2022/04/12 - Walter's Blog: Budget Revenue
April 6, 2022
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 is $104,707,382, which represents an increase of approximately 14% compared to last year. The reason for the increase is due to building reserves for the newly established Build O’Fallon Trust Fund and scheduled capital projects (primarily for improvements at the Wastewater Treatment Plant). Operational spending increased 20% over prior year mainly due to professional studies for the implementation of the newly approved 2040 Master Plan.
Where possible, we have included the City Council’s priorities from the 2040 Master Plan to guide our budget decisions. The Master Plan is culmination of 18 months of input from residents, City Council, and staff to direct the City of O’Fallon’s activities over the next 20 years. A component of the Master Plan is a Strategic Plan that identifies action steps over the next 3-5 years. The Capital Improvement Plan (CIP) incorporates Strategic Plan projects and other equipment and construction projects into the next five years.
The Strategic Plan and CIP served as the planning documents for this proposed budget. This budget was programmed around these goals and through direct input from the Mayor and Council, Staff, and refinement through City Council committee review.
The General Fund is the main fund for the City, and it provides the budgets for Administration, Police, Community Development, Streets, Facilities, Finance, Police and Fire Commission, Cemetery, Information Technology, and 911 Dispatch (MECOMM) departments. General Fund revenue is estimated to increase approximately 24%, mainly due to the transfer of monies from the ARPA Fund (American Rescue Plan Act) to cover Public Safety wages. The revenue for the General Fund is proposed to be derived as follows:
| Proposed Budget FY 2023 | % of Total | Amended Budget FY2022 | %Change | |
| Sales Tax | $8,525,000 | 31% | $9,200,000 | -7% |
State Income Tax | $3,874,680 | 14% | $3,100,000 | 25% |
| Food & Beverage | $1,100,000 | 4% | $960,000 | 15% |
MECOMM(Shiloh & FVH) | $867,000 | 3% | $878,321 | -1% |
| Utility Tax | $644,000 | 2% | $660,000 | -2% |
| State Use Tax | $1,033,250 | 4% | $886,000 | 17% |
| Fee in Lieu of Taxes | $832,930 | 3% | $801,570 | 4% |
| Property Tax | - | 0% | $100,000 | -100% |
| Pass Through Revenue | $1,435,000 | 5% | - | 100% |
| Cable Franchise | $380,000 | 1% | $410,000 | -7% |
| Building Permit | $325,000 | 1% | $325,000 | 0% |
| Road & Bridge | $290,000 | 1% | $285,000 | 2% |
| Ameren Franchise | $270,840 | 1% | $261,400 | 4% |
| Crime Free Housing | $173,000 | 1% | $170,000 | 2% |
| Phone Franchise | $60,000 | 0% | $84,000 | -29% |
| Video Gaming Proceeds | $200,000 | 1% | $124,000 | 61% |
| Transfers from Other Funds & Reserves | $6,168,814 | 23% | $2,820,824 | 119% |
| Other | $1,221,795 | 4% | $965,305 | 27% |
| TOTAL | $27,401,309 | $22,031,420 | 24% |
Sales tax comprises the largest part of the General Fund (31%). Sales tax revenues for FY2023 are estimated to be slightly lower than the FY2022 budget, primarily due to the relocation of the Auffenberg Auto Mall to Shiloh.
The State Income Tax is the City’s second largest revenue source and is expected to increase. The tax is funded on a per capita basis, so our allocation from the Sales Tax will increase due to O’Fallon’s population increase from the 2020 Census. The State Income Tax is subject to the state government’s annual budget and is subject to fluctuate depending on the state’s budget situation. The state government reduced the State Income Tax distribution to local government by 10% in 2018 and was never restored. As of the approval of this budget, the state’s budget has not been approved and there is no assurance that the State Income Tax level will be restored.
Property taxes are levied for the Public Library, Emergency Medical Services, Fire Department, and employee pension funds. Property tax levies were eliminated from the budget for the General Fund and Park Fund as part of a Property Tax Relief Program and the creation of the Build O’Fallon Trust Fund. The Property Tax Relief Program eliminated the property tax levies for the General Fund and Park Fund and increased the Sales Tax by ½%. Half of the Sales Tax increase is allocated to the Park Fund to replace the property tax levy. The other half of the Sales Tax increase is allocated to the Build O’Fallon Trust Fund, which is a special account for the City Council to implement the Master Plan.
The Food & Beverage Tax declined significantly during the pandemic but is has increased 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 rebounded as the economy reopened, and we expect a good year.
In summary, the City’s revenue situation is stable and growing, although we are concerned about possible economic changes due to COVID-19, inflation, or international conflicts. In my next blog, I will address our expenses in the annual budget and how it reflects the priorities identified by the City Council.