Naperville eases spending restrictions to allow flexibility amid COVID-19
In a monthly analysis of city finances, Naperville Finance Director Rachel Mayer has identified a key theme emerging amid the coronavirus crisis: the need for flexibility.
The city has positioned itself well the last five years to "endure the unexpected economic downturn," she said, and officials have been developing strategies for addressing an anticipated $12 million general fund shortfall in the 2020 budget.
To help ease the burden and navigate the uncertainty of the pandemic, Mayer recommended removing the usual restrictions placed on two revenue streams - home-rule sales taxes, and food and beverage taxes - through 2021.
The move, which received unanimous support from the city council this week, frees up the cash generated by those taxes to support operating expenses if needed, she said.
"While we cannot foresee how the pandemic will continue to impact the city's finances, we do know that these tools will help us to respond in an appropriate manner, with the goal of preserving city services that our residents and businesses expect," Mayer said.
City code requires Naperville's 0.75% home-rule sales tax to be used to fund capital projects, reduce debt obligations and replenish cash reserves, city documents show. Current projections anticipate the tax will generate about $12 million this year - $2 million less than budgeted.
With interest rates especially low, the city is considering borrowing more money than originally planned to fund capital projects, Mayer said, allowing home-rule sales taxes to be used for other purposes. Staff members are working through estimates in anticipation of an October debt issuance.
When Naperville first enacted a home-rule sales tax, Councilman John Krummen said he fought hard to ensure the revenue would be used to repay debt. But as the city faces a reduction in cash flow, he said, relieving that restriction now makes sense.
"My main point is that flexibility is key," he said. "Even though a couple of years ago I argued against this, given today's environment, I am arguing for it."
The 2020 budget includes $5.3 million in food and beverage tax revenues, limited to certain uses such as the special events and cultural amenities program, public safety pensions, social services and debt services, according to city documents.
The revenue stream has been one of the most sensitive to the pandemic, Mayer said, pointing to the effect of the stay-at-home order, capacity limits and other restrictions placed on bars and restaurants. The city now expects to collect about $3.8 million from that tax this year, which now can be re-prioritized.
The city council would still retain authority over how the home-rule and food and beverage taxes are used, Mayer said.
Other revenue streams that have been coming in lower than projected include the local hotel/motel tax and some state-shared tax revenues, though city officials reported some areas have begun to rebound in the past month.
Naperville also is expecting to receive some funds through the Coronavirus Aid, Relief, and Economic Security Act - about $5 million from DuPage County and $2 million from Will - that could help cover the anticipated budget gap, officials said.