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City of Naperville 2017 Budget: Doesn't balance? Move expenses around and borrow more.

The City has three financial principles, two of which are relevant for this discussion. Principle #1: The City will pass a structurally balanced operating budget annually. Principle #3: The city will actively seek to increase its reserves to twenty-five percent (25%) and reduce its debt by twenty-five percent (25%) in the next eight (8) years. The General Fund is the primary operating fund of the City, and accounts for the resources used to fund traditional government services such as Police, Fire, etc. This is the operating budget. As noted, Principle #1 states that the City will pass a structurally balanced budget annually, meaning revenues and expenses will be at least equal. The Capital Improvement Fund (CIP) is where the City budgets large ticket assets and the maintenance on those assets. Capital projects can be paid for through funding sources or borrowing. For us, operating expenses would be our ongoing bills like utilities, mortgage, etc., while Capital Improvements would be a new furnace, roof, addition to the house, etc.


The proposed budget for the General Fund for 2017 includes revenues of $122.92 million, which is $2.8 million or 2.4% higher than the 2016 budget. Expenses are roughly the same, $122.76 million, which is $2.675 million or 2.2% higher than the 2016 budget. Seems reasonable, right? A 2.2% increase in expenses. Costs are under control, right?


Not quite. Approximately $2.8 million in net expenses ($3.8 million in expenses, $1.0 million in revenue) included in the General Fund in 2016 will be included in the Capital Improvements fund in 2017. So the comparison of 2016 to 2017 is not an apples-to-apples comparison.Financial Principle #1 of the City is a structurally balanced operating budget. If the revenue and expenses being transferred out had been included in the General Fund, as they had been in 2016, the General Fund would have had revenues of $123.92 million and expenses of $126.58 million. That would have meant an increase in expenses of 5.4%, not the 2.2% the City claims. So without moving expenses, the operating budget is not structurally balanced.


The City’s own Financial Principle #1 states that the City will pass a structurally balanced budget. When expenses are higher than the associated revenue, and if the City was being straight, they would do one of two things: Increase revenue (taxes) or decrease expenses. Instead, the City moves expenses out of the budget in which those expenses have been, and voila! claims to have a structurally balanced operating budget.


If it comes out of the left pocket or the right pocket, what difference does it make?


The difference is the City is moving expenses from the side in which it says it will pass a structurally balanced budget to the side where it borrows. Which means it is borrowing money it otherwise would not have borrowed to pay for what was previously classified as ongoing operating expenses. Think in terms of a personal situation. Your income is about the same as your expenses, you're paying all your bills out of your checkbook. You have a reasonably high level of debt, which you pledge to reduce. You suddenly get a temporary new source of income that will last for the next two years. You and your spouse commit to each other that, for the long-term financial future of you and your family, the new temporary income will only be used to pay down your debt, and you set a target to reduce that debt by 25% over the next 8 years. The next year some of your regular ongoing expenses go up. Rather than reduce other expenses or find some other way to increase your income, you use that temporary source of income to pay some of your bills. You're not going to hit that 25% target you promised, and you're going to have a problem once that temporary source of income is gone. The budget movement is similar to that, except the temporary new source of income for the City was a tax, the Home Rule Sales Tax (HRST) which the City said would be used to retire that debt. Now, one year later, some of it's being used to pay what used to be covered out of the checkbook.


Effective January of just this year the City passed the HRST, a temporary tax due to expire January 1, 2018, which was the means by which the City would achieve Financial Principle #3, to increase reserves by 25% and reduce debt by 25%. That was a tax our elected officials told us was created solely to improve the City’s financial position by reducing debt. One year later, the City moves operating expenses to the side of the budget where those funds were earmarked to reduce debt and increase reserves. That means less debt being paid off, and the HRST is partially being used to fund operating expenses, which is not what our elected officials told us when it was implemented. In addition, the HRST is scheduled to end January 1, 2018. So if it's being used to fund operating expenses, not only is less debt paid off, but how do those expenses get paid when the HRST expires?


The apples-to-apples comparison shows the expense increase in the General Fund was actually 5.4%. Factor that in as the actual increase in 2017, instead of the 2% assumption the City used, and total debt reduction in eight years will be less than 25%, meaning the City is not on track to meet its own debt reduction target set one year ago.


Think about that. One year after imposing a tax specifically intended to reduce debt and increase reserves, the City is not on track to achieve its own targets this Council set when it passed that tax.


There are some takeaways from all this for us. We can start with the integrity and honesty issue. The City increased taxes effective at the beginning of this year and set targets for debt reduction and higher reserves. It develops a spending plan one year later which won’t achieve those targets. It can’t propose a structurally balanced budget, so it moves expenses to the side of the budget where it will borrow more to make it appear as if the budget is balanced. Rather than actually address the spending problem, it changes the accounting to move it around.


There is the issue of when, if ever, spending will be brought under control. Clearly, there is an imbalance in the budget. They can move the pieces around, but ignoring the problem only makes it worse. Look to Springfield or Chicago for some real life, close to home examples of that.


With accounting like that, we can understand the skepticism of the Naperville Township people who question the City’s projected savings through efficiencies.


This is the group leading the “Say Yes to Lower Taxes” charge. How about instead of moving pieces around in the budget you level with us, get City of Naperville expenses under control and Say Yes to Lower Taxes by actually decreasing City of Naperville taxes?



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