 7,769,675 7,840,843 1,028,100 1,442,600 1,781,750 4,512,211 2,797,800 2,271,800 35,000 110,000 1,396,000 1,157,000
$ 44,925,105
$ 46,596,479
FY10/11
$
Budget 21,959,300 1,046,300 6,762,250 9,248,800 1,818,000 1,553,750 3,187,400 35,000 1,293,900
$ 46,904,700
$ Change vs. Prior Yr Budget $ (278,100) 159,900 (230,730) 1,479,125 789,900 (228,000) 389,600 (102,100) $
1,979,595
% of Prior Yr Budget 99% 118% 97% 119% 177% 87% 114% 100% 93% 104%
Taxes: Taxes make up the largest portion of the Village’s revenue sources, estimated at 47% of the total for FY 10/11. While taxes overall are expected to decline 1% compared to the FY 09/10 budget, sales taxes are expected to decrease 5.5%. Auto and retail sales account for the greatest portion of sales tax receipts. Revenues by Category
Other Income (Transfers) 3% Proceeds 0%
Taxes 47%
Contributions 7%
Licenses & Permits 2%
Investment & Rental Income 3% Fines & Forfeitures 4%
Intergovernmental Revenue 14%
Charges for Services 20%
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Licenses and Permits: Licenses and Permits consist of building permits, as well as other licenses such as business, liquor, and vehicle licenses. This category is expected to increase 18% as a result of new development within the Village, most notably a medical facility to be located at the Rollins Road/Route 132 intersection. The facility is expected to be a 2-story, 66,000 square foot medical office building on 7.6 total acres of property. Intergovernmental Revenue: Intergovernmental Revenue includes payments received from the State of Illinois, such as the Village’s share of state income tax and personal property replacement tax. We expect income tax revenue to decline as the economic news repeats the phrase “Jobless Recovery” often, which does not bode well for income taxes. Also included within this category is the Warren-Waukegan Fire Protection District’s payments for fire/paramedic and dispatch services. These payments are budgeted based upon contractual arrangements. Overall, the Intergovernmental category is expected to decline 3%. Charges for Service: Charges for Service are mostly made up of water and sewer sales in the utility operating fund and are estimated to increase 19% compared to the prior year budget. This is mainly a result of a water rate adjustment that became effective January 1, 2010. The rate adjustment from $3.45/1000 gallons to $4.45/1000 gallons was the Village’s first rate adjustment in six years. Fines and Forfeitures: Fines and Forfeiture revenues are generated through items such as parking fines, traffic tickets, alarm fines, liquor license violations, and red light camera violations. Proper accounting requires the Village to charge collection fees to an expense account rather than debiting a revenue account as was done formerly. As a result, management increased the Red Light Camera revenue account by $458,000 and added this same amount to collection expenses within the police department. In total this category is projected to increase 45%. Investment Income: Investment Income is generated from investing the Village’s idle cash balances in securities that allow for the highest return possible without sacrificing safety and liquidity. Please see Section 10: Appendix for a copy of the Village’s Investment Policy. Due to the limited investment vehicles the Village may enter, rates of return are conservatively projected to stay within 1% to 2% on an annualized basis. As a result, this category has been decreased 13% to reflect the dramatic decline in interest rates. Contributions: Contributions, for the most part, are the revenue to the police and fire pension funds generated from the Village’s annual payment to those funds for the employer portion of the liability. Proceeds: Proceeds include insurance settlements and may also include bond proceeds in a year capital financing is accomplished through debt issuance. The Village does not plan on issuing debt in FY 10/11. Transfers: Transfers are the method by which the Village is able to move monies between funds for appropriate expenditures such as debt service.
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GENERAL FUND REVENUE SUMMARY General Fund Revenues FY07/08 Actual 22,820,399 1,386,844 5,513,678 1,872,940 600,335 671,547 12,892 36,592 -
Taxes Licenses & Permits Intergovernmental Revenue Charges for Services Fines & Forfeitures Investment & Rental Income Contributions Proceeds Other Income (Transfers)
$
Grand Total
$ 32,915,227
FY08/09
$
Actual 22,583,971 885,324 5,369,863 2,067,555 551,236 246,372 8,898 46,889 -
$ 31,760,108
$
FY09/10 Year End Budget Estimate 22,195,400 $ 20,846,446 821,400 654,400 5,090,431 5,737,980 1,802,175 1,832,240 978,100 1,388,600 300,000 55,000 8,800 29,800 35,000 110,000 -
$ 31,878,855
$ 30,006,917
FY10/11
$
Budget 21,918,300 830,250 5,294,150 1,828,400 1,762,000 75,000 7,700 35,000 -
$ 31,750,800
$ Change vs. Prior Yr Budget $ (277,100) 8,850 (443,830) 26,225 783,900 (225,000) (1,100) $
(128,055)
% of Prior Yr Budget 99% 101% 92% 101% 180% 25% 88% 100% N/A 100%
As illustrated in the above table, the majority of the general fund revenue is comprised of taxes, including Sales Tax, Amusement Tax, Hotel Tax, and Food & Beverage Tax. The Village is projecting a flat budget compared to FY 09/10 for general fund revenues. The term “flat” is used after adjusting for the increase in Fines and Forfeitures Revenues and corresponding expenditures related to Red Light Camera Collection Fees. The following page provides further analysis of these taxes. Taxes: Taxes, consisting mainly of Sales Tax, Hotel Tax, Amusement Tax, and Food & Beverage Tax make up 68% of General Fund revenue. General Fund Revenues Investment & Rental Income 0%
Contributions 0%
Proceeds 0%
Other Income (Transfers) 0%
Fines & Forfeitures 6% Charges for Services 6%
Intergovernmental Revenue 17%
Taxes 68%
Licenses & Permits 3%
As demonstrated in the following chart, the percent of composition for all revenue sources has not fluctuated dramatically over time.
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General Fund Revenue Composition 35,000,000 Taxes
30,000,000
Intergovernmental 25,000,000 Licenses & Permits 20,000,000
Charges for Services
15,000,000
Interest
10,000,000
Fines & Forfeitures
5,000,000 FY07/08
Contributions, Proceeds & Other FY08/09
FY09/10 Budget
FY10/11 Budget
Sales Tax – Items, except food and drugs and titled property, are subject to a 7.50% sales tax in Gurnee. The 7.50% rate includes a .50% home rule sales tax; the home rule sales tax does not apply to titled property. Sales tax is divided into three categories: retail sales, auto rental tax, and use tax. The auto rental tax is 1% of the gross receipts from renting automobiles. The use tax applies to the privilege of using in the Village tangible personal property purchased at retail from a retailer outside the State of Illinois. Actual statewide sales use tax receipts for fiscal year 08/09 were $14.44 per capita; this was 6.4% higher than fiscal year 07/08. In its October 2009 issue, the Illinois Municipal League revised its estimate for fiscal year 10/11 receipts downward to $12.70 per capita. Sales taxes represent 46.9% of the general fund revenues. The Village’s largest sales tax producer is Gurnee Mills. According to information provided by the Illinois Department of Revenue, 47% of the retail sales tax allocated to the Village of Gurnee for calendar year 2007 was related to general merchandise, apparel, drugs and other retail. Sales taxes potently exhibit the economic malaise; sales taxes declined 4% from 07/08 to 08/09. FY 10/11 sales taxes are projected to equal $14.9 million; this is an $800 thousand decline from the previous year. The revenue projection is made based on the following assumptions: General Fund Tax Revenues
Food & Beverage Tax 7%
Other Taxes 9%
Hotel & Resort Tax 7%
Amusement Tax 9%
Sales & Local Use Tax 68%
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Use tax: The Use Tax rate is assumed to be $12.70 per capita based on the Illinois Municipal League’s projections.
Gurnee Retailers: Harris Bank’s December 2009 Outlook For Financial Markets Newsletter states: “We expect that selective consumers will continue to make discretionary purchases as long as they only require cash. Items that require financing, like automobiles, furniture, appliances and big-ticket electronics will likely disappoint investors, as Americans have little appetite to take on additional debt.” Gurnee is fortunate to enjoy a bevy of major retailers, however, we have to temper the revenue projection with consumer’s reluctance to assume debt for major purchases.
Internet Sales: Illinois residents are required to pay sales tax to the State even when an internet retailer does not collect the sales tax. This process is referred to as a “use” tax rather than a “sales” tax. The moratorium on Internet sales expires on November 2014. Streamlining Legislation is a national effort requiring retailers to collect sales tax according to the rate imposed by the municipality to which an item is delivered. Sales Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
(thousands)
Comparative Sales: Of the seven communities represented below, Gurnee receives the largest amount of sales tax per resident. The Village has benefited from both its strong sales tax base and its ability to levy a home rule sales tax. Communities over 25,000 are considered to be "home rule" by the State of Illinois and, thus, have the option of levying such a tax. In order to provide a consistent comparison, the figures do not include home rule sales tax. Historically, high sales tax revenues meant Gurnee was able to fund village services through a large number of non-residents and residents shopping within its borders.
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State Sales Tax per resident
$76
Grayslake
$136
Mundelein
$142
Lake Forest
$285
Libertyville
$419
Lake Bluff
$514
Vernon Hills
$542
Gurnee $0
$100
$200
$300
$400
$500
$600
Source: State Comptroller Local Government Databases, Fiscal Year 2008, Line 212(t)
Amusement Tax - The Village imposes a 3% tax on net amusement receipts within Village boundaries. The largest amusement tax generator, Six Flags, has experienced stagnating revenues in tandem with the economic slow down. In June 2009 Six Flags filed for bankruptcy, however, this was mostly to restructure debt; the Gurnee location is one of the organization’s highest grossing locations. In addition, Village management is in constant contact with the park’s management to monitor the viability of their operation. Due to these factors, Management has conservatively estimated revenues to be $1.93 million. This is a 2.9% decrease from last year’s budget. Amusement Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$300
$600
$900
$1,200
(thousands)
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$1,500
$1,800
$2,100
Hotel/Resort Tax - The Village imposes a 5% hotel rent tax and a 2% resort tax. Key Lime Cove is the sole payer of the resort tax and, per a contractual agreement, receives a tax rebate from the Village. In addition to Six Flags Chapter 11 filing, Key Lime Park recently filed bankruptcy. Similar to the amusement park, this was mostly to restructure debt. As a result of this and the economic climate, we are tempering our forecast. The FY 10/11 projection for Hotel/Resort Tax is $1.51 million. This is a 1% decrease from FY 09/10.
Hotel/Resort Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$250
$500
$750
$1,000
$1,250
$1,500
$1,750
$2,000
(thousands)
Food and Beverage Tax - This is a 1% tax on the sale at retail of food and alcoholic beverages prepared for immediate consumption. The tax is paid by restaurant customers and submitted to the Village by restaurant owners on a monthly basis. Fortunately, restaurant businesses were not hit as severely by the recession as general retail sales. As a result, total FY 10/11 budgeted revenue is $1.5 million. This is a $110,000 decrease compared to FY 09/10 budget. Food & Beverage Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
(thousands)
Telecommunications Tax - While no new revenue sources are proposed for FY 10/11, the Village is recommending the increase of the Telecommunications Tax from its current rate of 1% to a rate of 6% as allowed under ILCS 636. Per State Statute, municipalities of under 500,000 people may impose up to a 6% telecomm tax on the gross charges for telecommunications to be collected and subsequently
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dispersed by the Illinois Department of Revenue. Both land-based and wireless service providers remit taxes on gross sales. The rate increase is estimated to produce approximately $650 thousand in additional revenue to be used to fund general governmental operations. Other communities in the area that charge a rate of 6% include Antioch, Buffalo Grove, Crystal Lake, Grayslake, Highland Park, Lake Forest, Libertyville, Lindenhurst, Mundelein, Round Lake Beach, Vernon Hills and Waukegan. Other Taxes – Other Taxes include road & bridge tax, cable tax, alarm tax, and foreign fire insurance tax. These in total account for 6% of total taxes, and are expected to increase based on historical averages. Intergovernmental Revenues: Intergovernmental Revenues are comprised primarily of the Village’s share of income taxes and Warren-Waukegan Fire Protection District’s contract payments for fire/rescue services. To prepare the 2010/11 budget for income tax receipts, there are three key elements which we need to make assumptions about:
Population: Income tax receipts are distributed based on the Village’s population. Gurnee’s population is 31,170 (2006 Special Census). We expect the 2010 Census will show a modest increase in population.
Municipality’s share of income tax receipts: Under current law, municipalities are entitled to 1/10th of income tax receipts. This percentage allocation sometimes comes under threat because the State of Illinois has significant budget deficits.
Statewide growth (decline) in income tax receipts: Unfortunately, income is declining. Actual income tax receipts for fiscal year 08/09 were $91.08 per capita; this was 1% lower than fiscal year 07/08. In its October 2009 issue, the Illinois Municipal League revised its estimate for fiscal year 2009/10 receipts downward to $77.00 per capita.
The FY 10/11 income tax revenue budget is equal to $77.00 per capita. Income Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$400
$800
$1,200
$1,600
$2,000
$2,400
$2,800
$3,200
(thousands)
Recent newspaper articles indicate the news regarding income growth is negative. “The U.S. Census Bureau recently reported that American household income is taking its sharpest plunge in the halfcentury the Bureau has been measuring that statistic. Over this year and last, household income is projected to fall almost 9%, after adjusting for inflation.” Source: Governing Magazine, November 2009, page 18.
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The following is a quote from the November 23, 2009 issue of the Wall Street Journal: “Tax collections tumbled 11% across 44 states in the third quarter, according to a report that suggests government revenue will remain depressed long after the economy has recovered from recession. Every major source of state tax revenue – sales, corporate and personal income taxes – fell in the third quarter compared with the same period a year ago, according to a report to be released Monday by the Nelson A. Rockefeller Institute of Government at the State University of New York. The steepest decline was in volatile corporate income taxes, which fell 19.4% across the 44 states surveyed by the Rockefeller Institute. Personal income taxes fell 11.4%, while sales taxes fell 8.2%. With tax receipts heavily dependent on wages and spending, state revenues are expected to continue falling for months or years after the technical end of the recession. . .‘State tax revenues will remain fragile and gloomy at least throughout fiscal years 2010 and 2011.’ said Lucy Dadayan, a senior policy analyst at the Rockefeller Institute. . .Of the 38 states in the report that collect income taxes, all saw revenue declines, and 21 had double-digit percentage declines.” As mentioned earlier, payments from the Warren Waukegan Fire Protection District (WWFPD) are also included in the Intergovernmental revenue category. The Village has a multi-year contract with WWFPD for fire/paramedic and dispatch services, with a contract price of $2.5 million for FY 10/11. Licenses and Permits: Licenses and Permits include building permits, as well as other licenses such as business, liquor, and vehicle licenses. The main revenue source in this category is Building Permits, which must be purchased prior to construction. For FY 10/11, the Village has budgeted $450,000 for building permit revenue; this accounts for over 54% of the License and Permit category total. This revenue source functions in the same manner as the economy (if economic conditions are positive, the revenue is positive, and vice versa). The category is expected to increase 1% to $830 thousand. The 1% increase is a result of a rate adjustment, effective February 16, 2009, to taxi/vehicles for hire licenses. This adjustment is expected to generate an additional $5,600 in FY 10/11. Building Permit revenue is expected to remain nearly flat compared to FY 09/10 at $453 thousand. Charges for Services: This category represents revenues received from services provided by the Village. This includes charges for the parkway tree program, cell tower leases, resident/non-resident ambulance fees and elevator inspections to name a few. Revenue is expected to grow slightly by 1% to $1.82 million. Fines and Forfeitures: Fines and Forfeitures include liquor license violations, DUI impoundment fees, and red light camera violations. This category is expected to increase by 80% to $1.76 million. Part of this increase is due to a change in accounting procedure. Proper accounting requires the Village to charge collection fees to an expense account rather than debiting a revenue account as was done formerly. We increased the Red Light Camera revenue account by $222 thousand and added this same amount to collection expense within the police department. Contributions and Proceeds: Contributions and Proceeds include donations and the sale of miscellaneous assets. The category is increasing over the prior year budget, but is in line with revised year-end estimates, to just under $44 thousand combined. Investment Income: The Village earns interest income on money held in Illinois Funds and in the Illinois Metropolitan Investment Fund, which is an U.S. Treasury mutual fund intended for intermediate
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term funds. We expect interest rates to remain low (Federal Reserve policy rate between 0 - .25%) and the Treasury yield curve to remain steep by historical standards. This view is presented in several business publications including Vanguard Investment Perspectives, Volume 6. Bill Gross, Managing Director of PIMCO’s Total Return Fund, states in the November 2009 Newsletter that “Policymakers (The Fed, the Treasury, the FDIC) recognize that asset prices must be supported in order to generate positive future nominal GDP growth...At the center of U.S. policy support, however, rests the extraordinary low or 0% policy rate. How long the Fed remains there is dependent on the pace of the recovery of nominal GDP as well as the mix of that nominal rate between real growth and inflation. My sense is that nominal GDP must show realistic signs of stabilizing near 4% before the Fed would be willing to risk raising rates. The current embedded cost of U.S. Debt markets is close to 6% and nominal GDP must grow within reach of that level if policy makers are to avoid continuing debt deflation in corporate and household balance sheets. While the U.S. economy will likely approach 4% nominal growth in 2009’s second half, the ability to sustain those levels once inventory rebalancing and fiscal pump-priming effects wear off is debatable. The Fed will likely require 12 – 18 months of 4%+ nominal growth before abandoning the 0% benchmark.” The total 2010/11 budgeted interest income is $75,000. Cash balances are benchmarked against the 91-Day Treasury Bill (“TBill”) yield, which has fallen in conjunction with the Federal Reserve Target Rate.
EXPENDITURE SUMMARY As mentioned in the Revenue Summary, the budget is prepared on a fund account basis. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Total Expenditures by Fund FY07/08 Actual 29,933,235 260,933 745,075 1,000,000 1,854,780 1,248,283 41,128 6,794,565 249,240 601,910 385,778
General Fund 911 Fund Motor Fuel Tax Impact Fee Asset Forfeiture 2000 Capital Police Station Capital Bond Special Service Area #2 Golf Course Utility Operating Utility Capital Police Pension Fire Pension
$
Grand Total
$ 43,114,927
FY08/09
$
Actual 30,369,296 259,615 812,983 70,000 2,685,108 1,254,458 41,246 6,953,873 556,215 826,086 497,589
$ 44,326,469
$
FY09/10 Year End Budget Estimate 31,709,068 $ 30,778,672 487,350 382,951 1,810,000 1,810,400 2,276 1,383,000 1,109,554 1,257,700 1,257,000 41,350 41,300 2,000 6,652,926 6,027,951 455,000 272,740 800,750 839,423 464,450 562,252
$ 45,063,594
$ 43,084,519
FY10/11
$
Budget 32,217,916 380,600 1,895,000 50,000 2,286,000 1,244,050 41,300 2,000 6,520,061 180,000 898,700 639,700
$ 46,355,327
$ Change vs. Prior % of Prior Yr Budget Year Budget $ 509,348 102% (106,750) 78% 85,000 105% 50,000 N/A N/A N/A N/A 903,000 165% (13,650) 99% (50) 100% 100% (132,865) 98% (275,000) 40% 97,950 112% 175,250 138% $ 1,292,233
103%
The Village is projecting a total of $46.4 million in expenditures for FY 10/11, including inter-fund transfers. The funds with the largest expenditures are the General Fund and Utility Operating Fund. These funds account for the Village’s costs of personnel and day-to-day operations. The Motor Fuel Tax, Capital, and Utility Capital Fund account for the Village’s capital expenditures. A chart illustrating the allocation of the funds to the cost center is provided below.
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Budget by Funds
Pension Funds 3%
Other Funds 0%
Bond & SSA Funds 3% Capital & MFT Funds 9% Utility Funds 15%
General Fund 70%
Total Expenditures by Category FY07/08
Salaries & Wages Employee Benefits Personnel Expense Professional Services Contractual Insurance Commodities Utilities Repairs & Maintenance Capital Other / Transfers Grand Total
$ $ $ $ $ $ $ $ $ $ $
Actual 17,483,178 6,348,027 272,562 663,056 1,436,071 388,292 4,584,983 422,146 3,017,187 2,251,972 6,247,453 43,114,927
FY08/09
$ $ $ $ $ $ $ $ $ $ $
Actual 18,468,037 6,218,794 207,002 549,847 1,415,780 380,538 4,287,885 423,098 3,115,874 2,656,658 6,602,956 44,326,469
FY10/11
FY09/10
$ $ $ $ $ $ $ $ $ $ $
Budget 18,693,140 7,787,058 284,870 681,090 1,423,326 404,860 5,177,515 487,300 2,850,685 2,193,000 5,080,750 45,063,594
$ $ $ $ $ $ $ $ $ $ $
Year End Estimate 18,484,107 7,699,652 230,992 796,046 1,264,328 401,896 4,324,444 445,829 2,613,378 1,824,422 4,999,425 43,084,519
$ $ $ $ $ $ $ $ $ $ $
Budget 19,244,121 8,314,399 226,949 1,876,370 1,616,960 312,820 4,502,973 462,275 2,635,710 2,587,450 4,575,300 46,355,327
$ Change vs. Prior Yr Budget $ 550,981 527,341 (57,921) 1,195,280 193,634 (92,040) (674,542) (25,025) (214,975) 394,450 (505,450) 1,292,233
% of Prior Year Budget 103% 107% 80% 275% 114% 77% 87% 95% 92% 118% 90% 103%
Costs associated with personnel, including salaries & wages, employee benefits, and personnel expenses account for 59% overall expenditures in the FY 10/11 budget. Salaries & Wages: The majority of the Village’s personnel are covered by union contracts, which drive the budgeting process related to compensation increases, as well as fringe benefits. Three of the four union contracts expire on April 30, 2010, including the Fraternal Order of Police, Midwest Operating Engineers Local 150 Administrative Unit, and Midwest Operating Engineers 150 Public Works Unit. The International Association of Firefighters (IAFF) union contract expires April 30, 2011.
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Total Budget by Category (All Funds)
Salary, Benefits & Personnel 59%
Debt, Transfers & Other 10%
Repairs, Maint. & Capital 11% Commodities & Utilities 11% Insurance 1% Professional Serv. & Contracts 8%
Employees covered by Midwest Operating Engineers Local 150 include Public Works, Fire Inspectors, the majority of Community Development staff, and half of the Administration staff. Fraternal Order of Police (FOP) and Illinois Council of Police (ICOP) contracts cover most of the sworn personnel in the Police Department. The International Association of Firefighters (IAFF) contract covers most of the sworn personnel in the Fire Department. More detail on individual departmental salary and wages assumptions may be found in Section 5: Budget Summary. Employee Benefits: This category includes insurance and pension benefits, as well as items such as wellness programs, tuition reimbursement, and auto allowances. The Village has two separate medical insurance programs for its employees. Local 150 employees receive health insurance coverage through their union membership, while the rest of the Village’s full-time employees are part of the Village’s selfinsurance program managed by a third party administrator, Allied Benefit Systems. Based on the health insurance rates in other Local 150 contracts, a 10% increase was assumed. The Village will receive updated Local 150 insurance rates for FY 10/11 after negotiations begin. The self-funded plan is expected to have a 10% increase on the date of renewal (January 1, 2011), an annualized increase of 6.67%. Pensions: The Village has three separate pension programs for full-time employees, the single-employer Police and Fire Pension Plans – which are accounted for separately as fiduciary funds – and the Illinois Municipal Retirement Pension Plan (IMRF), a multi-employer plan for local government employees. The 2010 IMRF employer contribution rate is 11.55% compared to 10.36% in 2009. Lump sum employer contributions are made to both the police and fire pensions based upon an independent actuarial calculation. The calculations are made based upon the most recently audited fiscal year ending April 30, 2009. Investment returns were -6.04% for police and -4.86% for fire. The funding level decreased from 69% to 61% and from 78% to 67% for police and fire respectively. Therefore, the lump-sum employer contribution for FY10/11 increased from $1,007,857 to $1,270,674 ($262,817 or 26.1%) for police, and from $894,658 to $1,071,935 ($177,277 or 19.8%) for fire. The Village funds these contributions from alternative revenue sources and fund balance in lieu of a property tax levy.
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Personnel Expense: Personnel Expense includes costs associated with employment screening and training. This category has decreased as employee testing has been reduced in FY 10/11. Professional Services: Professional Services cover costs such as legal services and auditors. The category has increased as mentioned earlier related to Ambulance Billing and Red Light Camera program account adjustments, as well as a result of budgeting for a water rate study in the Utility Operating Fund. Contractual: The Contractual category covers those items for which outside vendors provide services. These assumptions are provided in more detail on a departmental level in the Budget Summary section. Insurance: The Village budgets for liability, automobile, and property insurance within the Insurance (35) category, and workers’’ compensation insurance is budgeted in the Benefits (20) category. Currently, the Village obtains this insurance coverage through the MICA (Municipal Insurance Cooperative Agency) pool. While actual renewal rates were not known at the time of budget compilation, based on prior experience and information from the pool the Village is assuming a 10% decrease effective May 1, 2010 for an overall premium totaling $1.25 million. This includes coverage for workers’ compensation, liability, automobile, and property insurance. The formula for allocation is as follows: 33% exposure and 66% experience. The exposure element is made up by such things as bond rating, revenue streams, etc. The experience is based upon actual claims processed. Allocation of the insurance premium by insurance coverage type is based upon the average claims paid out by MICA over a four year period. Workers’’ compensation is by far the largest component, making up 76% of the total premium, followed by auto at 12%, liability at 8% and lastly property at 4%. Further, the insurance is spread across Departments based upon the following: property based upon insurable value (i.e. replacement cost of a water pumping station), auto by number/value of cars, liability by headcount and exposure risk (i.e. likelihood of lawsuit or malpractice claim), and workers’’ compensation based upon gross workers’ compensation paid during the prior four years. Using this allocation method rewards those Departments who have preformed well in the areas of risk management and safety, while at the same time giving those who have had poor claims experience an incentive to work towards. Commodities: Commodities are tangible items such as parts and supplies, ice control materials, and the purchase of water from the Central Lake County Joint Action Water Commission. The stabilization of fuel and salt prices, as well as a decrease in water purchase based on recent history has helped reduce expenditures in this category. Utilities: Utilities cover resources the Village uses for operations including street lighting and waste removal. Repairs and Maintenance: Repairs and Maintenance include costs associated with extending the useful life of the Village’s assets. Capital: Capital expenditures include investments in assets that usually have useful life of five years or more, such as vehicles, and may also include land acquisition and construction projects. The increase in the category is a result of the Cemetery Road widening project. Other Income / Transfers: Lastly, Other Income / Transfers include transfers among funds as well as debt service payments and tax rebate programs. Further detail on these categories is provided on a departmental level in Section 5: Budget Summary. In addition, large-scale capital projects funded from
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the capital improvement, motor fuel tax, and utility surplus funds are discussed in the Section 6: Capital Improvement Budget Summary.
GENERAL FUND EXPENDITURE SUMMARY General Fund 101 FY07/08
Salaries & Wages (10) Employee Benefits (20) Personnel Expense (25) Professional Services (30) Contractual (32) Insurance (35) Commodities (40) Utilities (45) Repairs & Maintenance (50) Capital (70) Debt Service (90 - 94) Inter/Intra Fund (95) Other Financing Uses (98)
Actual $ 15,698,911 5,970,701 251,383 494,349 1,312,397 316,303 1,244,890 288,279 728,298 590,392 (173,785) 3,211,117 $ 29,933,235
FY08/09
$
$
$
$ $
Actual 16,351,273 5,737,914 184,720 480,204 1,288,452 307,453 967,581 286,377 874,245 596,314 (173,667) 3,468,430 30,369,296
$
$
$
$ $
FY09/10 Year End Budget Estimate 16,623,240 $ 16,222,339 7,310,338 7,229,412 251,375 213,083 410,390 $ 582,736 1,275,076 1,137,473 327,375 325,735 1,246,565 1,007,339 340,700 307,636 906,759 $ 834,377 293,900 275,592 (149,400) (147,600) 2,872,750 $ 2,790,550 31,709,068 $ 30,778,672
FY10/11
$
$
$
$ $
$ Change vs. Prior Budget Yr Budget 16,823,971 $ 200,731 7,720,638 410,300 197,029 (54,346) 941,470 531,080 1,230,330 (44,746) 265,720 (61,655) 1,018,373 (227,692) 320,275 (20,425) 897,710 (9,049) 263,200 (30,700) (160,800) (11,400) 2,700,000 (172,750) 32,217,916 $ 509,348
% of Prior Year Budget 101% 106% 78% 229% 96% 81% 82% 94% 99% 90% N/A 108% 94% 102%
Details for each individual department’s budget request may be found in Section 5: Budget Summary. Departments included in the general fund are: Administration, Community Development, Fire, Police, and Public Works. In addition, a summary is provided for the Contingency cost center that accounts for debt service transfers, tax sharing agreements, and other unique expenditures not otherwise applicable to a single department. The Public Works Utility operations are funded from the Utility Fund and are included in their departmental budget summary. The Departmental Budgets serve as a framework in which the managers operate. In addition to the budgetary restrictions, the Village also operates under purchasing limits that serve to ensure the most competitive pricing for goods and services. Please see the Section 10: Appendix for a copy of the Village’s Purchasing Policy. General Fund Budget
Salary, Benefits & Personnel 76%
Debt, Transfers & Other 8%
Repairs, Maint. & Capital 4% Commodities & Utilities 4% Insurance 1% Professional Serv. & Contracts 7%
The Village is projecting a 2% increase versus last year’s General Fund budget, for a total of $32.2 million. As was previously mentioned, much of this increase is a result of changes in accounting procedures related to the Paramedic Billing program and Red Light Camera program. The expenditures were offset by an accompanying increase in revenue. Costs associated with the Village’s personnel constitute 76% of the general fund budget. The majority of the Village’s employees are covered by union contracts. Three of four of these contracts will be renegotiated effective May 1, 2010.
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The Expenditure Summary section discusses the Village’s two medical insurance plans for full-time employees, workers’ compensation and other insurance program costs. Assumptions specific to each department’s employee make-up are provided for in the Budget Summary section of this document. Great efforts were made to reduce spending to bring the General Fund budget in below last year’s budget. This includes not only reductions in personnel, but also program cuts. Salaries and Wages/Employee Benefits: The Salaries & Wages (10) and Employee Benefits (20) categories account for the majority of the costs related to the Village’s workforce. Overall, these categories are expected to increase 1% and 6% respectively. This can be attributed to compensation assumptions, current collective bargaining agreements, and pension contributions to name a few. The Personnel Expense (25) category is budgeted 22% under FY 09/10, mainly due to a reduction of Personnel Testing in the Police and Fire Departments. Professional Services: Professional Services (30) increased $521,080 compared to the prior fiscal year. Actual increases were $72,000 for the Paramedic Billing program and $456,000 for the Red Light Camera program. This was due to a change in accounting procedure. The expenditures were offset by an accompanying increase in revenue. Contractual: The Contractual (32) category is decreasing by 4%, or $44,746, compared to FY 09/10. This is mainly a result of cost reduction measures implemented across the majority of Departments. The Public Works Department’s Street Signal line item and Police Department’s Administrative Hearing Officer line item increased. Insurance: The Village budgets for liability, automobile, and property insurance within the Insurance (35) category, and workers’ compensation insurance is budgeted in the Benefits (20) category. Currently, the Village obtains this insurance coverage through the MICA (Municipal Insurance Cooperative Agency) pool. While actual renewal rates are not known at the time of budget compilation, the Village is assuming a 10% decrease effective May 1, 2010 for an overall premium totaling $1.25 million. This includes coverage for workers’ compensation, liability, automobile, and property insurance. It should be noted that Workers’ Compensation Insurance, which accounts for 76% of the total premium, is charged to the Employee Benefits (20) category. Commodities: Commodities (40) covers expenses related to fuel, ice control products, maintenance supplies, etc…The category is decreasing 18%, mainly as a result of favorable fuel and salt prices. Fuel savings can be seen across all Village Departments as prices have stabilized. In addition, salt prices have returned to around $64 per ton, compared to the $140 per ton experienced a few years back. The Village also anticipates having some salt on-hand at the end of the 09/10 winter season, therefore allowing the Village to reduce this line item. Utility: The Utility (45) category accounts for expenses related to telephone service, leased phone lines, natural gas, and sewage fees. The category has been reduced based on prior year spending. Repairs & Maintenance: Repairs & Maintenance (50) includes computer, auto, radio, building and equipment maintenance to name a few areas. Overall, the category is flat compared to FY 09/10.
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Capital: The Capital (70) category is decreasing 10%, or $30,700, compared to FY 09/10 as the decline in revenues has reduced the Village’s ability to replace aging stock. As a result, more emphasis will be placed on preventative maintenance and refurbishment versus replacement. Department level details for all of these categories may be found in Section 5: Budget Summary. Agreements to rebate funds to automobile dealers ended December 31, 2010. Each year, the general fund transfers money to the bond debt service fund; this is done in lieu of a property tax levy.
PERSONNEL HISTORY The Village’s budgeted full-time equivalents (FTEs) are proposed at 210 for the FY 10/11. This is an overall decrease of 7.3% since FY 07/08. Specific details on headcount and staffing changes for each department may be found in Section 5: Budget Summary. Full Time Equivalents * Administration Admin - Information Systems Comm Dev - Planning / Building Comm Dev - Engineering Police Police - Communications Fire Pub Works - Streets Pub Works - Vehicle Maint. Pub Works - Utility
FY07/08
FY08/09
9.00 4.00 12.25 8.75 83.50 13.00 57.25 21.50 3.00 14.50 226.75
FY09/10
9.00 4.00 12.25 8.75 83.50 13.00 57.25 21.50 3.00 14.50 226.75
8.50 4.00 9.50 7.50 80.00 13.50 54.00 17.50 4.00 13.50 212.00
FY10/11
Change
8.50 4.00 9.50 7.50 78.00 13.50 53.00 17.00 4.00 13.50 208.50
(2.00) (1.00) (0.50) (3.50)
* Does not include elected or board appointed positions.
The Village of Gurnee continues to focus the majority of its personnel in the area of public safety, with 69% of all FTEs concentrated in Public Safety.
FTEs by Function
Administration 6%
Community Development 8%
Public Works 17%
Public Safety 69%
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DEBT POSITION From time-to-time, the Village may use the issuance of long-term debt to further the Village’s Capital Improvement Program. Long-term debt is used only for capital projects that cannot be financed from current revenue sources. The Village accounts for repayment of long-term debt in the bond fund, special service area fund, and the utility fund. Below is a chart depicting the principal and interest currently outstanding on the Village’s bonds.
Debt Service Schedule by Fiscal Year $1,400,000
$1,200,000
$1,000,000 2009 Refunding $800,000
2004 Refunding
Special Service Area #2
$600,000
2002 Police Station
$400,000
$200,000
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20 -2 02 1 20
19 -2 02 0 20
18 -2 01 9 20
17 -2 01 8 20
16 -2 01 7 20
15 -2 01 6 20
14 -2 01 5 20
13 -2 01 4 20
12 -2 01 3 20
11 -2 01 2 20
20
10 -2 01 1
$-
The Village has no plans to issue new debt as part of this year’s budget plan. The Village, a home-rule community, adopted via a Debt Policy the threshold set forth by State Statutes for non-home rule municipal limitation of the amount of debt that may be legally incurred. The limitation set by the Statute is 8.625% of the most recent Equalized Assessed Valuation (EAV) of the Real Estate in the corporate boundaries of the Village. As of April 30, 2009, the Village’s ratio of General Obligation Bonded Debt to EAV was 0.67%. This continues the Village’s historical trend of low debt ratios. In December 2009, the Village issued General Obligation Series 2009 and refunded Series 2002B. This enabled the Village to take advantage of historically low interest rates. Please see Section 10: Appendix for a copy of the Village’s Debt Policy. Ratio of General Obligation Debt to EAV 10.00%
8.625% Legal Debt Limit 7.50%
5.00%
2.50% 1.38%
1.14%
0.92%
0.77%
0.67%
FY 06/07
FY 07/08
FY 08/09
0.00% FY 04/05
FY 05/06
FUND BALANCE PROJECTION BY FUND The revenues and expenditures, including inter-fund transfers, proposed for FY 10/11, are projected to increase Village’s net cash position by approximately $343 thousand to $72.4 million. This is prepared on a cash basis and does not account for depreciation. These adjustments are made as part of the annual audit process at fiscal year end. If the police and fire pension funds are removed, the Village’s cash position is projected to decrease $2.7 million, from $33.3 million at May 1, 2010 to $30.6 million at April 30, 2011.
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Fund General (101) 911 (203) Motor Fuel Tax (205) Impact Fee (214) Asset Forfeiture (217) 2000 Capital (312) Police Station Construction (315) Capital (304) Bond (410) Special Service Area #2 (423) Golf Course (511) Utility Operating (521) Utility Capital (523) Police Pension (707) Fire Pension (708) Grand Total
Projected Unrestricted Fund Balance May 1, 2010 20,666,217 960,007 2,067,105 2,480,829 55,446 2,888,301 1,261,551 (50) 10,123 (4,713,525) 7,649,543 22,270,309 16,455,440 72,051,296
Budget Revenues FY10/11
Budget Expenditures FY10/11
31,750,800 347,000 837,300 6,650 100 684,100 1,246,200 41,400 150 7,350,300 21,000 2,572,700 2,047,000
32,217,916 380,600 1,895,000 50,000 2,286,000 1,244,050 41,300 2,000 6,520,061 180,000 898,700 639,700
46,904,700
46,355,327
Net Surplus / (Deficit) (467,116) (33,600) (1,057,700) (43,350) 100 (1,601,900) 2,150 100 (1,850) 830,239 (159,000) 1,674,000 1,407,300 549,373
Projected Unrestricted Fund Balance April 30, 2011 20,199,101 926,407 1,009,405 2,437,479 55,546 1,286,401 1,263,701 50 8,273 (3,883,286) 7,490,543 23,944,309 17,862,740 72,600,669
The General Fund is projected to stay above $20 million. In accordance with the Village’s adopted General Corporate Fund Balance Policy, an unreserved fund balance for the general fund should, at a minimum, equal 35% of the subsequent fiscal year’s expenditures. As a result, the Village must maintain an unreserved balance of approximately $15 million, any amount below that requires Village Board notification. Village Management is confident that we will be able to adhere to that policy during the upcoming fiscal year. Please see the Appendix for a copy of the Village’s General Corporate Fund Balance Policy. The overall decline in fund balances is mostly attributed to a purposeful spend-down of unrestricted fund balance in the General, Motor Fuel Tax, and Capital Funds. The Village has proposed using approximately $650 thousand in General Fund reserves to balance the FY 10/11 budget. As a result of the economic turndown, the Village’s main revenue sources, all of which are directly tied to consumer spending, are ending FY 09/10 under budgeted amounts and are not expected to rebound in FY 10/11. While great efforts have been made on the expenditure side to offset the declining revenues, management feels it is appropriate at this time to use rainy day funds. The spend down in the Motor Fuel Tax Fund can be attributed to both Street Surfacing Maintenance and the Cemetery Road widening project. The Cemetery Road project also accounts for the majority of the expense in the Capital Improvement Fund.
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EngagE
PrEsErvE
advancE
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EXECUTIVE OVERVIEW The Village of Gurnee’s Fiscal Year (FY) 2010/2011 budget of $47 million was prepared consistent with the Village’s primary financial goal – the preservation of the highest possible services provided to our citizens, visitors, and businesses while keeping taxation and other charges at the lowest possible level. The budget enables the provision of services in the areas of administration, public works, building inspection, civil engineering, urban planning / zoning, police protection, and fire prevention. In light of the prolonged economic recession, cuts in positions, programs, and capital investments will be necessary to balance the general fund budget. This will be the tenth consecutive year the Village does not levy a property tax. Further detail on the Village’s budget proposal is provided on the following pages. It is the intention of Village management to continue offering services at the highest possible level even with these budget reductions. The budget is designed to serve the following four major purposes: To define policy, as promulgated by the Village Board; To serve as an operating guide for management staff to aid in the control of financial resources, while complying with generally accepted accounting principles for government; To present the Village’s financial plan for the fiscal year, illustrating expenditures and projected revenues by which the budget is funded; and To serve as a communication document for the citizens of Gurnee who wish to understand how the Village operates and the methods used to finance those operations. It is always our goal to have a balanced budget and not increase taxes. However, this is the second consecutive year that the economic recession has severely impacted our key revenue sources, all of which are discretionary in nature. Despite our Department Heads bringing in their operating budgets flat from last year, we are looking at a $1.11 million deficit in the General Fund. To balance the budget would require the elimination of 17 full-time positions, the Gurnee Days fireworks and our Keeping Posted newsletter. We do not believe we can maintain the service levels our residents expect with this strategy. Instead, we are recommending an increase in the Telecommunications Tax from 1% to 6% that would generate an additional $650,000 in revenue for FY 10/11. The Village currently has over $20 million in our General Fund reserves, which is about twice the Village policy. These reserves may be used in the event of a “rainy day.” Due to the prolonged effects of the economic recession, it’s raining. The following table shows projected revenues, expenditures, and the net surplus/(deficit) by fund for the FY 10/11 budget:
Page 1
Fund General Fund (101) 911 Fund (203) Motor Fuel Tax (205) Impact Fee (214) Asset Forfeiture (217) 2000 Capital (312) Police Station Construction (315) Capital (304) Bond (410) Special Service Area #2 (423) Golf Course (511) Utility Operating (521) Utility Capital (523) Sub Total Fiduciary Funds Police Pension (707) Fire Pension (708) Sub Total Fiduciary Grand Total
Proposed Revenues FY10/11
Proposed Expenditures FY10/11
Net Surplus / (Deficit)
31,750,800 347,000 837,300 6,650 100 684,100 1,246,200 41,400 150 7350300 21,000 42,285,000
32,217,916 380,600 1,895,000 50,000 2,286,000 1,244,050 41,300 2,000 6,520,061 180,000 44,816,927
(467,116) (33,600) (1,057,700) (43,350) 100 (1,601,900) 2,150 100 (1,850) 830,239 (159,000) (2,531,927)
2,572,700 2,047,000 4,619,700
898,700 639,700 1,538,400
1,674,000 1,407,300 3,081,300
46,904,700
46,355,327
549,373
In FY 09/10, the Village eliminated 13.75 full-time equivalent positions. This year, 3.5 additional vacancies are proposed to be eliminated. This includes two police officer positions and one fire-medic position which have occurred due to attrition. We will review this in greater detail in the Personnel History summary in the Executive Overview. The Village of Gurnee continues to be highly dependent upon sales tax, having eliminated a property tax levy in 2000 in exchange for a 0.5% home rule sale tax. The elimination of a relatively inelastic revenue source for an elastic revenue source supported Village operations while reducing the tax burden on residents for the past nine years. During times of economic prosperity elastic revenues increase. However, the downturn in the economy over the past two years has dramatically impacted the Village’s main revenue source. The economic recession has changed consumer spending, perhaps permanently. This directly impacts the Village’s ability to fund operations, however citizens expect the same level or increased services even though there is a severe economic downturn. Sales Tax revenue for FY 10/11 is estimated at $14.9 million. This is the lowest level Sales Tax revenue has been at since FY 00/01. In fiscal year 08/09, combined sales tax receipts decreased by $1.07 million from the previous year. In addition, despite conservative estimates for FY 09/10, Village management anticipates sales tax revenue to end the year $859,000 under budget. As a result, over the past two fiscal years, the Village’s main revenue source has decreased by nearly $2 million. Regardless of this decrease, we expect to provide existing or increased services.
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REVENUE SUMMARY The budget is prepared on a fund account basis. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The following table presents total revenues by fund for FY 07/08 and FY 08/09 actual, FY 09/10 budget and year end estimates and FY 10/11 proposed budget. Total Revenues by Fund FY07/08 Actual 32,915,227 408,352 1,007,707 481,068 23,915 847 1,503,523 1,290,589 42,679 413 6,056,440 34,942 2,251,260 1,981,054
General Fund 911 Fund Motor Fuel Tax Impact Fee Asset Forfeiture 2000 Capital Police Station Capital Bond Special Service Area #2 Golf Course Utility Operating Utility Capital Police Pension Fire Pension
$
Grand Total
$ 47,998,016
FY08/09
$
Actual 31,760,108 370,707 891,989 35,442 3,650 309 449,420 1,271,092 41,348 113 6,179,495 81,906 252,137 458,213
$ 41,795,928
$
FY09/10 Year End Budget Estimate 31,878,855 $ 30,006,917 344,500 361,203 865,000 880,100 40,000 7,005 100 4,660 25 490,000 1,701,243 1,180,000 1,158,935 42,500 41,250 150 15 5,756,390 5,975,000 70,000 9,900 2,230,000 4,090,750 1,809,000 2,578,086
$ 44,925,105
$ 46,596,479
FY10/11
$
Budget 31,750,800 347,000 837,300 6,650 100 684,100 1,246,200 41,400 150 7,350,300 21,000 2,572,700 2,047,000
$ 46,904,700
$ Change vs. Prior Yr Budget $ (128,055) 2,500 (27,700) (33,350) 194,100 66,200 (1,100) 1,375,300 (49,000) 342,700 238,000 $
1,979,595
% of Prior Yr Budget 100% 101% 97% 17% 100% N/A N/A 140% 106% 97% 100% 123% 30% 115% 113% 104%
Including inter-fund transfers, the Village is projecting a total of $46.9 million in revenues for the FY 10/11. The General Operating fund and the Utility Operating fund are the Village’s two largest funds and receive 83% of all projected revenues. As the Village has abated property tax levies for debt service and pension obligations, the General Operating Fund transfers money to the Bond Debt Service Fund and to Police and Fire Pension Funds. The Village funds operations by levying taxes, imposing fees and fines, and investing income. The listing of the various fees and taxes can be found in Section 8: Comprehensive Fee Schedule of the budget document.
Page 3
Revenues by Fund Type
Other Funds 1% Pension Funds 10% General Fund 67%
Bond & SSA Funds 3% Capital & MFT Funds 3% Utility Funds 16%
Total Revenues by Category FY07/08
FY08/09
Actual 22,861,227 1,981,295 6,479,397 7,646,107 659,045 3,048,781 2,497,917 361,767 2,462,480
Taxes Licenses & Permits Intergovernmental Revenue Charges for Services Fines & Forfeitures Investment & Rental Income Contributions Proceeds Other Income (Transfers)
$ $ $ $ $ $ $ $ $
Grand Total
$ 47,998,016
$ $ $ $ $ $ $ $ $
Actual 22,624,889 $ 1,022,441 6,558,240 8,228,800 611,860 (1,524,989) 2,662,098 60,389 1,552,201
$ 41,795,928
FY09/10 Year End Budget Estimate 22,237,400 $ 20,887,396 886,400 703,395 6,992,980 7,671,234 7,769,675 7,840,843 1,028,100 1,442,600 1,781,750 4,512,211 2,797,800 2,271,800 35,000 110,000 1,396,000 1,157,000
$ 44,925,105
$ 46,596,479
FY10/11
$
Budget 21,959,300 1,046,300 6,762,250 9,248,800 1,818,000 1,553,750 3,187,400 35,000 1,293,900
$ 46,904,700
$ Change vs. Prior Yr Budget $ (278,100) 159,900 (230,730) 1,479,125 789,900 (228,000) 389,600 (102,100) $
1,979,595
% of Prior Yr Budget 99% 118% 97% 119% 177% 87% 114% 100% 93% 104%
Taxes: Taxes make up the largest portion of the Village’s revenue sources, estimated at 47% of the total for FY 10/11. While taxes overall are expected to decline 1% compared to the FY 09/10 budget, sales taxes are expected to decrease 5.5%. Auto and retail sales account for the greatest portion of sales tax receipts. Revenues by Category
Other Income (Transfers) 3% Proceeds 0%
Taxes 47%
Contributions 7%
Licenses & Permits 2%
Investment & Rental Income 3% Fines & Forfeitures 4%
Intergovernmental Revenue 14%
Charges for Services 20%
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Licenses and Permits: Licenses and Permits consist of building permits, as well as other licenses such as business, liquor, and vehicle licenses. This category is expected to increase 18% as a result of new development within the Village, most notably a medical facility to be located at the Rollins Road/Route 132 intersection. The facility is expected to be a 2-story, 66,000 square foot medical office building on 7.6 total acres of property. Intergovernmental Revenue: Intergovernmental Revenue includes payments received from the State of Illinois, such as the Village’s share of state income tax and personal property replacement tax. We expect income tax revenue to decline as the economic news repeats the phrase “Jobless Recovery” often, which does not bode well for income taxes. Also included within this category is the Warren-Waukegan Fire Protection District’s payments for fire/paramedic and dispatch services. These payments are budgeted based upon contractual arrangements. Overall, the Intergovernmental category is expected to decline 3%. Charges for Service: Charges for Service are mostly made up of water and sewer sales in the utility operating fund and are estimated to increase 19% compared to the prior year budget. This is mainly a result of a water rate adjustment that became effective January 1, 2010. The rate adjustment from $3.45/1000 gallons to $4.45/1000 gallons was the Village’s first rate adjustment in six years. Fines and Forfeitures: Fines and Forfeiture revenues are generated through items such as parking fines, traffic tickets, alarm fines, liquor license violations, and red light camera violations. Proper accounting requires the Village to charge collection fees to an expense account rather than debiting a revenue account as was done formerly. As a result, management increased the Red Light Camera revenue account by $458,000 and added this same amount to collection expenses within the police department. In total this category is projected to increase 45%. Investment Income: Investment Income is generated from investing the Village’s idle cash balances in securities that allow for the highest return possible without sacrificing safety and liquidity. Please see Section 10: Appendix for a copy of the Village’s Investment Policy. Due to the limited investment vehicles the Village may enter, rates of return are conservatively projected to stay within 1% to 2% on an annualized basis. As a result, this category has been decreased 13% to reflect the dramatic decline in interest rates. Contributions: Contributions, for the most part, are the revenue to the police and fire pension funds generated from the Village’s annual payment to those funds for the employer portion of the liability. Proceeds: Proceeds include insurance settlements and may also include bond proceeds in a year capital financing is accomplished through debt issuance. The Village does not plan on issuing debt in FY 10/11. Transfers: Transfers are the method by which the Village is able to move monies between funds for appropriate expenditures such as debt service.
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GENERAL FUND REVENUE SUMMARY General Fund Revenues FY07/08 Actual 22,820,399 1,386,844 5,513,678 1,872,940 600,335 671,547 12,892 36,592 -
Taxes Licenses & Permits Intergovernmental Revenue Charges for Services Fines & Forfeitures Investment & Rental Income Contributions Proceeds Other Income (Transfers)
$
Grand Total
$ 32,915,227
FY08/09
$
Actual 22,583,971 885,324 5,369,863 2,067,555 551,236 246,372 8,898 46,889 -
$ 31,760,108
$
FY09/10 Year End Budget Estimate 22,195,400 $ 20,846,446 821,400 654,400 5,090,431 5,737,980 1,802,175 1,832,240 978,100 1,388,600 300,000 55,000 8,800 29,800 35,000 110,000 -
$ 31,878,855
$ 30,006,917
FY10/11
$
Budget 21,918,300 830,250 5,294,150 1,828,400 1,762,000 75,000 7,700 35,000 -
$ 31,750,800
$ Change vs. Prior Yr Budget $ (277,100) 8,850 (443,830) 26,225 783,900 (225,000) (1,100) $
(128,055)
% of Prior Yr Budget 99% 101% 92% 101% 180% 25% 88% 100% N/A 100%
As illustrated in the above table, the majority of the general fund revenue is comprised of taxes, including Sales Tax, Amusement Tax, Hotel Tax, and Food & Beverage Tax. The Village is projecting a flat budget compared to FY 09/10 for general fund revenues. The term “flat” is used after adjusting for the increase in Fines and Forfeitures Revenues and corresponding expenditures related to Red Light Camera Collection Fees. The following page provides further analysis of these taxes. Taxes: Taxes, consisting mainly of Sales Tax, Hotel Tax, Amusement Tax, and Food & Beverage Tax make up 68% of General Fund revenue. General Fund Revenues Investment & Rental Income 0%
Contributions 0%
Proceeds 0%
Other Income (Transfers) 0%
Fines & Forfeitures 6% Charges for Services 6%
Intergovernmental Revenue 17%
Taxes 68%
Licenses & Permits 3%
As demonstrated in the following chart, the percent of composition for all revenue sources has not fluctuated dramatically over time.
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General Fund Revenue Composition 35,000,000 Taxes
30,000,000
Intergovernmental 25,000,000 Licenses & Permits 20,000,000
Charges for Services
15,000,000
Interest
10,000,000
Fines & Forfeitures
5,000,000 FY07/08
Contributions, Proceeds & Other FY08/09
FY09/10 Budget
FY10/11 Budget
Sales Tax – Items, except food and drugs and titled property, are subject to a 7.50% sales tax in Gurnee. The 7.50% rate includes a .50% home rule sales tax; the home rule sales tax does not apply to titled property. Sales tax is divided into three categories: retail sales, auto rental tax, and use tax. The auto rental tax is 1% of the gross receipts from renting automobiles. The use tax applies to the privilege of using in the Village tangible personal property purchased at retail from a retailer outside the State of Illinois. Actual statewide sales use tax receipts for fiscal year 08/09 were $14.44 per capita; this was 6.4% higher than fiscal year 07/08. In its October 2009 issue, the Illinois Municipal League revised its estimate for fiscal year 10/11 receipts downward to $12.70 per capita. Sales taxes represent 46.9% of the general fund revenues. The Village’s largest sales tax producer is Gurnee Mills. According to information provided by the Illinois Department of Revenue, 47% of the retail sales tax allocated to the Village of Gurnee for calendar year 2007 was related to general merchandise, apparel, drugs and other retail. Sales taxes potently exhibit the economic malaise; sales taxes declined 4% from 07/08 to 08/09. FY 10/11 sales taxes are projected to equal $14.9 million; this is an $800 thousand decline from the previous year. The revenue projection is made based on the following assumptions: General Fund Tax Revenues
Food & Beverage Tax 7%
Other Taxes 9%
Hotel & Resort Tax 7%
Amusement Tax 9%
Sales & Local Use Tax 68%
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Use tax: The Use Tax rate is assumed to be $12.70 per capita based on the Illinois Municipal League’s projections.
Gurnee Retailers: Harris Bank’s December 2009 Outlook For Financial Markets Newsletter states: “We expect that selective consumers will continue to make discretionary purchases as long as they only require cash. Items that require financing, like automobiles, furniture, appliances and big-ticket electronics will likely disappoint investors, as Americans have little appetite to take on additional debt.” Gurnee is fortunate to enjoy a bevy of major retailers, however, we have to temper the revenue projection with consumer’s reluctance to assume debt for major purchases.
Internet Sales: Illinois residents are required to pay sales tax to the State even when an internet retailer does not collect the sales tax. This process is referred to as a “use” tax rather than a “sales” tax. The moratorium on Internet sales expires on November 2014. Streamlining Legislation is a national effort requiring retailers to collect sales tax according to the rate imposed by the municipality to which an item is delivered. Sales Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
(thousands)
Comparative Sales: Of the seven communities represented below, Gurnee receives the largest amount of sales tax per resident. The Village has benefited from both its strong sales tax base and its ability to levy a home rule sales tax. Communities over 25,000 are considered to be "home rule" by the State of Illinois and, thus, have the option of levying such a tax. In order to provide a consistent comparison, the figures do not include home rule sales tax. Historically, high sales tax revenues meant Gurnee was able to fund village services through a large number of non-residents and residents shopping within its borders.
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State Sales Tax per resident
$76
Grayslake
$136
Mundelein
$142
Lake Forest
$285
Libertyville
$419
Lake Bluff
$514
Vernon Hills
$542
Gurnee $0
$100
$200
$300
$400
$500
$600
Source: State Comptroller Local Government Databases, Fiscal Year 2008, Line 212(t)
Amusement Tax - The Village imposes a 3% tax on net amusement receipts within Village boundaries. The largest amusement tax generator, Six Flags, has experienced stagnating revenues in tandem with the economic slow down. In June 2009 Six Flags filed for bankruptcy, however, this was mostly to restructure debt; the Gurnee location is one of the organization’s highest grossing locations. In addition, Village management is in constant contact with the park’s management to monitor the viability of their operation. Due to these factors, Management has conservatively estimated revenues to be $1.93 million. This is a 2.9% decrease from last year’s budget. Amusement Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$300
$600
$900
$1,200
(thousands)
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$1,500
$1,800
$2,100
Hotel/Resort Tax - The Village imposes a 5% hotel rent tax and a 2% resort tax. Key Lime Cove is the sole payer of the resort tax and, per a contractual agreement, receives a tax rebate from the Village. In addition to Six Flags Chapter 11 filing, Key Lime Park recently filed bankruptcy. Similar to the amusement park, this was mostly to restructure debt. As a result of this and the economic climate, we are tempering our forecast. The FY 10/11 projection for Hotel/Resort Tax is $1.51 million. This is a 1% decrease from FY 09/10.
Hotel/Resort Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$250
$500
$750
$1,000
$1,250
$1,500
$1,750
$2,000
(thousands)
Food and Beverage Tax - This is a 1% tax on the sale at retail of food and alcoholic beverages prepared for immediate consumption. The tax is paid by restaurant customers and submitted to the Village by restaurant owners on a monthly basis. Fortunately, restaurant businesses were not hit as severely by the recession as general retail sales. As a result, total FY 10/11 budgeted revenue is $1.5 million. This is a $110,000 decrease compared to FY 09/10 budget. Food & Beverage Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
(thousands)
Telecommunications Tax - While no new revenue sources are proposed for FY 10/11, the Village is recommending the increase of the Telecommunications Tax from its current rate of 1% to a rate of 6% as allowed under ILCS 636. Per State Statute, municipalities of under 500,000 people may impose up to a 6% telecomm tax on the gross charges for telecommunications to be collected and subsequently
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dispersed by the Illinois Department of Revenue. Both land-based and wireless service providers remit taxes on gross sales. The rate increase is estimated to produce approximately $650 thousand in additional revenue to be used to fund general governmental operations. Other communities in the area that charge a rate of 6% include Antioch, Buffalo Grove, Crystal Lake, Grayslake, Highland Park, Lake Forest, Libertyville, Lindenhurst, Mundelein, Round Lake Beach, Vernon Hills and Waukegan. Other Taxes – Other Taxes include road & bridge tax, cable tax, alarm tax, and foreign fire insurance tax. These in total account for 6% of total taxes, and are expected to increase based on historical averages. Intergovernmental Revenues: Intergovernmental Revenues are comprised primarily of the Village’s share of income taxes and Warren-Waukegan Fire Protection District’s contract payments for fire/rescue services. To prepare the 2010/11 budget for income tax receipts, there are three key elements which we need to make assumptions about:
Population: Income tax receipts are distributed based on the Village’s population. Gurnee’s population is 31,170 (2006 Special Census). We expect the 2010 Census will show a modest increase in population.
Municipality’s share of income tax receipts: Under current law, municipalities are entitled to 1/10th of income tax receipts. This percentage allocation sometimes comes under threat because the State of Illinois has significant budget deficits.
Statewide growth (decline) in income tax receipts: Unfortunately, income is declining. Actual income tax receipts for fiscal year 08/09 were $91.08 per capita; this was 1% lower than fiscal year 07/08. In its October 2009 issue, the Illinois Municipal League revised its estimate for fiscal year 2009/10 receipts downward to $77.00 per capita.
The FY 10/11 income tax revenue budget is equal to $77.00 per capita. Income Tax
FY10/11 Budget
FY09/10 Year End
FY09/10 Budget
FY08/09
FY07/08 $0
$400
$800
$1,200
$1,600
$2,000
$2,400
$2,800
$3,200
(thousands)
Recent newspaper articles indicate the news regarding income growth is negative. “The U.S. Census Bureau recently reported that American household income is taking its sharpest plunge in the halfcentury the Bureau has been measuring that statistic. Over this year and last, household income is projected to fall almost 9%, after adjusting for inflation.” Source: Governing Magazine, November 2009, page 18.
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The following is a quote from the November 23, 2009 issue of the Wall Street Journal: “Tax collections tumbled 11% across 44 states in the third quarter, according to a report that suggests government revenue will remain depressed long after the economy has recovered from recession. Every major source of state tax revenue – sales, corporate and personal income taxes – fell in the third quarter compared with the same period a year ago, according to a report to be released Monday by the Nelson A. Rockefeller Institute of Government at the State University of New York. The steepest decline was in volatile corporate income taxes, which fell 19.4% across the 44 states surveyed by the Rockefeller Institute. Personal income taxes fell 11.4%, while sales taxes fell 8.2%. With tax receipts heavily dependent on wages and spending, state revenues are expected to continue falling for months or years after the technical end of the recession. . .‘State tax revenues will remain fragile and gloomy at least throughout fiscal years 2010 and 2011.’ said Lucy Dadayan, a senior policy analyst at the Rockefeller Institute. . .Of the 38 states in the report that collect income taxes, all saw revenue declines, and 21 had double-digit percentage declines.” As mentioned earlier, payments from the Warren Waukegan Fire Protection District (WWFPD) are also included in the Intergovernmental revenue category. The Village has a multi-year contract with WWFPD for fire/paramedic and dispatch services, with a contract price of $2.5 million for FY 10/11. Licenses and Permits: Licenses and Permits include building permits, as well as other licenses such as business, liquor, and vehicle licenses. The main revenue source in this category is Building Permits, which must be purchased prior to construction. For FY 10/11, the Village has budgeted $450,000 for building permit revenue; this accounts for over 54% of the License and Permit category total. This revenue source functions in the same manner as the economy (if economic conditions are positive, the revenue is positive, and vice versa). The category is expected to increase 1% to $830 thousand. The 1% increase is a result of a rate adjustment, effective February 16, 2009, to taxi/vehicles for hire licenses. This adjustment is expected to generate an additional $5,600 in FY 10/11. Building Permit revenue is expected to remain nearly flat compared to FY 09/10 at $453 thousand. Charges for Services: This category represents revenues received from services provided by the Village. This includes charges for the parkway tree program, cell tower leases, resident/non-resident ambulance fees and elevator inspections to name a few. Revenue is expected to grow slightly by 1% to $1.82 million. Fines and Forfeitures: Fines and Forfeitures include liquor license violations, DUI impoundment fees, and red light camera violations. This category is expected to increase by 80% to $1.76 million. Part of this increase is due to a change in accounting procedure. Proper accounting requires the Village to charge collection fees to an expense account rather than debiting a revenue account as was done formerly. We increased the Red Light Camera revenue account by $222 thousand and added this same amount to collection expense within the police department. Contributions and Proceeds: Contributions and Proceeds include donations and the sale of miscellaneous assets. The category is increasing over the prior year budget, but is in line with revised year-end estimates, to just under $44 thousand combined. Investment Income: The Village earns interest income on money held in Illinois Funds and in the Illinois Metropolitan Investment Fund, which is an U.S. Treasury mutual fund intended for intermediate
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term funds. We expect interest rates to remain low (Federal Reserve policy rate between 0 - .25%) and the Treasury yield curve to remain steep by historical standards. This view is presented in several business publications including Vanguard Investment Perspectives, Volume 6. Bill Gross, Managing Director of PIMCO’s Total Return Fund, states in the November 2009 Newsletter that “Policymakers (The Fed, the Treasury, the FDIC) recognize that asset prices must be supported in order to generate positive future nominal GDP growth...At the center of U.S. policy support, however, rests the extraordinary low or 0% policy rate. How long the Fed remains there is dependent on the pace of the recovery of nominal GDP as well as the mix of that nominal rate between real growth and inflation. My sense is that nominal GDP must show realistic signs of stabilizing near 4% before the Fed would be willing to risk raising rates. The current embedded cost of U.S. Debt markets is close to 6% and nominal GDP must grow within reach of that level if policy makers are to avoid continuing debt deflation in corporate and household balance sheets. While the U.S. economy will likely approach 4% nominal growth in 2009’s second half, the ability to sustain those levels once inventory rebalancing and fiscal pump-priming effects wear off is debatable. The Fed will likely require 12 – 18 months of 4%+ nominal growth before abandoning the 0% benchmark.” The total 2010/11 budgeted interest income is $75,000. Cash balances are benchmarked against the 91-Day Treasury Bill (“TBill”) yield, which has fallen in conjunction with the Federal Reserve Target Rate.
EXPENDITURE SUMMARY As mentioned in the Revenue Summary, the budget is prepared on a fund account basis. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Total Expenditures by Fund FY07/08 Actual 29,933,235 260,933 745,075 1,000,000 1,854,780 1,248,283 41,128 6,794,565 249,240 601,910 385,778
General Fund 911 Fund Motor Fuel Tax Impact Fee Asset Forfeiture 2000 Capital Police Station Capital Bond Special Service Area #2 Golf Course Utility Operating Utility Capital Police Pension Fire Pension
$
Grand Total
$ 43,114,927
FY08/09
$
Actual 30,369,296 259,615 812,983 70,000 2,685,108 1,254,458 41,246 6,953,873 556,215 826,086 497,589
$ 44,326,469
$
FY09/10 Year End Budget Estimate 31,709,068 $ 30,778,672 487,350 382,951 1,810,000 1,810,400 2,276 1,383,000 1,109,554 1,257,700 1,257,000 41,350 41,300 2,000 6,652,926 6,027,951 455,000 272,740 800,750 839,423 464,450 562,252
$ 45,063,594
$ 43,084,519
FY10/11
$
Budget 32,217,916 380,600 1,895,000 50,000 2,286,000 1,244,050 41,300 2,000 6,520,061 180,000 898,700 639,700
$ 46,355,327
$ Change vs. Prior % of Prior Yr Budget Year Budget $ 509,348 102% (106,750) 78% 85,000 105% 50,000 N/A N/A N/A N/A 903,000 165% (13,650) 99% (50) 100% 100% (132,865) 98% (275,000) 40% 97,950 112% 175,250 138% $ 1,292,233
103%
The Village is projecting a total of $46.4 million in expenditures for FY 10/11, including inter-fund transfers. The funds with the largest expenditures are the General Fund and Utility Operating Fund. These funds account for the Village’s costs of personnel and day-to-day operations. The Motor Fuel Tax, Capital, and Utility Capital Fund account for the Village’s capital expenditures. A chart illustrating the allocation of the funds to the cost center is provided below.
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Budget by Funds
Pension Funds 3%
Other Funds 0%
Bond & SSA Funds 3% Capital & MFT Funds 9% Utility Funds 15%
General Fund 70%
Total Expenditures by Category FY07/08
Salaries & Wages Employee Benefits Personnel Expense Professional Services Contractual Insurance Commodities Utilities Repairs & Maintenance Capital Other / Transfers Grand Total
$ $ $ $ $ $ $ $ $ $ $
Actual 17,483,178 6,348,027 272,562 663,056 1,436,071 388,292 4,584,983 422,146 3,017,187 2,251,972 6,247,453 43,114,927
FY08/09
$ $ $ $ $ $ $ $ $ $ $
Actual 18,468,037 6,218,794 207,002 549,847 1,415,780 380,538 4,287,885 423,098 3,115,874 2,656,658 6,602,956 44,326,469
FY10/11
FY09/10
$ $ $ $ $ $ $ $ $ $ $
Budget 18,693,140 7,787,058 284,870 681,090 1,423,326 404,860 5,177,515 487,300 2,850,685 2,193,000 5,080,750 45,063,594
$ $ $ $ $ $ $ $ $ $ $
Year End Estimate 18,484,107 7,699,652 230,992 796,046 1,264,328 401,896 4,324,444 445,829 2,613,378 1,824,422 4,999,425 43,084,519
$ $ $ $ $ $ $ $ $ $ $
Budget 19,244,121 8,314,399 226,949 1,876,370 1,616,960 312,820 4,502,973 462,275 2,635,710 2,587,450 4,575,300 46,355,327
$ Change vs. Prior Yr Budget $ 550,981 527,341 (57,921) 1,195,280 193,634 (92,040) (674,542) (25,025) (214,975) 394,450 (505,450) 1,292,233
% of Prior Year Budget 103% 107% 80% 275% 114% 77% 87% 95% 92% 118% 90% 103%
Costs associated with personnel, including salaries & wages, employee benefits, and personnel expenses account for 59% overall expenditures in the FY 10/11 budget. Salaries & Wages: The majority of the Village’s personnel are covered by union contracts, which drive the budgeting process related to compensation increases, as well as fringe benefits. Three of the four union contracts expire on April 30, 2010, including the Fraternal Order of Police, Midwest Operating Engineers Local 150 Administrative Unit, and Midwest Operating Engineers 150 Public Works Unit. The International Association of Firefighters (IAFF) union contract expires April 30, 2011.
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Total Budget by Category (All Funds)
Salary, Benefits & Personnel 59%
Debt, Transfers & Other 10%
Repairs, Maint. & Capital 11% Commodities & Utilities 11% Insurance 1% Professional Serv. & Contracts 8%
Employees covered by Midwest Operating Engineers Local 150 include Public Works, Fire Inspectors, the majority of Community Development staff, and half of the Administration staff. Fraternal Order of Police (FOP) and Illinois Council of Police (ICOP) contracts cover most of the sworn personnel in the Police Department. The International Association of Firefighters (IAFF) contract covers most of the sworn personnel in the Fire Department. More detail on individual departmental salary and wages assumptions may be found in Section 5: Budget Summary. Employee Benefits: This category includes insurance and pension benefits, as well as items such as wellness programs, tuition reimbursement, and auto allowances. The Village has two separate medical insurance programs for its employees. Local 150 employees receive health insurance coverage through their union membership, while the rest of the Village’s full-time employees are part of the Village’s selfinsurance program managed by a third party administrator, Allied Benefit Systems. Based on the health insurance rates in other Local 150 contracts, a 10% increase was assumed. The Village will receive updated Local 150 insurance rates for FY 10/11 after negotiations begin. The self-funded plan is expected to have a 10% increase on the date of renewal (January 1, 2011), an annualized increase of 6.67%. Pensions: The Village has three separate pension programs for full-time employees, the single-employer Police and Fire Pension Plans – which are accounted for separately as fiduciary funds – and the Illinois Municipal Retirement Pension Plan (IMRF), a multi-employer plan for local government employees. The 2010 IMRF employer contribution rate is 11.55% compared to 10.36% in 2009. Lump sum employer contributions are made to both the police and fire pensions based upon an independent actuarial calculation. The calculations are made based upon the most recently audited fiscal year ending April 30, 2009. Investment returns were -6.04% for police and -4.86% for fire. The funding level decreased from 69% to 61% and from 78% to 67% for police and fire respectively. Therefore, the lump-sum employer contribution for FY10/11 increased from $1,007,857 to $1,270,674 ($262,817 or 26.1%) for police, and from $894,658 to $1,071,935 ($177,277 or 19.8%) for fire. The Village funds these contributions from alternative revenue sources and fund balance in lieu of a property tax levy.
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Personnel Expense: Personnel Expense includes costs associated with employment screening and training. This category has decreased as employee testing has been reduced in FY 10/11. Professional Services: Professional Services cover costs such as legal services and auditors. The category has increased as mentioned earlier related to Ambulance Billing and Red Light Camera program account adjustments, as well as a result of budgeting for a water rate study in the Utility Operating Fund. Contractual: The Contractual category covers those items for which outside vendors provide services. These assumptions are provided in more detail on a departmental level in the Budget Summary section. Insurance: The Village budgets for liability, automobile, and property insurance within the Insurance (35) category, and workers’’ compensation insurance is budgeted in the Benefits (20) category. Currently, the Village obtains this insurance coverage through the MICA (Municipal Insurance Cooperative Agency) pool. While actual renewal rates were not known at the time of budget compilation, based on prior experience and information from the pool the Village is assuming a 10% decrease effective May 1, 2010 for an overall premium totaling $1.25 million. This includes coverage for workers’ compensation, liability, automobile, and property insurance. The formula for allocation is as follows: 33% exposure and 66% experience. The exposure element is made up by such things as bond rating, revenue streams, etc. The experience is based upon actual claims processed. Allocation of the insurance premium by insurance coverage type is based upon the average claims paid out by MICA over a four year period. Workers’’ compensation is by far the largest component, making up 76% of the total premium, followed by auto at 12%, liability at 8% and lastly property at 4%. Further, the insurance is spread across Departments based upon the following: property based upon insurable value (i.e. replacement cost of a water pumping station), auto by number/value of cars, liability by headcount and exposure risk (i.e. likelihood of lawsuit or malpractice claim), and workers’’ compensation based upon gross workers’ compensation paid during the prior four years. Using this allocation method rewards those Departments who have preformed well in the areas of risk management and safety, while at the same time giving those who have had poor claims experience an incentive to work towards. Commodities: Commodities are tangible items such as parts and supplies, ice control materials, and the purchase of water from the Central Lake County Joint Action Water Commission. The stabilization of fuel and salt prices, as well as a decrease in water purchase based on recent history has helped reduce expenditures in this category. Utilities: Utilities cover resources the Village uses for operations including street lighting and waste removal. Repairs and Maintenance: Repairs and Maintenance include costs associated with extending the useful life of the Village’s assets. Capital: Capital expenditures include investments in assets that usually have useful life of five years or more, such as vehicles, and may also include land acquisition and construction projects. The increase in the category is a result of the Cemetery Road widening project. Other Income / Transfers: Lastly, Other Income / Transfers include transfers among funds as well as debt service payments and tax rebate programs. Further detail on these categories is provided on a departmental level in Section 5: Budget Summary. In addition, large-scale capital projects funded from
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the capital improvement, motor fuel tax, and utility surplus funds are discussed in the Section 6: Capital Improvement Budget Summary.
GENERAL FUND EXPENDITURE SUMMARY General Fund 101 FY07/08
Salaries & Wages (10) Employee Benefits (20) Personnel Expense (25) Professional Services (30) Contractual (32) Insurance (35) Commodities (40) Utilities (45) Repairs & Maintenance (50) Capital (70) Debt Service (90 - 94) Inter/Intra Fund (95) Other Financing Uses (98)
Actual $ 15,698,911 5,970,701 251,383 494,349 1,312,397 316,303 1,244,890 288,279 728,298 590,392 (173,785) 3,211,117 $ 29,933,235
FY08/09
$
$
$
$ $
Actual 16,351,273 5,737,914 184,720 480,204 1,288,452 307,453 967,581 286,377 874,245 596,314 (173,667) 3,468,430 30,369,296
$
$
$
$ $
FY09/10 Year End Budget Estimate 16,623,240 $ 16,222,339 7,310,338 7,229,412 251,375 213,083 410,390 $ 582,736 1,275,076 1,137,473 327,375 325,735 1,246,565 1,007,339 340,700 307,636 906,759 $ 834,377 293,900 275,592 (149,400) (147,600) 2,872,750 $ 2,790,550 31,709,068 $ 30,778,672
FY10/11
$
$
$
$ $
$ Change vs. Prior Budget Yr Budget 16,823,971 $ 200,731 7,720,638 410,300 197,029 (54,346) 941,470 531,080 1,230,330 (44,746) 265,720 (61,655) 1,018,373 (227,692) 320,275 (20,425) 897,710 (9,049) 263,200 (30,700) (160,800) (11,400) 2,700,000 (172,750) 32,217,916 $ 509,348
% of Prior Year Budget 101% 106% 78% 229% 96% 81% 82% 94% 99% 90% N/A 108% 94% 102%
Details for each individual department’s budget request may be found in Section 5: Budget Summary. Departments included in the general fund are: Administration, Community Development, Fire, Police, and Public Works. In addition, a summary is provided for the Contingency cost center that accounts for debt service transfers, tax sharing agreements, and other unique expenditures not otherwise applicable to a single department. The Public Works Utility operations are funded from the Utility Fund and are included in their departmental budget summary. The Departmental Budgets serve as a framework in which the managers operate. In addition to the budgetary restrictions, the Village also operates under purchasing limits that serve to ensure the most competitive pricing for goods and services. Please see the Section 10: Appendix for a copy of the Village’s Purchasing Policy. General Fund Budget
Salary, Benefits & Personnel 76%
Debt, Transfers & Other 8%
Repairs, Maint. & Capital 4% Commodities & Utilities 4% Insurance 1% Professional Serv. & Contracts 7%
The Village is projecting a 2% increase versus last year’s General Fund budget, for a total of $32.2 million. As was previously mentioned, much of this increase is a result of changes in accounting procedures related to the Paramedic Billing program and Red Light Camera program. The expenditures were offset by an accompanying increase in revenue. Costs associated with the Village’s personnel constitute 76% of the general fund budget. The majority of the Village’s employees are covered by union contracts. Three of four of these contracts will be renegotiated effective May 1, 2010.
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The Expenditure Summary section discusses the Village’s two medical insurance plans for full-time employees, workers’ compensation and other insurance program costs. Assumptions specific to each department’s employee make-up are provided for in the Budget Summary section of this document. Great efforts were made to reduce spending to bring the General Fund budget in below last year’s budget. This includes not only reductions in personnel, but also program cuts. Salaries and Wages/Employee Benefits: The Salaries & Wages (10) and Employee Benefits (20) categories account for the majority of the costs related to the Village’s workforce. Overall, these categories are expected to increase 1% and 6% respectively. This can be attributed to compensation assumptions, current collective bargaining agreements, and pension contributions to name a few. The Personnel Expense (25) category is budgeted 22% under FY 09/10, mainly due to a reduction of Personnel Testing in the Police and Fire Departments. Professional Services: Professional Services (30) increased $521,080 compared to the prior fiscal year. Actual increases were $72,000 for the Paramedic Billing program and $456,000 for the Red Light Camera program. This was due to a change in accounting procedure. The expenditures were offset by an accompanying increase in revenue. Contractual: The Contractual (32) category is decreasing by 4%, or $44,746, compared to FY 09/10. This is mainly a result of cost reduction measures implemented across the majority of Departments. The Public Works Department’s Street Signal line item and Police Department’s Administrative Hearing Officer line item increased. Insurance: The Village budgets for liability, automobile, and property insurance within the Insurance (35) category, and workers’ compensation insurance is budgeted in the Benefits (20) category. Currently, the Village obtains this insurance coverage through the MICA (Municipal Insurance Cooperative Agency) pool. While actual renewal rates are not known at the time of budget compilation, the Village is assuming a 10% decrease effective May 1, 2010 for an overall premium totaling $1.25 million. This includes coverage for workers’ compensation, liability, automobile, and property insurance. It should be noted that Workers’ Compensation Insurance, which accounts for 76% of the total premium, is charged to the Employee Benefits (20) category. Commodities: Commodities (40) covers expenses related to fuel, ice control products, maintenance supplies, etc…The category is decreasing 18%, mainly as a result of favorable fuel and salt prices. Fuel savings can be seen across all Village Departments as prices have stabilized. In addition, salt prices have returned to around $64 per ton, compared to the $140 per ton experienced a few years back. The Village also anticipates having some salt on-hand at the end of the 09/10 winter season, therefore allowing the Village to reduce this line item. Utility: The Utility (45) category accounts for expenses related to telephone service, leased phone lines, natural gas, and sewage fees. The category has been reduced based on prior year spending. Repairs & Maintenance: Repairs & Maintenance (50) includes computer, auto, radio, building and equipment maintenance to name a few areas. Overall, the category is flat compared to FY 09/10.
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Capital: The Capital (70) category is decreasing 10%, or $30,700, compared to FY 09/10 as the decline in revenues has reduced the Village’s ability to replace aging stock. As a result, more emphasis will be placed on preventative maintenance and refurbishment versus replacement. Department level details for all of these categories may be found in Section 5: Budget Summary. Agreements to rebate funds to automobile dealers ended December 31, 2010. Each year, the general fund transfers money to the bond debt service fund; this is done in lieu of a property tax levy.
PERSONNEL HISTORY The Village’s budgeted full-time equivalents (FTEs) are proposed at 210 for the FY 10/11. This is an overall decrease of 7.3% since FY 07/08. Specific details on headcount and staffing changes for each department may be found in Section 5: Budget Summary. Full Time Equivalents * Administration Admin - Information Systems Comm Dev - Planning / Building Comm Dev - Engineering Police Police - Communications Fire Pub Works - Streets Pub Works - Vehicle Maint. Pub Works - Utility
FY07/08
FY08/09
9.00 4.00 12.25 8.75 83.50 13.00 57.25 21.50 3.00 14.50 226.75
FY09/10
9.00 4.00 12.25 8.75 83.50 13.00 57.25 21.50 3.00 14.50 226.75
8.50 4.00 9.50 7.50 80.00 13.50 54.00 17.50 4.00 13.50 212.00
FY10/11
Change
8.50 4.00 9.50 7.50 78.00 13.50 53.00 17.00 4.00 13.50 208.50
(2.00) (1.00) (0.50) (3.50)
* Does not include elected or board appointed positions.
The Village of Gurnee continues to focus the majority of its personnel in the area of public safety, with 69% of all FTEs concentrated in Public Safety.
FTEs by Function
Administration 6%
Community Development 8%
Public Works 17%
Public Safety 69%
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DEBT POSITION From time-to-time, the Village may use the issuance of long-term debt to further the Village’s Capital Improvement Program. Long-term debt is used only for capital projects that cannot be financed from current revenue sources. The Village accounts for repayment of long-term debt in the bond fund, special service area fund, and the utility fund. Below is a chart depicting the principal and interest currently outstanding on the Village’s bonds.
Debt Service Schedule by Fiscal Year $1,400,000
$1,200,000
$1,000,000 2009 Refunding $800,000
2004 Refunding
Special Service Area #2
$600,000
2002 Police Station
$400,000
$200,000
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20 -2 02 1 20
19 -2 02 0 20
18 -2 01 9 20
17 -2 01 8 20
16 -2 01 7 20
15 -2 01 6 20
14 -2 01 5 20
13 -2 01 4 20
12 -2 01 3 20
11 -2 01 2 20
20
10 -2 01 1
$-
The Village has no plans to issue new debt as part of this year’s budget plan. The Village, a home-rule community, adopted via a Debt Policy the threshold set forth by State Statutes for non-home rule municipal limitation of the amount of debt that may be legally incurred. The limitation set by the Statute is 8.625% of the most recent Equalized Assessed Valuation (EAV) of the Real Estate in the corporate boundaries of the Village. As of April 30, 2009, the Village’s ratio of General Obligation Bonded Debt to EAV was 0.67%. This continues the Village’s historical trend of low debt ratios. In December 2009, the Village issued General Obligation Series 2009 and refunded Series 2002B. This enabled the Village to take advantage of historically low interest rates. Please see Section 10: Appendix for a copy of the Village’s Debt Policy. Ratio of General Obligation Debt to EAV 10.00%
8.625% Legal Debt Limit 7.50%
5.00%
2.50% 1.38%
1.14%
0.92%
0.77%
0.67%
FY 06/07
FY 07/08
FY 08/09
0.00% FY 04/05
FY 05/06
FUND BALANCE PROJECTION BY FUND The revenues and expenditures, including inter-fund transfers, proposed for FY 10/11, are projected to increase Village’s net cash position by approximately $343 thousand to $72.4 million. This is prepared on a cash basis and does not account for depreciation. These adjustments are made as part of the annual audit process at fiscal year end. If the police and fire pension funds are removed, the Village’s cash position is projected to decrease $2.7 million, from $33.3 million at May 1, 2010 to $30.6 million at April 30, 2011.
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Fund General (101) 911 (203) Motor Fuel Tax (205) Impact Fee (214) Asset Forfeiture (217) 2000 Capital (312) Police Station Construction (315) Capital (304) Bond (410) Special Service Area #2 (423) Golf Course (511) Utility Operating (521) Utility Capital (523) Police Pension (707) Fire Pension (708) Grand Total
Projected Unrestricted Fund Balance May 1, 2010 20,666,217 960,007 2,067,105 2,480,829 55,446 2,888,301 1,261,551 (50) 10,123 (4,713,525) 7,649,543 22,270,309 16,455,440 72,051,296
Budget Revenues FY10/11
Budget Expenditures FY10/11
31,750,800 347,000 837,300 6,650 100 684,100 1,246,200 41,400 150 7,350,300 21,000 2,572,700 2,047,000
32,217,916 380,600 1,895,000 50,000 2,286,000 1,244,050 41,300 2,000 6,520,061 180,000 898,700 639,700
46,904,700
46,355,327
Net Surplus / (Deficit) (467,116) (33,600) (1,057,700) (43,350) 100 (1,601,900) 2,150 100 (1,850) 830,239 (159,000) 1,674,000 1,407,300 549,373
Projected Unrestricted Fund Balance April 30, 2011 20,199,101 926,407 1,009,405 2,437,479 55,546 1,286,401 1,263,701 50 8,273 (3,883,286) 7,490,543 23,944,309 17,862,740 72,600,669
The General Fund is projected to stay above $20 million. In accordance with the Village’s adopted General Corporate Fund Balance Policy, an unreserved fund balance for the general fund should, at a minimum, equal 35% of the subsequent fiscal year’s expenditures. As a result, the Village must maintain an unreserved balance of approximately $15 million, any amount below that requires Village Board notification. Village Management is confident that we will be able to adhere to that policy during the upcoming fiscal year. Please see the Appendix for a copy of the Village’s General Corporate Fund Balance Policy. The overall decline in fund balances is mostly attributed to a purposeful spend-down of unrestricted fund balance in the General, Motor Fuel Tax, and Capital Funds. The Village has proposed using approximately $650 thousand in General Fund reserves to balance the FY 10/11 budget. As a result of the economic turndown, the Village’s main revenue sources, all of which are directly tied to consumer spending, are ending FY 09/10 under budgeted amounts and are not expected to rebound in FY 10/11. While great efforts have been made on the expenditure side to offset the declining revenues, management feels it is appropriate at this time to use rainy day funds. The spend down in the Motor Fuel Tax Fund can be attributed to both Street Surfacing Maintenance and the Cemetery Road widening project. The Cemetery Road project also accounts for the majority of the expense in the Capital Improvement Fund.
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