By Bob Seidenberg
Evanston’s City Council has been able to tame sizable budget deficits by drawing on excess reserves and tapping one-time revenues in recent years.
But that’s unlikely to be the case in the upcoming budget season, the city’s budget director told the city’s Finance and Budget Committee Wednesday night.
The General Fund’s reserves, also known as a “rainy day fund” set aside for financial emergencies, stood at a sunny $57.7 million as recently as 2022. Four years later, the unassigned balance will stand at $27.7 million once an $11 million advance to the Capital Improvement Fund is returned, said Clayton Black, the city’s deputy finance director.
City policy requires a minimum balance of $26.3 million, leaving excess reserves at $1.4 million — short of the amount needed to cover the current structural deficit projected for fiscal year 2027, Black said Wednesday in his presentation to the committee.
“It’s a different story than it was a few years ago, prior to the drawdown of the General Fund cash reserve,” he said. “We’ve been able to keep taxes and revenues relatively flat and hold expenses.”
But with new contracts being negotiated for the city’s employee unions among “other things,” Black said, the city faces “a challenging year” ahead.
The finance committee only discussed the city’s reserves Wednesday’s meeting, and took no votes.
Committee members shouldn’t be surprised by Black’s remarks, said member David Livingston. The committee “projected” such a scenario in 2023, he said, when it recommended placing public safety pensions on a 100% funding track after years of underfunding by the city.
“So it’s not a surprise we’re here,” Livingston said. “In fact, things like the new stadium [some $11 million in permit revenue], and Kellogg [some $6.3 million including fees from the Daniel P. Jacob Center] actually extended the period of time we thought we thought we would have to continue on our path.”
“It wasn’t because spending got out of control,” he added. “It’s now reflected in our numbers, which show that our pension funding is in much better shape. Well, that came from somewhere, right? It was a very conscious decision which is now reflected in our numbers.”
Study projects big pension savings in city’s 100% funding move
Jack Mortell, president of the Evanston Firefighters Pension Board and a retired fire captain, highlighted that point in the meeting’s public comment and a follow-up statement. “It’s working remarkably well,” he told the committee, reporting a study conducted by actuarial consulting firm Foster & Foster.
The study found that by moving to 100% funding instead of the 90% recommended by officials at the time, the city’s required contribution of $11.4 million in 2040 will be over $6 million less than the $17.4 million it would have to pay otherwise. Further, the city’s total contribution from 2036-2040 for 100% funding will be $11.375 million less than if the city had stayed at 90% funding, Mortell noted.
Mortell added in a later email statement that starting in 2041, the city’s annual payment of $8.8 million to the fire pension fund “will go on year after year because the Fire Fund is at 100% funded and all the interest that had piled up for the years of underpayment is gone.”
Black and Hitesh Desai the city’s chief financial officer and treasurer, are expected to go more in depth in their mid-year budget report to the committee next month.
Currently, the city maintains some 40 funds along with the General Fund, which cover most of the city’s basic operations.
Like the General Fund, the city aims to maintain reserve balances in those funds of at least 16.6% of total expenses, Black reported.
The funds include Parks and Recreation (separated from the city’s General Fund last year), the Library Fund, Water and Sewer, and also special purpose funds like the Motor Fuel Tax fund and CDBG (Community Development Block Grant) fund which are subject to state and federal rules.
A number of funds on the plus side
For the past several years, officials have been issuing a monthly report with the balances of every single fund, Black said. Especially in enterprise funds like Water and Sewer that are devoted to specific areas, there are “a lot of adjustments we have to make,” he told committee members.
A number of the funds showed positive fund balances, with affordable housing topping the list at around $5 million. Livingston asked Black about the possibility of moving money from some of those funds into the General Fund, to help lower next year’s expected deficit.
Running down the list, Black identified a few along with the drawbacks. The Sewer Fund, for instance, has a sizable balance of roughly $10 million, but “auditors don’t look favorably to just sweeping reserves out of your enterprise [designated for a certain purpose] and moving it.”
The General Assistance Fund also carries a cash balance of about $857,000, generated through a property tax levy, and the city drew down from that fund last year, Black said. “So the fear would be if you draw down that much further, we’re [going to be] asking for a property tax within a year for the General Assistance Fund.”
“Our TIFs [Tax Increment Finance districts], some of those are carrying healthy fund balances,” Black added. “We could take up the contribution there a bit but I think we want to try to end them instead of taking money way,” he said about the City Council’s current direction.
Similarly, the Crown Construction Fund, created for the redevelopment of the Robert Crown Community Center, is carrying about a $5 million balance, he said. That money, the result of contributions from private fundraisers Friends of Crown, is used each year to help abate part of the debt service for the $50 million project.
“If we took that entire balance away and put it all to the General Fund, we would be needing to issue property taxes to the tune of another half million to a million dollars,” he pointed out.
Look beyond ‘coins under the sofa’
Councilmember Jonathan Nieuwsma (4th Ward) spoke of the need to address the city’s General Fund balance, projected to dwindle to $1.4 million by year’s end.
“We just talked about maybe finding some coins under the sofa and other funds that might help us a bit,” he said, referring to the reserve balances, “but I think we need to have some more conversations about increasing revenue or decreasing expenses if we’re going to balance our budget next year.”
But Councilmember Clare Kelly (1st Ward), who has pushed for more reporting on fund balances, questioned the minimum reserve policies the city applies to individual funds besides the larger General Fund.
“It’s one thing to keep a buffer,” she said. “A lot of cities keep it [a reserve limit] as a healthy buffer. [But] I think we can make a significant dent by looking at all those funds.”
As an example, she pointed to the 25% or more of Motor Fuel Tax money the city receives every month, calling it “sort of stockpiled.”
She expressed hope that in August, the committee can come back and identify the 17 funds with reserves where it can either reduce the reserve amount or eliminate it ”altogether.”