City officials anticipate revenue bump as fiscal year ends

David Holtmann: City anticipated a negative effect on sales tax revenue from the pandemic.

Jason Gage: The proposed budget funds $2.7 million in requests from city departments.

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Springfield City Council began the process of establishing the fiscal 2022 city budget with a presentation on May 4 from Finance Director David Holtmann.

The proposed fiscal 2022 budget is $394.5 million, an increase of about $27 million from the adopted fiscal 2021 budget.

Holtmann outlined factors impacting the city’s current financial condition: the local economic climate, business growth and resident wages; and the city’s fiscal health and management, affected by indicators like adequacy of reserves and revenue stability.

In 2020, the city assisted two new businesses and four existing businesses with $20.4 million in capital investment via the Enhanced Enterprise Zone program, and nine Springfield Regional Economic Development Partnership projects represented $290 million in new capital, Holtmann said.

Personal income in Springfield is measured in part by median household income, which in 2019 was $35,677, according to census data. That’s far below the same number for the Springfield metropolitan statistical area, at $47,034, and the state figure of $57,409.

Springfield’s median household income has been lower than the region and state since at least 2010. City Manager Jason Gage said that’s likely brought down by college students who are counted in the U.S. census.

“Even so, that is an alarming number, and it should be alarming,” Gage said at council’s May 4 budget workshop. “As we continue to think about economic vitality, we have to think about what that really means. What that shows me is whatever we’ve done in the past hasn’t really helped a lot.”

Positive ending
Last year, council adopted a $368 million budget, a decrease of about $12 million from the previous fiscal year.

The largest portion of the city’s budget is made up of special revenue funds, including the art museum, emergency communications, parks and transportation. Special revenue funds make up about 33% of the budget, but revenues in the fund are restricted within those areas, Holtmann said.

The city’s general fund, which includes the Police, Fire, Planning and Development, and Public Works departments, makes up 22% of the total budget, and includes the bulk of the city’s unrestricted taxes, Holtmann said.

Enterprise funds, including the airport and clean water services, comprise about 24% of the budget, and the remainder goes to capital projects, debt service, grants and internal services.

As the city approaches the current fiscal year end June 30, Holtmann said officials anticipate higher revenue than originally budgeted from some sources.

The city’s largest source of revenue, coming in at one-third of the budget and 60% of the general fund, is sales and use taxes.

As the previous budget process began shortly after a stay-at-home order was put into place due to the COVID-19 pandemic, Gage and city staff implemented cost-saving measures in the budget out of concern for the financial impact, including a decrease in sales and use tax revenue.

However, Holtmann said the city is set to exceed the estimated amount. Officials project $47.7 million in sales and use tax collections by June 30, roughly $3.4 million above budget.

“We were really concerned moving into this year. We thought it was going to contract by about 6%,” Holtmann said. “We’re showing good signs in sales tax, such that we’re seeing steady growth during this last 12-month period.”

Through March, the city had budgeted $30.1 million in sales and use tax revenue. The actual revenue collected through March is $32.5 million – an increase of just over 8%.

The city’s second largest revenue source is payments in lieu of taxes from City Utilities of Springfield, which make up 20% of general fund revenue.

The city is also projecting a higher revenue from the PILOT source than originally budgeted. The fiscal 2021 budget included $14.7 million in PILOT revenue, and the city is now projecting $16.2 million by the end of the fiscal year.

The PILOT revenue is one that can be hard to predict, Holtmann said. After one week of extreme weather in February, increased energy usage boosted CU’s distribution of funds by $1.5 million.

“It’s good for the city in that it’s additional revenue, but we can’t use that as a foundation to project next year’s PILOT revenue,” Holtmann said. “We have to look at that $1.5 million and say this is a source of revenue we can use on one-time expenses. It would not be appropriate to hire $1.5 million worth of employees, because we wouldn’t be able to afford to pay for them next year.”

PILOT revenue is 13%, or $1.3 million, over projected revenue through March.

The city’s total general fund revenue collected as of March is 6.7% over the budgeted revenue, or about $3.3 million. Holtmann said the city is projecting a final general fund revenue of $87.7 million for fiscal 2021.

A new budget
As the new budget is developed, Holtmann said the focus outside of maintaining core functions will be employee recruitment and retention, public safety, fiscal sustainability, economic vitality and quality of place.

Projected sales and use tax revenue is $49 million with a projected general fund revenue of $89.1 million. The special revenue fund projected revenue is $129 million and the projected enterprise funds revenue is $96 million, according to city documents.

The proposed budget includes 1,960 full-time or full-time equivalent positions, an increase of 45 employees from the fiscal 2021 budget.

A total of $6.5 million in budget requests were submitted by city departments, Gage said, including $3.3 million for ongoing costs.

The proposed budget funds approximately $2.7 million for ongoing costs and one-time requests.

Council will hold budget workshops weekly until May 25 during Tuesday lunch meetings, which are open to the public. On June 1, the council is scheduled to introduce the budget for first reading, and a second reading and vote is set for June 14.

The fiscal 2022 budget will be in effect from July 1, 2021, to June 30, 2022.