O’Fallon OKs budget; approves property tax increase
The O’Fallon City Council approved a $67.7 million budget on Monday that will require residents with a home worth $150,000 to pay an estimated $14 more in city property taxes.
Residents with a $150,000 home paid about $437 in property taxes to the city last year. This year, that tax is estimated to be about $451.
This comes in spite of a $22 million decrease in the city’s equalized assessed valuation (EAV).
Last year, Gov. Bruce Rauner signed legislation expanding property tax breaks for disabled veterans. Veterans who have a disability rating of 70 percent or higher do not have to pay any property taxes and other disabled veterans also qualify for property tax breaks.
Last year, the city projected its total EAV at $636,751,000.This year, O’Fallon requested projected a $6.4 million increase in its EAV. City officials earlier said if it weren’t for SB 107, the city’s property tax rate would have decreased, and the city’s EAV would have topped $660 million this year.
The budget takes effect on May 1.
The budget will represent a decrease of approximately 11 percent compared to the previous fiscal year, ending April 30.
The reason for the large decrease is due to the reduced spending in the Tax Increment Financing (TIF) fund, in particular the $10 million allocated for the St. Elizabeth’s Hospital mine remediation project, according to City Administrator Walter Denton.
The balanced budget, however, is based on the assumption that the same high levels and types of municipal service should be continued in all city departments.
But the city’s continued revenue instability will challenge the city’s ability to provide services in the same manner as previous years, Denton said.
The General Fund revenue is estimated to increase approximately 13 percent, mainly due to the allocation of IT costs that are reimbursed from other funds.
This is not an actual increase, but a change in how departments are charged for Information Technology (IT) services, Denton said.
The General Fund is the main fund for the city and it provides the budgets for administration, police, community development, streets, facilities, police and fire commission, economic development, cemetery and IT departments.
But if the new IT allocation is removed, the general fund increase would be 3 percent, Denton said..
Sales tax comprises the largest part of the general fund..
Sales tax revenues are projected at $7.75 million or 3 percent above the FY 2016 budget. The city estimate this increase in sales tax revenues based on our current year revenues which are 3 percent above prior year and a projected general increase of 1.5 percent.
The city anticipates a 6 percent increase in the state income tax revenue. If received, the city should receive $2.825 million. The state income tax is estimated at $99.50 per person. O’Fallon currently 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 also 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, Denton said.
“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 does not receive much revenue from property tax.
The city’s portion is about 10 percent, Denton said.
“The vast majority of your property tax, or 72 percent, goes to schools (School District 90, OTHS District 203, and Southwestern Illinois College),” he said.
Property taxes comprise only 1 percent of the city’s budget and is ranked 10th among city’s General Fund revenue generators.
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 Fiscal Year 2017 to capture all IT costs such as personnel, operating, and capital. Total IT costs are allocated to each department.
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,” Denton said.
The city also estimates a 17 percent decrease in building permits.
This is due to the fact that FY 2015-16 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 FY 2016-17,” Denton said.
Utility tax revenues also continue to decline.. The Utility tax is a tariff that is based on consumption and not the actual rate. Warm winters and cool summers can significantly affect the 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 “Fee in Lieu of Taxes” represents the portion of administrative salaries and benefits that were originally reflected in the Enterprise Funds (water and sewer). State law requires that municipal utilities charge an administrative fee so they are similar to private sector utilities that must pay property taxes and utility taxes.
Until recently, the city satisfied this requirement by charging some administrative personnel costs to the enterprise funds because the city council and management staff devote time to managing the enterprise funds.
Now the administration budget more closely reflects actual personnel costs, and the “Fee in Lieu of Taxes” line item was created as a transfer from the enterprise funds that satisfies the state requirement.
Many of the priorities in the Strategic Plan are addressed in this budget and the city continues to implement projects listed in the plan. However, there are significant infrastructure priorities in the plan that have no funding identified and decisions will need to be made to determine whether they are still priorities and if they are, how they will be funded in the future.
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,” Denton said.
“If any reductions are made, the city council will need to revisit this budget to consider additional spending cuts,” he said.
Last year's, O'Fallon city budget was $76 million, which ends April 30, for FY 2016. This will mark the 16th consecutive year the city council has passed a a balanced budget.
This story was originally published April 26, 2016 at 10:18 AM with the headline "O’Fallon OKs budget; approves property tax increase."