Former Mayor Belsky opposes City 7.3% Property Tax Increase

City 7.3% Tax Increase Unnecessary and Contrary to Fiscal policies

The City of Highland Park is proposing a 7.3% property tax increase in connection with its 2014 budget. The purpose is to fund a $1.1 mm payment to fund police and fire pensions and $365k in capital improvements for the library.  While both are worthwhile and responsible the property tax increase is not needed. Further this proposal is contrary to stated fiscal policies that have been in place for the last decade.

At the end of fiscal year 2013 the City had a General Fund balance amounting to $19mm, (with approximately $14mm unassigned). This represents 67% of General Fund expenditures (at approximately $28mm).  While serving as Mayor the Council established fiscal policies with respect to the use of fund balance.  These included the following: fiscal stabilization (i.e. when revenues are down or expenditures increase unexpectedly fund balance can be used to balance the budget- this happened in 2008 when revenues dropped 10% due to the Great Recession; one time capital expenditures; and pre-payment of pension liabilities.

Another policy that was put into place was to maintain a General Fund balance ranging from 25% to 33% of expenditures.  The Government Finance Officers Association considers 10% to be a best practice. Highland Park’s higher standard of 25% to 33% is what enables a Aaa bond rating from Moody’s. Based on the 2013 General Fund budget 25% would be $7.0mm and 33% would amount to $9.0mm. Even at the 33% level this leaves approximately $10mm in excess fund balance, more than enough to avoid the 7.3% property tax increase.

Another flaw in this proposal is using the tax levy to fund library improvements. The use of fund balance for this purpose makes sense in that $365k in improvements may not be recurring. Providing a tax levy for this purpose establishes a recurring source of revenue as it may become an expectation of the Library Board going forward.

It was recently reported by the press that 5 businesses closed in October and that Highland Park’s vacancy rate is 10%, double that of Lake Forest.  A 7.3% tax increase will likely be passed on the businesses by landlords. This will lead to more vacancies in our downtown. Property values and employment are still not at pre- 2008 levels. Imposing a 7.3% tax increase will impose an additional hardship on residents and homeowners.

The fiscal policies mentioned above were put into place for a reason. The excess general fund balance represents taxpayer dollars. I urge the Council to adhere to these policies and give taxpayers and businesses the relief they deserve.

One clarification for the public is that the press reported that the Police and Fire pension funds are funded at 40 to 50%, similar to that of the state. This is inaccurate in that the City issued pension funding bonds several years ago. The proceeds are invested in the pension fund with the idea that debt service is lower than the return generated by investment earnings on the pension fund. This has been the case. Taking this into account the City’s pensions are funded in excess of 70%.

Michael D. Belsky(Mayor of Highland Park 2003-2011)