Rockford City Council approves $32M surplus spending plan. Here’s how it will be spent
By Kevin Haas
Rock River Current
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ROCKFORD — City Council members on Monday settled plans for how to spend a surplus in tax revenue it received when the economy picked up faster than expected after the coronavirus pandemic.
The council approved a six-step plan to spend about $32 million from its rainy day fund on a variety of projects ranging from road construction to a home improvement program, new fire station and new equipment for the fire department. City Council members spent about two hours discussing the plan, with much of the debate centered around whether to use a portion of the money to reconstruct Auburn Street or dedicate it toward other uses such as pension obligations.
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The city’s finance department detailed the reasons for the surplus in July in a meeting before City Council. Then, in November, it introduced a proposal for how the money would be spent.
After several weeks of discussion, council members approved the plan set forth by city staff.
Here’s a breakdown of how the surplus happened, how the money will be spent, what other options were considered and why it’s likely to happen again next year:
How much is in the rainy day fund?
The city has more than $77 million in its rainy day fund, which is money it sets aside for emergency uses.
That amount doesn’t include federal American Rescue Plan Dollars that have been earmarked for specific uses.
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How much should be in that fund?
The city’s policy is that it should hold 20% of its operating budget in its rainy day fund. However, right now it has about $40.3 million more in that fund than its policy requires.
The city’s operating budget is $184 million, which means the total fund balance required under its policy is $36.9 million.
How did the surplus happen?
The city’s surplus built up over multiple years, but it took its biggest jump at the end of 2022.
That’s because the city set forth conservative estimates for how much tax revenue it would receive in 2022 as the area emerged from the coronavirus pandemic.
“We were budgeting really conservatively based on where we thought things were going to go after the pandemic based on the guidance we had from state-level economists,” said Carrie Hagerty, the city’s finance director.
The money that flowed in from income taxes and corporate taxes beat projections in 2022 by 34% and 207%, respectively, as more people got back to work and corporations earned more profits than projected. Both of those taxes are collected statewide and distributed to the city on a per capita basis.
Income tax was budgeted at $18.1 million dollars, but the city received $24.4 million. Personal property replacement taxes — which are paid by corporations, partnerships, trusts and public utilities — was budgeted at $8.1 million and actual revenue received was $25.1 million. That amount was a record level of revenue.
“We’re seeing both of those revenue sources continue to be over budget again in 2023,” Hagerty said.
In addition to that, the city underspent its budget in nearly every area, according Hagerty.
The biggest reduction in spending came in the police department, which was about $3.2 million under budget. About half of that amount is attributed to jobs that were open as the city searched for candidates to hire as police officers.
Why not provide tax relief?
Repaying that money would be logistically difficult because the money is collected statewide and distributed per capita, Hagerty said.
“Because the revenue sources that are over budget are collected statewide it’s difficult to tie that back in any meaningful way,” Hagerty said.
The city also has a multitude of needs that have stacked up because of previous budget deficits in years when the economy struggled, Hagerty said.
“We have significant infrastructure needs. We have significant facility needs,” she said. “Really this is a future cost avoidance measure. We’re avoiding having to sell bonds to build a new fire station No. 10. … the station’s going to have to be addressed at some point.”
6 ways Rockford will spend surplus funding
City Council members voted on each of the six steps individually to approve the total $32 million plan. Here’s a look at the six uses.
Auburn Street reconstruction and neighborhood roads
The city will set aside $13.4 million to pay for the reconstruction of a roughly 3.5-mile stretch of Auburn Street from Veterans Memorial Circle to Springfield Avenue.
The city will still seek grant funding as the design of the road work gets underway. The goal is to put the project out for bid next year and begin construction in late 2025.
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About half the cost of the project would be for water main replacement that would be refunded by the water utility. The city said that $6 million would then be dedicated at a rate of $1 million per year toward neighborhood road improvements.
The final vote, after a failed motion to amend this portion of the spending plan, was 12-2 with Aldermen Mark Bonne, a Democrat, and Tim Durkee, a Republican, voting against.
“Auburn wasn’t even in the five-year (Capital Improvement Plan). It was back in year nine,” Bonne said. “I still don’t see the compelling reason for Auburn to now, just because we have $30 million to spend, for Auburn to budge to the front of the line.”
“… Not to say that the Auburn project isn’t worthy, but all these projects in the CIP, every one of them are worthy projects.”
Proponents said Auburn Street was important not only because of the roadwork but because of issues with aging water infrastructure and water main breaks that have affected business owners along the roadway.
“I respect what everybody has said, but we have to start looking at investment on the west side,” Alderman Jeff Bailey said.
Replace fire station No. 10
The city plans to dedicate $10 million toward building a new fire station No. 10 on the empty lot next to Don Carter Lanes that housed the former Magna grocery store for years before it was torn down in 2020.
The new station would replace the station at 3407 Rural St., which the city says has a backlog of needed repairs and is on too small a footprint to allow for the growth needed.
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City Council members voted 14-0 to approve the plan. However, that came after concerns were raised by Alderman Frank Beach, a Republican who represents the ward where the station would be built. Beach, in part, was concerned about how the station would affect the ability to hold festivals on the parking lot site as they happen now.
“The people have come to depend on that lot over there as a rallying point,” Beach said.
He also had questions about other parts of the future design.
City Administrator Todd Cagnoni said aldermen would still have time to shape the details of the future station. Monday’s vote allowed the city to move forward with designs with the knowledge that a funding source was available.
Home rehab program
The city plans to use $1 million from its surplus fund for a home repair program. The money would be coupled with a $1.4 million state grant and $1 million in federal Community Development Block Grants for a total $3.4 million program.
The home repair grants are designed to support anyone who makes up to 150% of the average median household income. In Rockford, the median household income is $50,744, according to the U.S. Census bureau. That means 150% is about $76,115.
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The city previously ran a critical home repair program in partnership with Rockford Area Habitat for Humanity. That program was funded by $250,000 from the city and $250,000 from Rockford Housing Development Corp., but city officials say there are further needs the new program can address.
Aldermen voted 13-1 to approve the home repair funding with Durkee voting no.
Settle legal claims
The city plans to set aside $2 million to help settle various legal claims.
The city has $7 million in pending legal claims. It is self-insured for the first $750,000 of each claim, but it has pending claims that predate its commercial insurance.
Using the surplus cash to settle legal claims will allow the city to avoid taking on debt for the payments.
City Council voted 14-0 to approve this use.
Davis Park improvements
The city would dedicate $3 million in surplus funding toward its multiphase plan to redevelop Davis Park.
The Lorden building was demolished in October 2022 and floating boat docks were installed in June as part of the overall plan, which is also supported by state funding.
Future renovations include splash pads, a playground, a multiuse trail, a skate park, an open-canopy stage and a pedestrian plaza with space for food trucks. A previous plan for an urban beach was removed, Mayor Tom McNamara said. The total project is estimated to cost about $11.1 million.
“We’re talking about trying to find ways to save our city money and accumulate more money to offset our pensions costs, here it is,” Alderman Kevin Frost said. “I’m hopeful that as a council we can say no to putting an additional $3 million on top of all the other money that has been put into there.”
Alderman Chad Tuneberg said Davis Park was a want rather than a need for the city.
City Council ultimately voted 11-3 to approve Davis Park funding with Frost, Tuneberg and Beach voting against.
Fire department radios
The city will dedicate $2.5 million to upgrade the Rockford Fire Department’s communications system and radios.
The city said components to the current system are more than 30 years old and have diminished parts availability and prolonged repair times.
It also said the department experiences interruptions to the system that increase the risk to firefighters.
The city previously committed $480,000 in federal coronavirus stimulus funds to radio transmitter replacement. That money, combined with this surplus funding, would pay for the replacement of VHF digital radio systems and 140 portable radios.
City Council voted 14-0 to approve the spending.
What else was considered?
Pension payments
Bonne brought forward a proposal that would have put a portion of the funding toward pension payments and neighborhood roads rather than using it on Auburn Street construction and other neighborhood roads.
Bonne’s plan called for the $13.4 million Auburn Street allocation to be replaced with $5 million for police pension payments, $5 million for fire pension payments and $3.4 million for neighborhood road allocation.
“Our men and women in police and fire who put their lives on the line every day, if we don’t take care of that pension obligation, nobody else is going to do it,” Bonne said. “To have that absent of a list of how to spend a $30 million unexpected windfall just doesn’t seem right.”
Hagerty said pension payments wouldn’t have a significant impact on the city’s operating budget going forward. The city’s pension obligations are expected to account for 100% of the property tax levy by 2031 without legislative intervention, but Hagerty said the proposed contribution wouldn’t buy much more time.
“$10 million is a significant amount of money absolutely, but it is very small in comparison to our total pension liability,” she said. “In total, we might get another year before we hit that point with property taxes.”
Contributing the $10 million to the pension plan now would immediately provide the city a $760,000 reduction to its annual contribution requirement. Cities are required to have their pension obligations 90% funded by 2040. The reduction would grow to about $1.5 million by that time.
“The sum of the reduction over time is $18 million,” Hagerty said. “So we’re investing the $10 and that grows to $18 million over the time period.”
Debt payments
Durkee said the city should focus on protecting the taxpayers before spending more money.
“The citizens are annoyed that there’s a surplus,” Durkee said. “Some of them want to know why we just don’t lower property taxes and give it back to them.”
He wanted to see the city focus on paying down outstanding debt and preparing for future pension obligations before allocating the surplus to other projects.
“The wisest stewardship of the money is to address our debt, our long-term obligations, for the citizens of Rockford,” Durkee said. “I understand roadways are important, but I think at this point in time it’s a better use of our money to pay down debt.”
Do it again next year
The city expects to end this year with another budget surplus, but it will be several months before that amount is known.
Hagerty said the final sales tax distribution from the state doesn’t happen until March, and the surplus spending plan won’t be developed until mid-next year when the annual audit is complete in summer 2024.
“We are at this time projecting a surplus not only due to revenues received in excess of budget but also expenditures under budget,” Hagerty said.
McNamara said the surplus happened because of sound budgeting, reducing expenses and an increase in revenues.
“This was a planned effort to live within our means,” McNamara said. “It’s such a good problem, as an alderman mentioned, it’s so good that we’re going to get to talk about it in a couple of months when we have another surplus from 2023.”
This article is by Kevin Haas. Email him at khaas@rockrivercurrent.com or follow him on X at @KevinMHaas or Instagram @thekevinhaas and Threads @thekevinhaas
