Explaining Peoria’s 2024 budget: City Manager Urich breaks down proposed $321.8M spending plan
This year’s round of deliberations over Peoria’s annual budget are underway.
The city staff’s proposed spending plan has revenues decreasing 6.2%, while expenses are going up 5.4%. The $321.8 million budget represents a sizeable increase from this year, and it includes $101 million for capital projects.
WCBU reporter Joe Deacon talks with City Manager Patrick Urich to get more details on the initial budget proposal.
This transcript has been lightly edited for clarity and brevity.
The City Council just held its first special meeting for this year’s budget deliberations, and it will meet every Tuesday now until the spending plan is approved. What were your biggest takeaways from this initial meeting?
Patrick Urich: In the budget that staff has prepared and that we’ve presented to the council, we have a significant investment this coming year in capital improvements: over $100 million. A significant amount of drainage and stormwater and combined sewer work, coupled with about $29 million of roadwork, $9 million of facilities work, replacing radios for first responders, and then upgrading facilities for a number of our fire houses and other places throughout the city, (and) building a new Fire Station 16 on Northmoor Road. It’s a significant investment in capital that we’re looking at doing this year.
We’re actually looking at drawing down about $30 million of our fund balances and our reserves in order to do that, but we realize that now is a time that we have to make some of these significant capital investments. The operating budget is actually going to be slightly lower than last year’s budget as we spend less of the American Rescue Plan (ARPA) recovery funds. So we’re wrapping that up; there’s about $10 million in this budget that will wrap up the spending of the American Rescue Plan dollars that we’ve received. But overall, we’re really looking at this as a way to really lean in on some of the capital investments we need to make in the community.
The budget proposal has revenues for 2024 decreasing by 6.2% to around $291 million, while expenses increase 5.4% to almost $322 million. You kind of touched on it, but what exactly is this $30 million gap and why is it acceptable?
Urich: We’re seeing with revenues is, we’re anticipating that from a financial perspective that we’re going to continue to see a little rollback in the revenue generation that we’ve seen. Coming out of COVID, 2022 and 2023 were really banner years as far as revenue for the city of Peoria, in terms of revenues coming in coupled with the federal and state dollars that we’ve been able to receive.
But we also know that we’ve been accumulating large balances in our stormwater utility fund, and we need to start to really invest in some of those projects that we know that we need to start to work down. So this budget proposes that we really zero-in on that capital spending and look at trying to drive those numbers down.
What is the fund balance right now that enables the city to absorb that deficit?
Urich: Our current fund balances that we’re sitting on for the city are really going to be about $57 million in the general fund – or about 42% of our operating expenses, and our policy is 25%. Overall fund balances are at over $200 million. So we’re going to be pulling those down by about $30 million, but we’re still going to be in a very good liquidity position where we’re going to have enough cash in the bank to manage our expenses for the going future.
I think as we looked at this, when we started to look at making the capital investments, we knew that one of the items that we had was we could borrow money. But why borrow money and look at ending up paying that over 20 years when we could use the cash that we have today and save that interest savings? That allows us to then use what could have been used or set aside for debt service for future capital improvements.
Just looking at the projected expenses and revenues with that $30 million imbalance, do you anticipate you might face some pushback from council members?
Urich: I think there will certainly be some discussion. But when they understand that really $77 million of the $101 million is going directly to capital investments that are there for the citizens, I think they’ll understand (that) this is what we’re doing. We’re looking at some major capital projects that we’re looking at financing.
We have the Adams-Jefferson one-way/two-way conversion downtown. We’re going to be redoing Moss Avenue, from Western Avenue to Sheridan Road. We’re going to be redoing the Pioneer Parkway-University intersection. We’ll be continuing to do the Year 3 of the Combined Sewer Overflow projects. We’re looking at replacing all of our radios for our first responders. We’re going to be redoing Wisconsin Avenue, from McClure to Nebraska. We’re going to do a number of significant stormwater and drainage projects. We’re going to be working on MacArthur Avenue.
So it’s all over the city; the spending that we’re looking at and leaning in to do is roadwork and drainage work throughout the city that we’re really looking at. Then we’re investing in our first responders. We’re investing in the capital needs of our fire department. We’re replacing the fleet needs of both our fire department or police department and our public works team, to make sure that they have the rolling stock that they need to be able to respond to emergencies. It’s a budget that, with the revenues that we’ve accumulated, affords us the opportunity to address these significant capital needs that have been growing over time.
You note that a significant portion of these expenses is the $100 million for the capital improvements, and that’s a 35% increase from this year. Would this potentially then not be as high on expenses in years to come after these (projects) are done this year?
Urich: Yeah, we’re going to start to see our capital spend – we’ve got some major road projects that are in there that are going to keep it high for the next couple of years. But by the time that we get to 2026, we’re going to see that the capital spending will be back down in the in probably the $40-$50 million range. So it’s going to be working its way back down.
The current projections for 2023 revenues is $311 million, and that’s more than $46 million higher than originally budgeted last year. So are the anticipated revenues for this 2024 budget similarly conservative?
Urich: They are. We’ve been pretty conservative in terms of our revenue estimates. But we’re anticipating that in ‘24, we’re going to have $291 million, so it’s less than what we’re projecting for this year. That’s one of the reasons why we’re starting to look at how we’re drawing some of that cash down. But with that type of unanticipated revenue growth, that affords us the opportunity to lean in on these capital projects and start to do this work, because the revenue was really unanticipated.
We’re also trying to set aside, in the general fund, that fund balance that’s over and above the stated fund balance policy that we have, and really setting that aside and assigning it for future pension obligations that we have for public safety. That number is really the biggest concern that we have in this and in future budgets, is that our public safety pension expenses currently today are about $31 million. At the end of this decade, they’ll be up to $40 million, and by the end of the next decade they will be up at $77 million of expenses that will have to go towards putting that into our public safety pensions.
It is growing at a significant pace, and it’s something that we need to be thinking about how we can pay for that in the future. So this is, one way that we’re doing that is to try and set aside the strong revenue growth that we’ve seen in the general fund and hold that for future pension obligations.
What are some of the other options for this obviously growing pension obligation?
Urich: Really, the only other two options the city has at our disposal is: we can cut expenses, or we can raise taxes. Those are the only two options that the city has available to it. This, the entire rules of how we have to manage public safety pensions are driven by the General Assembly and the State of Illinois. They are dictating that we need to be 90% funded by the year 2040. So this ramp that we’re on is being driven by the General Assembly.
You’ve mentioned to me before about the EAV, equalized assessed valuation going up about 7%. Does that help city revenues, and doesn’t it significantly – to a difficult level – impact obligations for taxpaying property owners?
Urich: It is. We have seen that on average across the city that assessed value is going up 7%; I think that some people have seen higher increases, some have seen lower. I think that for the city and for our future obligations, particularly to pensions, this is where that assessed value increase is important, because that’s money that grows, that covers up a portion of the pension increase.
This year, our public safety pension growth was about $2 million higher than last year. So for 2024, we’re anticipating it’s going to be $33 million, instead of $31 million, that we’re going to have to contribute for pensions. The assessed value growth only covers about $1.5 million of that, so it doesn’t even cover the full cost of our pension obligation growth that we’re seeing. So that just gives an indication of the significant challenge the city is facing over the future, at least for the next 16 years.
Getting back to city expenses, are there any possible options for the city to reduce its costs for 2024?
Urich: There’s always ways, and I think that as staff, we continue to look at ways that we can try and drive our expenses down. While we budget, every year we set a spending plan (and) it’s rare that we exceed that spending plan. It’s in many years from an operating standpoint, we usually end up about 3% under budget. We’re going to continue to look at ways that we can be more judicious with our spending and look at how we’re doing things differently in order to continue to save money for everyone.
But ultimately, what we’re trying to do is: on the capital side, invest in the community. And then on the operating side, when you have the biggest part of our operating expense are people. What we’re really talking about when I say “people” are firefighters, police officers, public works employees out on the street maintaining our infrastructure, code enforcement employees that are out making sure that our neighborhoods are in good shape. All of those, that costs a lot to employ almost 700 people for the city of Peoria in order to provide those services. So that’s where the lion’s share of the expenses on the operating side.
So what are your expectations for the budget deliberations going forward after this first meeting?
Urich: Looking at this first meeting, this was a chance for a council to come forward with asking some questions, asking for some report-backs; I think we’ve got about 12 report-backs that we have to work on for them. Then we’ll continue the deliberations with the council. They may want to take motions on certain items of the budget to either amend it or change it. Then ultimately, over the next three or four weeks, we’ll see that the council will kind of come together on their recommended spending plan, based upon our initial recommendations. Then we’ll see that it’s hopefully adopted by before Thanksgiving.
So you do anticipate there may be some changes to the numbers that you’ve given?
Urich: There’s an old saying in budgeting, that “the city manager proposes and the city council disposes.” So I think that there is certainly going to be changes to this budget. We have seen it every year, and we fully anticipate that there will be,
Aside from continued budget talks, what other business will be on the agenda for the next regular city council meeting (Tuesday)?
Urich: For the next city council meeting, we’ll have the proposed adoption of the strategic plan that the city council has been working on and working with staff on. We deferred that for two weeks, so that’ll be back up in front of the city council for consideration. Then also, the city council has to make a decision on whether or not to exercise the option to buy the water company (from Illinois American Water). That’ll be probably a very lengthy deliberation, so the 24th will probably be a very long meeting.
If you know at this point, where does the council stand on this?
Urich: I think that the council is certainly mixed, and there’s strong feelings on both sides about whether or not to exercise or not exercise the option. The process is very scripted in terms of what happens next. So if the council decides to go forward with exercising the purchase option, we will sit down with Illinois American Water, negotiate kind of the rules of the valuation process.
Then once that process – the rules are adopted and both parties have signed off on those rules – once that’s complete, the process could take up to 3½ years for the valuation to occur, for the appraisers and all the experts to get hired and to go through that valuation process, and then the due diligence that comes after that if the city wants to actually purchase the water company for the price that comes out of the hearing.