Don Gerard, who is challenging Mayor Jerry Schweighart on the April 5, 2011, ballot, is bringing an alternative budget savings proposal to the city council tonight as council members prepare to cut up to $2 million from the spending plan.
In the budget proposal city staff have prepared, the police and fire departments take some pretty serious hits. This is partly because the budgets of those two departments far exceeds the budget of other departments that do not provide direct core services to residents, like the Finance or Legal departments, for example. It is also because police and fire got off relatively easy during the last round of cuts, city officials told me last week. Of the $2 million in proposed cuts, more than $1.1 million is from the personnel budgets of the police and fire departments.
Not proposed anywhere in the looming spending cuts are pay reductions for either the highest or lowest paid employees, although there is a proposal to require furloughs among the city's AFSCME union after those employees received a 3.25 percent pay increase, and staff reductions (either through layoffs or buyouts) are imminent. Gerard's proposal seems to call attention to this -- he proposes pay cuts for the highest paid employees. But that only takes care of about 8 percent of the $2 million that needs to be cut.
Most of the staff reductions proposed by city officials are toward the lower end of the pay scale. Gerard proposes cutting from the top, another 19 percent of the $2 million.
So now between Gerard's proposed salary cuts and staff reductions, about 27 percent of the $2 million is accounted for. The largest savings, he proposes, would come from refinancing the city's more than $40 million worth of pension debt. This concept has actually already been tossed around among city council members, and Karen Foster, for one, has strongly supported it. The details are explained pretty well below.
Some municipalities around the state have made similar moves with interest rates low enough to do so. The drawbacks are that the amortization schedule is extended another 10 years, and city officials worry about what the move would do to the city's credit rating. If the city's credit rating goes down, issuing bonds for big projects (like the $25 million the city issued last year to pay for drainage improvements) becomes more expensive.
Gerard's budget proposal:
Budget Proposal Based on 3 Principles:
A. The City can achieve savings in salary costs by reducing a total of four non-first-responder positions in the Information Technology, Finance, Legal, and City Manager Departments.
Total = $380,000
B. Requiring Shared Responsibility beginning with those commanding the highest salaries at the expense of the taxpayers 10% salary cut for the 13 highest paid employees exempting Police and Fire.
Total = $1,685,766
x 10% cut = $168,576
C. Exercising Fiscal Responsibility in local government
Don Gerard supports the immediate refinancing of the city’s pension debt. The City currently has pension debt totaling over $40 million and is paying that off over the next ten years. The City of Champaign, is the only city in the State paying their pension debt in this manner (based on the information gathered). State of Illinois law allows the City to pay it off over 23 years (2033).
The City is currently paying this debt off at a 7% interest rate. The City can refinance this debt at 5% in today’s markets. Don Gerard’s plan is to extend the payoff schedule to 20 years at a lower rate which will provide the City with room to breathe in these tough economic times. This plan which includes a restructuring of this debt as shown below will have a maximum annual payment substantially lower than the current payment.
7% Ten year payment schedule average annual payment = $5,955,208
5% Twenty year payment schedule average annual payment = $ 3,591,903
Because of the budget crisis environment Don Gerard is proposing the restructuring of the pension debt with interest only payments in the first 3 years. This will allow the City to obtain upfront budget savings of approximately $11 million over three fiscal years.
Don Gerard is proposing the $11 million be allocated as follows:
$5.5 million – pension benefit costs over 3 fiscal years
$2.0 million – replenishment of the General Fund Reserves drawn down over the last 2 fiscal years by $2 million.
$3.5 million – “Rainy day fund” to protect the City from uncertainty in the state’s budget process and unexpected downturns in City Revenues.