Accounting error in your favor: Galesburg's financial picture isn't nearly as precarious as suggested
by Mike Kroll
As Americans celebrate this nation's 231st birthday the taxpayers of Galesburg also have something additional to celebrate, your city's finances are much better than you were led to believe during preparation of this year's budget. Not only did Galesburg end calendar year/fiscal year 2006 well into the black ($2.9 million in net assets after expenses) but this financial good news is actually an improvement of more than $783,000 over the previous year ending balance of net assets ($2.12 million as of December 31, 2005). Despite fear to the contrary Galesburg's total revenues were actually up in 2006 by $436,000 over 2005 revenues and while city expenses were also higher by $791,000 income still exceeded expenses by $1.95 million. When you have a income surplus of nearly seven percent over expenses that is hardly bleak financial news.
Are you surprised or shocked to hear this? It is no wonder; this seemingly great news has been all but buried by city officials who apparently find it better to preach doom and gloom than to be forthright about the city's finances. Obtaining financial data from the city finance department is next to impossible for mere citizens but — even more surprising — is that elected officials like aldermen are provided no more financial information than finance director Gloria Osborn is forced to provide. The only reason I can report on this data is because, as Osborn writes in her introductory letter, “state law requires [cities to] publish within six months of the close of each fiscal year a complete set of audited financial statements.”
Galesburg's fiscal year matches the calendar year and as is demonstrated by the June 7, 2007 date of this financial report Osborn insures that this report is not made available one day earlier than necessary. In fact this report is dated a week later than required by Illinois law. Throughout the remainder of this year anyone requesting financial data from the city finance department will get nothing more than this report. By asserting concerns of releasing “unaudited financial data” Osborn has historically refused to make more timely data available to this newspaper, candidates for city council and even elected aldermen themselves!
The city's single largest source of income is sales taxes, accounting for nearly two-fifths of total income. The city raised $10.94 million in 2006 sales taxes, an increase of almost a half million dollars over the 2005 sales tax total while we were told that sales tax revenues were stagnant. Every single category of general revenues increased in 2006 over the previous year, one, in particular, substantially. In 2005 Galesburg earned $818,873 in investment income while that figure leaped to $1.48 million in 2006. That's an 80 percent increase in one year at the same time our former city manager claimed we could not afford to fully fund pension obligations.
In their discussion of the city's audit report, the accounting firm of McGladrey & Pullen noted that the city's long-term debt decreased by $664K in 2006 and by $763K in 2005 averaging five percent over the two years as debt was paid down without incurring additional debt. The accountants also noted: “As of December 31, 2006, unreserved undesignated fund balance for the General Fund was $7,260,971 or 38 percent of total General Fund expenditures and $7,128,366 or 43 percent for 2005. ...The City's total net assets increased by $2,116,889 during the year ended December 31, 2006 compared to $2,990,296 during the year ended December 31, 2005. The [general city operations] net assets increased by $1,506,959 in 2006 and $2,351,485 in 2005. The total [enterprise fund/water and garbage] net assets increased by $609,930 in 2006 and $548,811 in 2005. This increase was mainly attributable to continued positive earnings on investments, successful completion and approval of federal and state grants, and the self-supporting capability of ...the Water Fund to cover the expenses of the program with revenues generated through user charges.”
While there is currently no disputing the financial challenges facing the Galesburg water system, most of this is due to deferred maintenance and capital improvements plus the ravages of a half -century of wear catching up with us. As an enterprise fund, the water system is required to be self-supporting and that means that the tens of millions of dollars of improvements scheduled over the next decade must be paid for with higher rates, state and federal grants, and new bond debt. Preliminary discussion amongst the city council regarding the details of water system improvements and paying for those improvements has already occurred and action is likely later this summer or in the fall.
General operations expenses in Galesburg were up $791,000 in 2006 over 2005 with 36 percent of that amount going to increased economic development expenditures. Most people only think of the city contractual obligation to GREDA but actual expenditures for economic development in 2006 totaled $676,000 versus the 2005 total of $387,000. Public safety expenses in,000 and essentially reflecting for the absorption of Bunker Links golf course into the general fund).The single substantial decrease in 2006 expenses from the 2005 level was in public works. Galesburg spent $7.1 million for public works in 2005 but only $5.2 million in 2006.
As pointed out by the accountants, judging the city's financial picture can be done a number of ways but one telling metric is the changing fund balances. “The fund balance of the City's General Fund increased by $10,175 for 2006 and $1,213,620 for 2005. The key factor in this growth is due to the City receiving more tax revenues than anticipated. The Economic Development fund has a total fund balance of $6,830,102 for 2006 and $6,382,498 for 2005. The net increase in fund balance during the current year in the Economic Development Fund was $447,604 due to the increase in home rule tax collections and investment earnings while effectively managing the fund's resources which are used to promote economic growth within the community.” It is from this fund that most of the GREDA expenditures are drawn and it is this fund that was created to pay off the bond debt for purchase of the Logistics Park land. Approximately $350,000 per year is needed to pay these bonds while the remainder becomes essentially a slush fund for GREDA activities and incentives to potential area employers. For example, the various and accumulating China mission expenses come from this fund.
It is always prudent to budget conservatively — underestimating revenues and overestimating expenses — but historically Galesburg has taken such caution to extremes resulting in consistent excess or surplus revenues, particularly in regards to sales taxes. “The total original revenue budget of $19,267,180 was increased to $20,903,330 (an increase of $1,636,150) mainly for more sales and state income taxes than what was anticipated to receive in the fiscal year,” wrote McGladrey & Pullen. The 2007 (current fiscal year) budget was drawn up assuming a decrease in property tax dollars reflecting very pessimistic assumptions but as property taxes only account for one-fifth of the city's general revenues hardly a major factor for budgeting purposes as the sales tax revenues have consistently outpaced projections by more dollars than the projected loss of property taxes. Additionally, in 2007 the city implemented the new food and beverage tax that will almost certainly generate more that the projected revenues plus the new Seminary Square retail development will begin generating additional sales taxes later this year.
Perhaps it is because of the city's relative non-reliance on property taxes that city administrators and elected officials continue to push expansion and extension of the various TIF districts. In these districts any increase in property taxes that takes place due to development is withheld from the various taxing bodies and instead used for economic development purposes. This includes infrastructure construction or enhancements that few would object to but also provides for substantial cash incentives to developers. For example, the recently renewed TIF II district on East Main Street “provides a developer a guaranteed 50 percent property tax and sales tax increment reimbursement for any project developed in the area,” as described in Osborn's introductory letter.
The proposed National Railroad Hall of Fame is supposed to be built in this area, largely on 6.6 acres of park land “leased” from northern Kiwanis Park to that group by the city council. But the NRRHoF group, which has had virtually no success in obtaining substantial corporate donations, is now focusing its fund raising efforts on tax dollars. This would not only include state and federal money but millions of local tax dollars. City officials have confirmed to us that the NRRHoF committee want two million dollars from the city and that this was a major factor in the decision to expand and extend the duration of the TIF II district. The cost of such TIF district tax losses may not be much to the city but it is plenty to other tax entities like District 205 and the Public Library for whom property tax dollars are the majority of their funding these districts are extremely costly and their demonstrated benefit non-existent.
While the local economy has taken a number of hits, City of Galesburg finances have fared comparatively well. One easy way to show this is by looking at the five-year comparison in the audit. Noting that Galesburg redefined its fiscal year to match the calendar year in 2003, the complete fiscal year ending March 30, 2003 saw city revenues from general operations at $11.374 million compared to the 2006 figure of $13.359 million, more than a 17 percent increase. And as 2006 ended the city had a total fund balance of $28.529 million with $7.678 million unreserved in general operating funds.