Continued increases in pension obligations, declines in personal property replacement taxes, additional funding to address homelessness, and future lost revenues from elimination of the state grocery tax were among a host of topics discussed Tuesday as the Peoria City Council held initial talks on the revised 2025 budget.
Finance director Kyle Cratty’s presentation on the proposed spending plan highlighted a $6 million increase in anticipated state grants contributing to the projected $275 million in revenues.
Meanwhile, the $288 million in expenditures included $43.3 million in employee benefits, about $3.5 million above what had been included in last year’s biennial budget.
“Some of the driving factors in the increases we're seeing are a higher benefit cost, specifically in areas like health insurance, as well as the increase in our pension costs, which this year the public safety pension costs for the city is going up $2.9 million,” said Cratty.
In addition to $200.6 million in operations expenses, the budget proposal includes $65.7 million in capital projects and $21.8 million in debt requirements.
“The budget that's laid out to you tonight, we have about a $2.6 million deficit in the general fund,” Cratty told the council, “and we're keeping kind of that promise to you, looking at bringing you a budget that really only has a deficit equal to that increase in police and fire pension contributions, and using those excess reserves to pay for those obligations without affecting day-to-day operations.”
One figure that raised concerns in the presentation was a 17% drop in corporate income tax revenue.
“One area that is lagging, and I know we've had numerous conversations about this around the horseshoe, is really looking at that corporate income tax or that PPRT component,” said Cratty. “Due to the claw backs that the state has been undergoing over the last few years, we anticipate ending the year somewhere around $12.5 million in terms of PPRT.
“That is down from really our peak in 2022 of $28 million. So really, we've seen these claw backs come into play, and we saw it again this year with about a 17% decline in that revenue source in terms of kind of 2024 projected estimates versus where the 2025 revised budget sits.”
Addressing homelessness
The proposed budget also includes $942,000 in funding to address homelessness. City manager Patrick Urich said city staff is exploring solutions to supplement the 15-bed Haven shelter operated by Phoenix Community Development Services.
“We're looking at some potential options for other facilities that could be other emergency shelters, and then looking at longer-term, permanent supportive housing options,” said Urich. “This would be setting aside some of those dollars for either or both capital and operating expenses, if we could look at that, and we've had discussions with some of the providers and the (Home For All) Continuum of Care.”
Council member Tim Riggenbach said he would like to see the city take a more strategic approach to long-term solutions, and noted other challenges related to unhoused individuals.
“I think we've all have heard from JOLT (Harm Reduction), from Continuum, from Phoenix, the fact that there's a certain population that doesn't want to be housed in the traditional shelter,” said Riggenbach. “So I don't know how that gets addressed, but I think we're missing out on something critical if we don't acknowledge that part of the puzzle.”
Grocery tax
Some council members already started looking a year ahead with concerns surrounding the repeal of the 1% state grocery tax that goes into effect Jan. 1, 2026. That change is projected to cost the city $4 million a year.
"There's not an easy decision when it comes to making it progressive, making it more onerous on the rich than the poor,” said council member Mike Vespa. “Because we can't do income taxes, there's only so much we can do — luxury taxes, or alcohol taxes. And I don't know if we can make up that $4 million, unfortunately, without just instituting our own grocery tax.”
Urich said the current 2025 budget proposal doesn't account for the grocery tax elimination, noting that's something they have until next October to address. But council member Chuck Grayeb cautioned against any delay.
“The car is moving down the road at 80 to 90 miles per hour,” he said. “It's time to address it now.”
The timeline for the budget process calls for continued hearings and discussions each Tuesday until the revised 2025 budget is finalized on Nov. 5, and goes to a vote on Nov. 12.
The council on Tuesday also unanimously approved an estimated tax levy of $32.3 million based off a 7.3% growth in assessed property valuation.
