The proposed budget for the Town of Normal is $138 million next year and an estimated $711 million over a five-year period.
Town council members got their first look at the spending plan Tuesday during a daylong budget work session. It shows:
- Fiscal year 2019: $126,311,375
- FY year 2020 original: $136,516,388
- FY 2020 estimated/pandemic: $143,954,198
- FY 2021 proposed: $138,468,897
The proposed spending is more than the nearly $137 million in estimated revenue for next year. City Manager Pam Reece said staff expects modest growth based on indicators and uncertainty from the pandemic. A year-over-year comparison is difficult to make because of federal pandemic aid, spending reductions in the parks and recreation department, and declines in sales tax, hotel-motel tax, and food and beverage tax that will be different next year.
“At this point, we are conservatively budgeting for no additional federal aid in the next budget. Should there be another pandemic relief bill we would adjust our projections and come to the council with potential changes,” said Finance Director Andrew Huhn.
Huhn told council members he conservatively projects it will take a full five years for the town and the area economy to recover from the pandemic. This and required obligations to fire and police pensions will affect the town position in the out years of the budget.
“The General Fund continues to be in a strong financial position, reflecting a fund balance meeting the town's reserve target of 15% for both the current and next fiscal year, but the pandemic and resulting uncertain economic rebound has presented revenue challenges affecting future years,” wrote Reece in the budget document.
The town also will begin to see a decline in Tax Increment Financing revenue in FY 2028-29 as TIFs expire, said Huhn.
The proposed fix for that approaching budget pressure is to pay down debt to reduce future interest costs, refinance debt for lower interest costs, and to transfer money from a vehicle replacement fund to reserves and for debt reduction.
“The town now pays about 3.5% interest on its debt,” said council member Karyn Smith.
Council member Kevin McCarthy contrasted that with rates paid by private consumers.
“That is nothing like the 16% to 18% people might pay on credit cards,” he said.
The town has continued to maintain a AAA bond rating, unusual for a municipality. Most of the debt reduction is in the out years, but Reece noted the earliest planned $2 million payoff of a bond issue is just 14 months away.
“We plan way out in the future on a number of things and this debt restructuring plan is now hitting our five-year window,” said Huhn. "We’re not going to replace the lost TIF money with new revenue that helps support the debt. We’re not going to extend debt. It’s called ‘scoop and toss.’ We are going to pay off debt early and we will do what’s called re-funding in the bond world, which is basically refinance debt.”
Huhn said interest rates stayed about the same and town payments stayed about the same in the last year. He said debt payments are below the metric of 10% of total revenue the town uses to gauge adequacy. Huhn said the debt restructuring plan balances cost, liquidity, reserves, and payments.
The town council has had a policy of using property taxes to pay pension contributions and to rely on the General Fund for other expenditures. Council members last year, for the first time, approved a General Fund transfer for pension obligations to relieve pressure on property taxes. Property tax for the town is only about 12% of the total property tax bill of town residents. The largest single chunk of property tax money paid goes to the Unit 5 school district.
The state recently combined police and fire pension funds across the state. That is expected to increase the return on those investments, but Huhn said that will likely not result in relief of the increasing town obligations to increase payments in the near term.
Those increases come from a mandate that the pensions be 90% funded by 2040 and rising estimates of the average lifespan of pension recipients.
The proposed budget also reflects the town's plan to spend $37 million on capital projects.
The spending plan will go to the council for approval in March.
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