Submitted By
Steven Drazner, Chief Financial Officer
Reviewed By
LKS
Agenda Item Title
Title
Discussion to Reduce FY20 Expenses in Order to Address the Fiscal Side of the Emergency Affecting Public Health Related to the COVID-19 Pandemic with an Amended Budget to be Considered at the June 15, 2020 Regular Meeting
End
Overview
Overview
In response to the economic downturn caused by COVID-19, the FY2020 Budget adopted by the Village Board on December 2, 2019 (ORD 19-90) will become impractical and it is recommended an amended FY20 budget be adopted on or about June 15, 2020 to reflect updated revenue forecasts, expenditures reductions and corresponding fund balance projections.
Body
Staff Recommendation
It is recommended that the Board discuss the proposed budget reductions with consideration and adoption of an amended FY20 Budget on June 15, 2020.
Background
The Village Board adopted the FY20 Budget on December 2, 2019.
The current fiscal year budget consists of thirty-four funds, excluding several relatively small health grant funds which are maintained separately for grant and expenditure tracking purposes only. While staff reviewed and analyzed revenues and expenditures for every Fund, the primary focus has been on what are classified as “Major” Funds, such as the General, Capital Improvement, Enterprise (Water/Sewer, Parking), and Internal Service (Debt Service, Health Insurance) Funds.
Attached are budget worksheets based on proposed budget reductions submitted by Department Directors and the Chief Financial Officer with review and input by the Deputy Village Manager and Village Manager. These proposed reductions are needed to match up expenditures with the anticipated declining revenue base.
There remains a great deal of uncertainty for the remainder of the current fiscal year as well as into FY 2021 and 2022. Finance staff has been unable to establish revenue trends due to the pandemic, particularly for sales tax which has a three month delay between the liability and collection month. With the many unknowns at this point, it is advisable that the Village take a conservative position with spending and adopt a worst case budget scenario in order to preserve cash to the greatest extent possible.
In order to assist the Board with the decision making process, a number of reports are included with this agenda item as follow:
1) Amended budget worksheets with roll up summary schedules. These worksheets will be adjusted based on Board discussion and decisions and attached to the budget amendment ordinance for Board consideration to adopt on June 15th.
2) A consolidated detailed document which lists each proposed itemized budget reduction. Two versions of this report are included. While the data is identical, the first version sorts the information by general ledger account while the second version sorts the information within each department or Fund by program classification. Either version may be used to review the proposed reductions depending on Board preference.
3) A budget amendment summary for all proposed amendments. The purpose of this high level summary is to show the proposed amendments totaled by Fund and allocated between proposed amendments for revenues versus expenses. In addition, this schedule provides further detail on interfund revenues and expenditures. It is important to clearly distinguish amendments pertaining to interfund revenue and expenses because these ultimately net out to zero on a fund-consolidated basis and therefore, such amendments will not truly save the Village cash overall.
4) An interfund transfer schedule which contains similar information as the budget amendment summary but focuses solely on interfund transfers in and out.
For the purpose of this agenda item, staff has identified and recommends a focus on larger expenditures, especially those that can be deferred and which are not classified as life/safety including but not limited to water, police, fire and public health.
In regards to reduced revenues, the domino effect of the closing of the vast majority of businesses not only in Oak Park but throughout the State of Illinois has, had, and will continue to have negative consequence on the Village’s budget. As the national unemployment rate approaches 20%, a significant percentage of individuals have minimal savings and can no longer afford to pay for basic necessities such as food, shelter (rent or mortgage), medicine, etc. With so many people in this precarious situation, it is recommended that the Village continue to take a very compassionate approach by holding the line on taxes and fees and reducing penalties or perhaps certain fees. I recommend that the focus be on expenditure reductions, however, not at the expense of providing core service levels related to Police, Fire, Public Works and Public Health.
Based on Finance Department revenue forecasts, the Village is fortunate to have sufficient reserves on hand to maintain normal operating service levels for the remainder of this year. However, I estimate that doing so may deplete general operating reserves by approximately sixty percent through the end of the year. In order to reduce the depletion of General Fund reserves, some available options for discussion are as follows:
1) Re-direct the home rule sales tax from the Capital Improvement Fund to the General Fund. There is no State statutory requirement that home rule sales tax be used toward capital projects. However, additional bonds may need to be issued this year to fund capital projects in order to offset the temporary loss of this revenue stream;
2) Consolidate some of the smaller sub-Funds into the General Fund such as Travel & Training and Earth Fest. However, this will have a rather minimal positive impact of only about $150K;
3) Borrow a portion of the reserves which total slightly over $2.2 million from the Sustainability Fund to support general operations.
4) The General Fund can borrow funds from the Water/Sewer Fund. This would be treated as a loan and the GF would be responsible for paying back the Water/Sewer Fund the full amount, with interest, once the economy improves.
5) Other options related to personnel, particularly placing an indefinite hold on filling certain vacancies.
In addition to the budget amendment worksheets at the account level, also included are the amendments submitted by Departments with explanation and greater detail (at the itemize/footnote level).
Finally, it is important to mention that as a last resort, the Village has the ability to take out a line of credit with Huntington Bank which is the financial institution that currently handles all of the Village’s banking needs. However, there would be some cost involved with this, even for undrawn funds. Therefore, this is not a preferred funding method unless deemed absolutely necessary.