URBANA — In order to balance the city’s budget, Urbana officials are proposing an increase in the food and beverage tax — moving it from 1.5 percent to 2 percent — ahead of city council budget talks Tuesday.
If ap-proved, the measure is estimated to raise about $400,000 more annually, with the goal to help fill a financial gap of $875,000 for fiscal 2021. Over the past three years, Urbana has made deep budget cuts while seeking new revenue sources in order to address a $2.5 million structural budget deficit.
City staff hope a sales tax on cannabis and possibly getting Airbnb and similar companies on the tax rolls would also help close the gap, though Finance Director Elizabeth Hannan said there will likely not be much wiggle room outside of that.
“Our general plan is that we’re going to use those new revenues to close the gap, and we’ll be working on updating the financial forecast,” Hannan said. “That will confirm to us where we stand.”
Urbana residents can count on one thing though: Aldermen will likely approve maintaining the property tax levy at 1.3499 percent, half a cent lower than in 2017 after a drop in 2018.
But Mayor Diane Marlin said cutting that tax rate — or increasing it — wouldn’t do much for funding the city.
“For every dollar that people pay in property taxes, about 13 cents of that goes to the city of Urbana,” Marlin said. “Of that, a little over 5 cents goes straight to the Urbana Free Library, and another 4.5 cents goes straight to police and fire pensions. We do not depend on property taxes to make the city run; we depend on sales tax and state income tax.”
Marlin said Urbana has been focusing its efforts over the past two years on reductions in spending and investment in economic development. Growing the tax base, she said, along with strategic increases in taxes like for food and beverages is the best way to “get us out of our financial hole.”
The past two years of budget cuts have been hard for Marlin, who said it has taken enormous amounts of time and energy from her whole staff. But she said she doesn’t regret the difficult choices she and her staff have had to make.
“I knew going in that if we didn’t get ourselves on a firm financial footing, we wouldn’t be able to grow or provide the services people want,” Marlin said. “Even as we’ve been dealing with this, we still achieved a lot of success that we’re proud of.”
City Administrator Carol Mitten also said the budget cuts have been “challenging,” but added that there are projects in motion right now that will give the city a better idea of how to increase revenues. For instance, she expects an effort to update the city’s 14-year-old comprehensive facilities plan will begin next fiscal year.
“We’ve been able to stop digging, and we’re getting back to a place where we can make well-informed decisions that will pay dividends over a long period time,” Mitten said. “The decision-making we’re doing is not about what feels good in the short term, but what’s best long term.”
Hannan said she hopes those long-term decisions will prevent the city from having to make budget cuts again, especially as large as $2.5 million.
“I don’t think we’ll have a correction like this to make again,” she said.
But Hannan is worried about the city’s dependence on sales tax revenues, which have not only been going down over the past several years, but which are difficult to forecast and could go down if fears of a recession pan out.
In the event there is a recession in 2021, as many municipalities reportedly expect, Hannan said the city will focus on keeping good reserves.
“If that happens, it’ll be a temporary situation,” Hannan said. “Increasing our reserves will give us more capacity to bridge that gap. But again, we need to be continually thinking about diversifying sources of revenue. And I think we’ve been doing some good things in economic development that will help us grow our tax base.”