O’Fallon to consider $67.7 million budget for 2017 fiscal year

The City of O’Fallon is expected to start fiscal year 2017 with $135 million in capital assets, $35 million in cash, $58 million in outstanding debt and a AA+ Standard and Poor Rating.

The city’s high bond rating is matched only by one other metro-east village, Swansea, according to Sandy Evans, O’Fallon’s director of finance.

Evans said on Thursday she wasn’t about to lose sleep over the city’s outstanding debt.

“In my opinion, the debt amount isn’t unusual,” she said.

“If we want O’Fallon to be the great city it is, and if we want it to continue, we need to invest in it,” Evans said.

Evans said that's exactly what the city is doing now with its investments.

“We do not operate in a deficit and this debt is used for capital projects, not for operational expenses,” she said.

“If we didn't invest in it, we wouldn't have the sports park, the convention center, our city streets and infrastructure. The City Council has always been focused on providing high quality services and amenities, without being a financial burden on O’Fallon homeowners,” Evans said.

Evans projected the city will have paid back $5.4 million to its debt, including $2.2 million in interest, during Fiscal Year (FY) 2016, which will end on April 30, 2016.

The O’Fallon City Council on Monday is expected to consider a $67.7 million 2017 FY budget.

On April 17, the City Council is expected to adopt the budget, which will represent an 11 percent decrease compared to the previous year.

The 2017 budget, however reflects a 13 percent increase in the city’s general fund over FY 2016 due to the addition of the information technology (IT) department in the general fund.

All IT personnel costs, as well as, a 6 percent increase in state income tax, which is based on Illinois Municipal League’s per capital projection.

Sales tax comprises 44 percent of the general fund. Sales tax revenues for FY2017 (projected at 7.753 million) are 3 percent above the FY2016 budget. The city estimates this increase in sales tax revenues based on its current year revenues which are 3 percent above prior year and a projected general increase of 1.5%.

City officials also anticipate a 6 percent increase in the State Income Tax revenue. The State Income Tax is estimated at $99.50 per person (which is our 10% share of the state’s income tax revenue) is expected to generate $2.825 million in revenue.

O’Fallon has 28,396 residents.

The state is currently one month behind in paying the city’s share of the state income tax and city officials anticipate the delinquency will continue.

There are proposals at the state government to reduce the city’s share of the income tax, but it is unknown what (if any) reductions will be made, according to City Administrator Walter Denton.

Since this is the second highest revenue source for the general fund, any significant cuts in the State Income Tax will require the City Council to revisit the budget, he said.

Contrary to popular belief, the City of O’Fallon does not receive much revenue from property tax. Out of your entire property tax bill, the City’s portion is about 10 percent, Denton said.

“The vast majority of your property tax (72 percent) goes to schools (School District 90, OTHS District 203, and Southwestern Illinois College),” Denton said.

“Property tax comprises only 1 percent of the city’s budget and is ranked 10th among city general fund revenue generators. Property tax revenues remain even with prior year. The property tax levy supports General Fund programs such as Police, street maintenance and construction, and general administrative functions. Property taxes are also levied for Special Revenue Funds such as the Public Library, Parks and Recreation, Emergency Medical Services, Fire Department, and employee pension funds.

A new department was created for FY 2017 to capture all Information Technology (IT) costs such as personnel, operating, and capital. Total IT costs are allocated to each department. The General Fund is reimbursed through the transfer from other funds.

Local revenue sources are improving and this budget does not contain any major cuts in programs or expenditures. We would be more optimistic but the budget crisis in the state government has the potential to significantly affect this budget and the City’s services.

The city estimate a 17 percent decrease in building permits, due to the fact that FY2015-16 included the addition of large commercial projects such as Gander Mountain and the Plocher office building. Although the market is still slow, new construction is anticipated in FY2016-17.

Utility Tax revenues continue to decline and is dependent on weather conditions. The Utility Tax is a tariff that is based on consumption and not the actual rate. Warm winters and cool summers can significantly affect Utility Tax. A large portion of the Utility Tax is committed to paying off the $7 million Public Safety Facility that was completed in 2004. The remainder is used to fund the Parks and Recreation Department.

The utility tax of $1.7 million is expected to remain unchanged and telephone franchise decreased to $650,000 from the previous year, Evans said.

O’Fallon, however, is projecting a 20 percent decrease in building permits due to the completion of large building projects, such as the new Gander Mountain and the five-story office building on Green Mount Road. IT allocation is a new revenue listed on the revenue projection worksheet. This represents the contributions by all departments of the IT costs now residing in its own department in the general fund.

Last year's, O'Fallon city budget was $76 million, which ends April 30, for FY 2016.

Outstanding debt

According to the city's most recently completed audit on April 30, 2015, the city had:

<bullet>$37.475 million of outstanding debt was used to develop the Family Sports Park, build the Convention Center and for streets, sidewalks and storm water projects. However, in order to not burden home owners and keep property taxes low, the city uses other sources of income besides property tax to pay for these projects, including tax on hotel stays, food and beverage, and sales tax on retail goods, Evans said.

<bullet>$5.3 million in bonds were issued for the mine remediation and infrastructure costs associated with St. Elizabeth’s Hospital.

<bullet>$2 million in bonds for the Green Mount Road project, which is not expected to start until next year.

The mine remediation work and Green Mount Road repairs will be repaid with tax increment finance funds, Evans said.

<bullet> $4.635 million in outstanding bonds for special service areas (SSAs). These bonds are normally for infrastructure. For instance, Newbold, Frieze Harley-Davidson have SSAs, Evans said.

The city issues the bonds, and they are paid back by the owners of the parcels. SSAs were previously used on Green Mount Road and Regency Park.

“Even though the $4.3635 million bonds is on the city books as a debt, it's really being paid back by the property owner and not by the city,” Evans said.

<bullet>$8.955 million in water/sewer Illinois Environmental Protection Agency (IEPA)loans. The city used the proceeds from the loans for upgrades to the waste water treatment plant, as well as, for two of the four city-owned water towers, Evans said. The city has been able to acquire low interest loans from the IEPA to complete these projects.

"A lot of these projects are unfunded mandates that the state requires us to do,” Evans said. “The city is required to perform these costly improvements, without any financial assistance.”

<bullet> $1.7 million in outstanding bonds being used to pay for all city vehicles and equipment. But, Evans said, 99.5 percent of this debt is for public safety vehicles.

“The Public Safety Department (police) uses an annual purchasing program to phase out old vehicles and keep costs consistent,” Evans said.

Evans said the city has about $35 million in total cash on hand.

Some of the bonds will not expire until 2026, which Evans said “is pretty normal.”

“It's like buying a house,” she said. “You don't buy a house for a five-year term. You buy it because of that investment needs to be extended so you can continue operating. This is not an unusual debt.”

“Before issuing debt, the city has always determined a fully excisable funding source first. The Family Sports Park, which draws over 546,000 visitors to O’Fallon yearly, is financed through the hotel/motel tax. When visitors from all over the area come to O’Fallon to play in the Sports Park and stay in local hotels, their dollars are paying for the park through the tax,” Evans said.