2021/04/01 - Walter's Blog: Budget Revenue
April 1, 2021
I previously wrote about how our annual budget is structured. This time I will discuss our revenue situation. Despite the COVID-19 pandemic, most of our local revenue sources are improving, and this budget does not contain any major cuts in programs or expenditures. 95% of residents believe O’Fallon is a great place to live and this budget will continue to provide high quality services to the community.
We are required by state law to have a balanced budget. Our total budget for FY2021-22 is $91,431,064, equally balanced by revenues. which means we have $91 million in revenues to equal $91 million in expenses. This represents an increase of approximately 7% compared to the previous year. The reason for the increase is due to scheduled capital projects, primarily $10 million for Wastewater Treatment Plant improvements. Operational spending increased 3% over the prior year, mostly due to pay increases.
Our current budget has been dominated by the COVID-19 pandemic, and this proposed budget also is significantly impacted by the pandemic. Many items in the current year’s budget were cut and delayed due to revenue shortfalls, so they have been carried over to this proposed budget. We anticipate revenues to recover as the pandemic subsides, but there are still many uncertainties about the economy over the next 1-2 years.
Where possible, we have included the City Council’s priorities to guide our budget decisions, which focus on Public Safety, Economic Development, and Infrastructure. In particular, City Staff developed a Capital Improvement Plan (CIP) that schedules equipment and construction projects into the next five years. The CIP served as a planning document for this proposed budget.
The General Fund is the main fund for the City, and it includes the budgets for Administration, Police, Community Development, Streets, Facilities, Cemetery, Information Technology, and 911 Dispatch (MECOMM) departments. The General Fund revenue is estimated to increase approximately 2%, mainly due to projected increases in the Sales Tax and Income Tax.
The revenue for the General Fund is proposed as follows:
Sales Tax comprises the largest part of the General Fund (42%). We expect sales tax revenue to increase primarily due to new changes in the collection of online sales taxes.
Despite the ongoing COVID-19 crisis, we expect Income Tax revenue to increase slightly. The Income Tax is distributed by the State of Illinois on a per capita basis, and we initially calculated our revenue estimates on new Census population numbers being released this spring. However, new population figures are now not expected until fall 2021. In addition, the Governor’s budget proposal includes a 10% reduction in Income Tax allocations to municipalities but as of the approval of this budget, the state budget has not been approved. Since this is the second highest revenue source for the General Fund, any additional cuts in the Income Tax may require the City Council to revisit the budget.
Property Tax encompasses less than 0.5% of the City’s budget. The Property Tax levy dropped 70% from last year. The Property Tax levy supports General Fund programs such as Police, Streets, 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.
Combined Dispatch is a relatively new department that was created in 2017 to capture the costs for the 911 dispatch center (MECOMM) serving O’Fallon, Shiloh and Fairview Heights. This is a result of the state mandate to reduce the number of dispatch centers. Shiloh and Fairview Heights pay for a share of the Dispatch Center’s expenses.
The Food & Beverage Tax declined significantly during the pandemic but is anticipated to increase due to the reopening eating establishments and new restaurants.
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.
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 is scheduled to expire in 2022, and if the tax is not extended then the City Council will have to explore other revenue sources to replace the funding.
The Hotel/Motel Tax suffered the worst during the pandemic. This tax declined 34% over the past year, but we are expecting it to rebound as the economy reopens this year.
In summary, the City’s revenue situation is stable and growing, although we are concerned about the economic changes due to COVID-19. In my next blog, I will address our expenses in the annual budget and how it reflects the priorities identified by the City Council.