Urbana planning range of cuts in effort to fill $2.5 million budget deficit

Urbana planning range of cuts in effort to fill $2.5 million budget deficit

URBANA — Over the past two years, the city of Urbana has been dealing with a problem that it was going to have to deal with eventually.

In 2018, officials found the city in a $2.5 million financial hole. Reserves were low, police and fire pensions were underfunded, the vehicle-replacement fund was being tapped into, loans were being taken out, and the financial future of the city wasn't being adequately planned out.

"That's where we started," Mayor Diane Marlin said. "We are now committed to rebuilding city reserves, we are changing our way of funding for the vehicle-replacement fund, we will finish this year repaying those loans, and our goal is to eliminate the deficit.

"This all goes to building a financial foundation for the future. We won't be able to provide the social and community programs that the city deserves unless we're on sound financial footing."

Now, for the third year in a row — with a goal of cutting $500,000 — the city announced Monday that it would be continuing to make cutbacks, revenue increases and other changes to deal with the $2.5 million structural deficit in the next fiscal year, which starts in July.

That means a staffing reduction of about 5.25 full-time-equivalent employees from the current budget, in addition to five others over the past two years, putting the total at 10 full-time employees let go since 2018. That's about 4 percent of the city's workforce coming from police, public works and executive departments, City Administrator Carol Mitten said.

Funding for the Urbana Free Library will also be reduced by $59,100 — its proportionate share of the city's $500,000 expenditure reduction goal.

As for revenue increases, the city is in talks to raise its package liquor tax in an effort that is projected to generate about $220,000 a year, and an increase in late fees for unpaid parking fines will generate about $72,000 a year.

Following a budget presentation before the city council, aldermen approved the two efforts to increase revenue.

Also, a revised funding plan for equipment replacement, which includes a plan to issue debt at strategic points to avoid a deficit, will save the city $119,000 a year on top of the $70,000 it saved last year.

But above all, the city is focusing on investment and development. This past fiscal year, it issued 70 commercial building permits for the construction of 128,000 square feet of commercial space, at an estimated cost of $35 million.

Tax-increment-financing districts and the Think Urbana program have supported over 30 new and expanded businesses in downtown Urbana in the past year.

And over the past three years, Urbana's share of single-family construction in Champaign County has more than doubled, from 9 to 19 percent, in large part because of five major multifamily residential and mixed-use developments that will help bolster the city's property-tax revenues in the future.

Alderman Eric Jakobsson wondered just how much recent housing developments will affect the overall assessed value of Urbana properties, which factors in to the city's tax levy.

"Our assessed value now for 2018 levy is approaching $600 million," Hannan said. "With about $85 million in value to that, that should mean a 5 percent increase in the city's assessed value."

Still, the cuts do make a dent in the city's ability to provide services. Mitten said the city will have to look for ways to deliver those services efficiently and cost-effectively. When it comes to outsourcing some of that work — a popular option among dozens of small cities facing similar downsizing — Mitten said "all options are on the table."

"We get a lot of questions about what this means for the 2021 budget, and what I'll say is that we're optimistic," Mitten said. "We have done everything we said we would in terms of identifying cuts and proposing new revenues, and we've achieved the results we expected."

Most of the new spending in the city's $59.3 million budget is going to capital projects that have been long neglected, as well as one-time funding for liability and workers-compensation claims and legal fees. The city will also spend $25,000 for a study to keep city pay at competitive levels.

After some quick number crunching, Alderwoman Maryalice Wu wondered whether the state tax people pay on online transactions is being factored in to the budget plan submitted to the council. Hannan said sales taxes have been looking good in the past, although numbers in May don't look as good. She added that she has kept conservative numbers due to a forecast for a recession in the next two years.

Wu also asked how the changes to the vehicle-replacement fund will be saving the city money.

"It's basically funded through transfers from all the budget funds," Hannan said. "When we started looking into the details, there was a better answer. The better answer for us is to issue debt periodically to level out the underfunded level. We end up paying a lower interest rate with our own debt that way."

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