City leaders: Naperville needs new financial plan

  • Faced with increasing budget challenges, Naperville is considering implementing a 1 percent home rule sales tax along with an increase in its monthly fee for garbage and recycling service.

    Faced with increasing budget challenges, Naperville is considering implementing a 1 percent home rule sales tax along with an increase in its monthly fee for garbage and recycling service. Bev Horne/bhorne@dailyherald.

  • Naperville is considering implementing a 1 percent home rule sales tax to offset a looming budget deficit.

      Naperville is considering implementing a 1 percent home rule sales tax to offset a looming budget deficit. Bev Horne | Staff Photographer

 
 
Updated 7/27/2015 6:26 PM

It's time for a new financial strategy in the state's fifth-largest city, Naperville officials say.

A decadelong practice of using reserves built during the city's phase of fast growth to fill budget gaps and limit borrowing can't continue, they say, because reserves are now $18 million below required levels.

 

"That strategy worked great and we knew it wasn't going to last forever," City Manager Doug Krieger said about the process of spending down reserves, which began in 2002 and continued until this year. "It actually lasted longer than we thought it would, but now is the time where it isn't going to work anymore because we don't have excess cash."

The city has $74.2 million in reserves, but in order to meet the balance requirements for each account, it would need $92.5 million. That's a difference of $18.3 million.

In addition to the deficit in required reserves, the city could face an operating budget deficit between about $5 million and $7 million for its next budget if changes are not made.

That would be about the same budget gap the city faced the past two years, only now, reserves aren't available to plug the hole.

In short, the city of Naperville needs money.

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Officials have two main ideas to get it: adding a 1 percent home rule sales tax and increasing the monthly fee for garbage and recycling service from $2 to $12.35.

In three new financial principles staff members are asking the city council to approve, Naperville would commit to passing a budget balanced without using reserves each year; to maintaining service levels by passing along the cost to households and businesses; and to seeking to reduce its $164 million in debt by 25 percent -- or $40 million -- in four years.

Finance Director Rachel Mayer said the plan is designed to show credit ratings agencies who so far have maintained Naperville's AAA bond rating, despite recent negative comments, that city leaders have a plan to move forward without depending on reserves.

"We need to create a financial plan that will not just last a single year, but a good plan or strategy that will last multiple years," Krieger said.

                                                                                                                                                                                                                       
 

The city council will start discussing the plan during a workshop at 7 p.m. Monday in the municipal center, 400 S. Eagle St.

Sales tax time?

Illinois home-rule municipalities with at least 25,000 residents have been allowed to tack on their own sales tax since at least 1970, Naperville officials say.

"We haven't leveraged our home rule sales tax to date," Mayer said. "It might be time to consider that because we are not seeing the year-over-year growth in our revenues."

Not implementing a sales tax has given Naperville businesses an advantage, especially over companies in Cook County suburbs and Chicago, where the tax rate was raised to as high as 10 percent or 10.25 percent.

Naperville's total tax rate stands at 7.25 percent.

"We're three percent less and that's a pretty substantial business edge. I don't think we want to lose our edge," said Christine Jeffries, president of the Naperville Development Partnership. "We are pretty much the last home-rule community not to have a home-rule sales tax."

Adding a 1 percent home-rule sales tax wouldn't jeopardize the lower sales tax that sets Naperville apart, Krieger said.

"There's a lot of room for us to implement a home rule sales tax and still maintain a competitive advantage," he said.

With a 1 percent increase, Naperville's tax rate would be 8.25 percent. The rate could drop to 8 percent in June 2016, when a .25 percent tax from the DuPage Water Commission is set to expire.

Naperville Area Chamber of Commerce members don't look favorably upon a 1 percent home-rule sales tax, President and CEO Nicki Anderson said.

"Right now we're not going to support the proposal," Anderson said.

Each quarter-percent tax the city adds is projected to generate $4.5 million a year. A full percent would provide $18.1 million a year to put toward paying down debt and decreasing future borrowing, which historically has stood around $14 million a year.

Any rate more than .5 percent would be too high, Jeffries said.

"We think there's probably a good argument for why maybe some new revenues are needed," she said. "That's unusual for a group like ours, who are fiscally conservative, but we also believe the city does a good job with the money they have. For all of these years, the easy way out would have been to raise home rule sales tax years ago and they have not done that."

If the city wants to add a sales tax on Jan. 1, 2016, officials would need to notify the state by Oct. 1.

Revenue from the tax would make its way to the city on roughly a three-month delay, Mayer said. So the earliest Naperville could see money from a new sales tax would be next April.

Higher garbage fees?

Naperville homeowners are charged $2 a month to have garbage and recycling hauled away. The service actually costs $12.35. The remaining $10.35 is subsidized by property taxes.

Officials say that needs to change for the city to follow one of the new principles it wants to implement -- that of passing through the cost of services to users.

The city doesn't plan to decrease any services, Krieger said. Snow won't pile up any higher. Ambulances won't arrive any slower. The city won't cut police or remove extra officers it sends downtown on weekends. Residents wouldn't put up with any of that, he said.

Mayer said the city cut the equivalent of 95 full-time positions since 2008 and decreased services including brush pickup, streetlight maintenance and building inspection speed.

"Based on where we're at now and the significant cuts we've made over the last five or six years, we feel we are providing the right level of service," Krieger said.

For garbage and recycling, at least, households need to pay more, officials said.

Bob Fischer, president of the Naperville Area Homeowners Confederation, said he thinks the increase in garbage fees is too high.

"My fear is that life is going to get awfully expensive here in the next few months," Fischer said.

Funding the future

The 1 percent sales tax and $10.35 monthly increase in garbage and recycling fees are the only revenue-generating proposals the city has drawn up -- for now.

That could begin to change Monday, when the city council will meet for a workshop on switching to a calendar-year budget instead of a fiscal year of May 1 through April 30. Ways to bring in money also will be discussed during a special meeting at 7 p.m. Aug. 11.

"Every source and use of revenue is on the table right now," Fischer said. "And that's a real good thing."

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