R2020-157 Resolution Estimating Amounts Necessary to be Raised by the 2020 Tax Levy

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even though the city's total equalized assessed valuation(EAV)could be expected to increase due to new construction, annexations, reassessments, and other changes. Option Two was to set the levy at a rate calculated to capture EAV increases due to new construction, annexations, reassessments and other changes, but not result in a noticeable increase for property owners who had not experienced any changes in their EAV. Option Three was to levy whatever the requirements of the five governmental functions listed above were, even if it resulted in a more significant increase in the property tax.The City Council selected Option Two.This option still resulted in a modest property tax increase (for just the city's portion of the total levy)of just over one percent(1%) because we did not complete as many annexations as planned in 2019, and because of a large devaluation in railroad property. The attached summary presents the same three options for 2021. In the interests of holding the line on property tax increases, it is again recommended that the City Council pursue Option Two. However,for 2021 the funding requirements for public safety pensions (primarily the Decatur Police Pension) have increased significantly.This increase in public safety pension funding means that if property taxes remain comparatively level,then the pension increases must be carved out of a 2021 General Fund that has already been impacted by revenue decreases created by COVID-19.The City Council can either attempt to absorb these increases into an already tight General Fund budget, or consider temporarily decreasing funding to the police and fire pensions and catch-up in future years. Such a decision does not impact pension benefits of retired/retiring police and fire employees, as benefit levels are set by State statute. This was discussed as part of the "Nine-Point Plan"for dealing with pandemic shortfalls. The growth of pension payments underscores the unsustainable nature of police and fire pension costs—despite action taken by the General Assembly in 2019 to consolidate 650+ Downstate police and fire pension systems into just two pension funds to obtain better investment returns. And it is why the city is pursuing ways of providing compensation to public safety employees without adding to the pensionable base, and exploring ways of decreasing the number of positions that participate in these pension plans. However, pension strategies are a subject for a future study session; but they bear on overall tax levy issues which are the subject of this memo. 2020 2021 Police Pension Fund Requirement $4,728,676 $5,577,791 Fire Pension Fund Requirement 5,884,675 6,200,989 If the entire cost of police and fire pension contributions were charged to the annual property tax levy in 2021 (as is permitted by State Law),then 83%of the city's property tax levy would be dedicated exclusively to police and fire pensions.To blunt such a disproportionate impact on the tax levy, however,the city decided several years ago to pay for between 14%and 16%of the total police and fire pension costs using payments in lieu of taxes (PILOTS)from other funds. For this reason, in 2020, police and fire pension costs were just over 64%of the city's property tax levy.