Editor’s Note, August 20, 2015 / At the request of readers, PN posted two polls for feedback about a Home Rule Sales Tax, reflecting language adopted by Naperville City Council. The original nonscientific poll is closed. The second nonscientific poll still seeks input. Council will continue to debate the Home Rule Sale Tax at their next meeting at 7PM on Tuesday, Sept. 1.
We welcome comments that include first and last names to help enlighten residents with different views. Since Tuesday’s City Council meeting, many comments have been sent to PN unsigned in our inbox. We currently are reading through reader feedback with pros and cons of a Home Rule Sales Tax that was discussed at length during the Aug. 18 City Council meeting. Some of the suggestions could enhance the proposed solutions.
Former City Councilman Jim Boyajian copied PN on a letter he sent to the Naperville City Council. He also shared his thoughts with City staff and the Naperville Area Chamber of Commerce. In his quest to provide history and education, he requested that we run his letter as an Op Ed.
Update / On August 24, 2015, Boyajian sent an updated letter to the City Council that reflects his opinion has been allowed to change with more “accurate and true” facts.
Thanks for reading.
Facts…Opinions…Emotions / Updated Guest View
An Open Letter Follow-up to the City’s Proposed Sales Tax Increase
To Mayor and Council from Jim Boyajian, August 24, 2015
In General
Last week I sent you a letter suggesting that the proposal to implement a city wide sales tax was a last resort and I did not support the idea. In that letter I also outlined a number of actions that in the past had been used by the Council and staff to control expenses. There were 8 points and I strongly suggest that you look at each and every one of them. There is no one solution to your problem.
Even with these steps and many others you will consider I now better understand the merit of considering a Home Rule Sales Tax. I have had the opportunity to review your agenda material from the August 11, 2015, special workshop and have become convinced that additional revenue sources must be added to the city if not this coming fiscal year then the next.
During my tenure on Council I always tried to deal with facts first, then consider opinions and lastly try to keep emotions out of the debate. I must say my letter of last week strayed in that philosophy as I “drifted from facts to opinions and emotion” without a full command of the facts.
I apologize for that and would like to offer some additional thoughts as my FINAL communication of this topic.
Context
- In the years preceding 2003 it was common for the city to grossly underspend their budgets. It was not uncommon to see departments spending below 90% of what had been budgeted and funded. Budgets were not tight and the surplus operating funds generated each year by the “over collection of taxes” were applied in many years to capital needs thus reducing the amount that was borrowed. I did not support this practice. We were collecting taxes before they were needed and staff was not properly accountable for good budgeting. This was changed and by the end of 2011, city departments had much better budget discipline. The reduction in “budget underspend” gave us a way to cut expenses on paper without hurting service levels.
- From 2003-2011 reserve funds were determined to be in excess of those necessary to provide an adequate rainy day fund. The city adopted a policy to target a 20% operating reserve, no more no less. The reduction of these surplus reserves gave us a way to divert cash to capital and expense needs thus avoiding property tax increases.
- In all cases we kept enterprise funds (electric and water) separate from general operating. In some of the current material it looks like you have strayed from this philosophy in some of your arguments. Electric and water capital needs and rates should be separate. I hope you do not continue to comingle any of these in your discussion.
- During this same period we accepted as an acceptable practice some level of capital borrowing each year. That number was managed so that total debt would be 10-12 million dollar level (total outstanding at one time). Think of it like a mortgage. The interest on this debt was included in the expense needs and was always included when balancing the budget. We did not “deficit spend” as some have suggested. We did not borrow money for operating expenses.
- We routinely scrubbed the capital budget to “manage” the level of projects to live within the level of outstanding debt. Large capital projects such as the public works building and new fire stations made this very difficult and we did stray from that target at times.
In summary while we were solving some very large economic funding gaps in the 07-09 recession period, we also had some opportunities to “tighten up the system” that may not be present today as you look to manage the city’s finances.
Facts from your August 11, 2015, workshop
- You have a $6.8M gap between operating expenses (including debt interest) and current projected revenues.
- The collection of a monthly garbage fee for the cost of service provided can generate $5.0M in revenue to close a significant portion of the gap.
- Staff has committed to further expense reductions of $1.8M, thus the budget gap for 2016 is solved at this point.
- While not clearly stated, it seems like prior decisions in the past four years have brought the reserve fund operating balance below the prior policy of 20%. Failure to return the reserve fund balance will have a negative effect on the rating agencies view of our credit worthiness and could drop our rating from AAA to AA with a result extra cost of borrowing.
- Proposed capital spending (non-enterprise) will add to the city’s outstanding debt and in 2016-17 add to an expense balance that would need to be funded by other expense cuts or revenues.
Thoughts for your consideration
The enemy of bad decision making is a common understanding and agreement of the facts. It is critical that you as a council agree to the “state of the union facts” and that you not argue about facts. Facts are facts. Opinions can come next.
- Can you reduce capital spending and allow the city to maintain its assets without going above the total debt level until the current debt is retired or paid down? If the answer is no (as good protectors of our assets) then more revenue is needed.
- Are you certain that service levels that are being recommended do not over deliver your commitment to residents and businesses? People are very happy with what they have. Are you certain that city “internal customers” are not increasing costs that do not affect the bottom line delivery to residents and businesses? If the answer is yes, then additional cuts over what staff is committed to do may not be possible. More revenue is needed.
- Is the AAA bond rating worth retaining? The extra cost of borrowing at a AA rate is not large in the big picture. Does it have other negative impact that you can quantify? If the answer is yes, then it should be retained and you need additional revenue.
- Given that there is strong reason to have adequate operating reserve funds (historically 20%), at what rate are you committed to rebuilding the balance? Increased revenues will be necessary since your budget steps close only the $6.8M gap and do not provide funds to rebuild the depleted reserves. Where are the funds coming from to achieve this?
- It would appear that you have agreement on three financial principles (balanced budget, continuous cost effective service, reduction of debt). This agreement if in fact is held by all of you will require you to take actions either now or in the very near future. The principles do not appear to be able to be upheld at current funding levels.
- A 1/2% sales tax produces $8.5M of revenue that can be dedicated to either fund balance replenishment or capital spending or some portion of both. If you do not seek this revenue, how do you propose to build fund balances and fund additional capital work?
- You appear to be split 5-4 on whether to seek additional revenues. This is not healthy for our city. We need our leaders to be of common mind on fiscal matters. During my tenure on Council we never had this kind of disagreement on financial matters. I hope that you will continue to talk until you all agree on the facts and then a course of action if there is lack of agreement, you cannot have a common agreement to actions needed.
- For the residents and businesses that you represent, those who do not support a sales tax increase must be willing to propose other solutions for the group to consider. Voting no is not an acceptable solution. You either need to agree to change the principals to reduce funding needs or other expense/revenue solutions must be brought forward for the group to consider. Collect no taxes before they are needed and only as a last resort once all other options have been exhausted.
- Your action is needed one way or the other, but not 5-4. You have a responsibility to come to a solution that you can support as a Council of the whole.
In Summary
This is my attempt to expand on the “Opinion, emotion” letter you received last week from me with my interpretation of additional “facts” as I interpret them from your workshop material.
Good luck on your deliberations. Thanks for your service.
—Jim Boyajian, Naperville City Councilman 2003-2011.
Editor’s Note / With more facts and information regarding this complicated issue, Boyajian says his original opinion has changed, but the guiding points that he suggests applying during the budget process remain constant.
Home Rule Sales Tax is last resort / A Guest View
by Councilman Jim Boyajian, Aug. 20, 2015
Sales tax increase is a last resort and the city is not to that point.
As a property owner and former councilman, I am against this tactic.
We have some very qualified people on our city council and many of you come with rich private sector experience. I ask you to apply those same skills to challenge staff as your predecessors have done in the past.
We have lots of new people, but you have an experienced staff that has been through this many times before and no time more difficult than the down turn of 2007-09 when we managed to run the city with reduced revenues and no tax increases. You are in a much better position now. If this was your business, you would not gravitate to this revenue fix without much further debate and push back to the City Manager.
I have to say I am very surprised he and his staff have brought this forward. It is like all the creativity has left. I haven’t wished to be back on council since I have been gone until this event!
This seems to be complicated by the city’s desire to change the fiscal year from May/April to a calendar year. While this seems simple, what it does is give the city council very little time to discuss budget alternatives and to scrub the recommendations from staff. This extra time is particularly necessary when the City is considering such a drastic change as a sales tax increase.
I am reminded that during my tenure on Council, staff proposed at least four or five times in eight years a sales tax increase as an option. The secret is to let them know early that this is not an option and ask them to come up with alternatives.
A tax increase is the easy way out and only lets costs grow more to meet the new revenues. Our city is not in growth mode either in size, scope of service or complexity. Thus costs must be controlled and “right sized” to a static environment.
The argument that “communities around us already have a sales tax and ours will be much lower” is weak. We have always been proud of the fact that we ran a tight ship and operated better than the other communities.
Are we now to adopt an attitude that “me too” is OK?
Successful Past Techniques
I would like to share some thoughts and techniques that have been used in the past SUCCESSFULLY!
- Inflation remains very low. Staff should be expected to eat inflation. Cost of living arguments should not be used to simply inflate budgets by some inflation index. Cities just like businesses should be forced to produce productivity if they need to inflate certain areas of the budget.
- Staff tends to treat all expenses as equal. That is whether a cost is generated because it produces an end service to the customer (residents or commercial businesses) or it is a service performed for another city department they treat it the same. This is not correct and we reminded them of that continually. Unless we are improving the delivery of service to residents or businesses, then costs should be highly questioned and prioritized so they don’t grow unchecked. I can tell you it is easy to justify spending money, but you have to say “how does it improve the level of service and if it doesn’t why spend the money.” Second how good is good enough? If you look at the customer satisfaction services, we routinely score at greater than 95%. Don’t spend money to try and get better, people are already happy!!
- Rather than get into a difficult conversation about cost-cutting and justification, we often simply told staff to cut the budget by $1-2 million and do it as they see fit. With a budget as large as the city’s, it is realistic to ask them to do this. “Squeeze until it hurts” was a philosophy that served us very well and will do the same for you.
- Remember it is important to keep capital needs and expense needs separate. Do not allow these funds or costs to get mixed up, it will make your job of containing costs more difficult.
- I must also remind you that you cannot continue to “raid” reserve funds, but those funds need to be right sized. We found ways to reduce some reserves by critically looking at the useful life of assets. If this needs to be updated, suggest that it be done.
- At some point “the triple AAA bond rating discussion” comes up. Great, I get it. Make sure it is worth it. Ask staff to justify.
- If they think expenses need to come up, then ask them to cut 20-30 of the lowest performing employees in the city. First, you will make them high grade their staff (not a bad thing) by getting rid of underperformers, and secondly, you will challenge them to justify the employment levels. By the way, this can be done by attrition.
- Remember in the next 12-18 months it is expected that revenues will grow with all the new downtown development. I realize much of this is TIFF dedicated, but there will be a trickle down impact on the rest of the downtown.
Well, thanks for reading this.
I never want to be “the ex-councilman” who tries to tell you how to do your job, but this topic set me off. This will be the only time you will hear from me. I am always willing to talk to anyone, but you are all smart people.
Remember you are taxpayers, too!
Editor’s Note / Naperville resident Jim Boyajian, now retired, served on the Naperville City Council from 2003 to 2011. Again, we welcome other guest views, too.
