City Manager Roger Crum’s balanced-budget proposal to draw $500,000 from Evanston’s cash reserves might have little effect on Evanston’s long-term economic stability, a notion backed by nearby government leaders, who said they also have employed similar methods to recoup lost revenues.
In the face of declining state support and continuing economic difficulties, Crum said the one-time use of a portion of the city’s savings is wise — so long as it doesn’t continue into the future.
“We think this is reasonable at this point this year,” he said at Evanston City Council’s Saturday budget-review session, “but not again.”
City Council will work out the details of Crum’s $164-million budget proposal over the next month and a half and must approve a budget plan by March 1, the beginning of the 2004-05 fiscal year. A vote on a final budget is slated for the Feb. 23 council meeting.
Crum said using reserve funds is a technique he and his staff employed to offset the $500,000 of lost state income tax revenue without raising the city’s share of property taxes further than the 6.85 percent he already has recommended. Without the $500,000 in reserves, Evanston would have to employ a 8.57 percent hike.
Normally the state returns 10 percent of income tax revenues to local governments such as Evanston, but the state had to reduce the amount because the state’s coffers lacked the money to dole out required income tax returns to individuals.
Though the city would technically be drawing from its savings when using the reserve money, Director of Finance William Stafford said the $500,000 is actually a surplus amount. The city has a target of retaining one month’s operating expenses — or 8.33 percent of the general fund budget — as emergency savings. The $500,000 surplus is on top of that amount, and Stafford said he is confident the city’s stability would not be endangered.
Stafford said at Saturday’s meeting that Evanston is not alone in proposing this use of the city’s savings, and that Schaumburg, Ill., was proposing a much greater withdrawal than Evanston.
Schaumburg Village Manager Ken Fritz said although his community’s budget is structured differently than Evanston’s, the rationale is the same.
“If it’s for a temporary down cycle in the economy, relying on some surplus isn’t a bad thing,” Fritz said. “It’s when you’re forecasting that it’ll be a downturn forever that you need to come up with a new plan.”
Fritz said he agreed with Stafford’s predictions of an improved economy by the end of 2004. But unlike Evanston, Schaumburg does not levy a property tax for residents, although they must still pay the tax bills for the schools and state.
Because of a large retail and industrial area — both of which are missing from Evanston — a much larger portion of the village’s revenue comes from sales tax. But the lack of a property tax means cash reserves play a more vital role in balancing the village’s operating budget.
Both Fritz and Wilmette Village Manager Michael Earl said their governments, like Evanston’s, also have met the minimum for reserves, and none of the towns would ever be in danger of overdrawing on those funds.
“It’s not something you want to do always,” Earl said. “But when you’re facing challenging economic times, I think one could argue that’s what reserves are intended to be used for.”
Ald. Steven Bernstein (4th) said he would like to see the city dip further into the reserves to prevent the proposed property tax increase.
“What I’m suggesting is that if you’re going to steal from yourself, steal big,” he said.
Bernstein did acknowledge, however, that if Evanston’s pending litigation is not settled, the city might not have any recourse if money is taken from the reserves. City staff predict as much as $20 million in possible payouts for the various lawsuits if the city were to lose the lawsuits in which it is engaged.
“We have potential liability that would render moot anything we’re talking about now,” he said. “We don’t have a contingency plan except for (borrowing more money).”
