Board Workshop Tackles Use of Funding Sources

The and village staff held a study session Monday night to discuss major revenue sources, including appropriate uses for the .

Village Administrator Bob Vitas explained that the non-home rule sales tax first was considered in early 2010 due to projected revenue shortfalls.  

“We needed to find a way to properly fund infrastructure, to pay for roads and public safety pensions. We decided to go to the voters,” said Vitas.

The question posed to voters was: "Shall the village of Lake Zurich be authorized to impose a Municipal Retailers’ Occupant Tax and a Municipal Service Occupation Tax at a rate not to exceed one-half of 1 percent for expenditure on public infrastructure or for property tax relief or both?"

In village communications leading up to the November 2010 election, the village stated that revenue from the sales tax increase would be used for infrastructure projects such as the road maintenance program, and capital equipment replacement of police cars, ambulances and fire trucks, and road maintenance equipment.

Vitas said village attorneys advised him after the referendum passed that the purchase of select public works vehicles was allowable with non-home rule sales tax funds, but other expenditures — like the purchase of police and fire vehicles — were not.

Much of the discussion at the Oct. 24 workshop centered on what qualifies — or does not qualify — as allowable uses of non-home rule sales tax funds.

The issue has been brought up at meetings over the last couple of months.

“Operations and maintenance, daily personnel costs and the cost of chemicals do not fall under allowable NHRST expenditures; debt service, administration, and capitol replacement and improvements that go beyond routine maintenance and vehicles do,” said Trustee Rich Sustich.

In addition to the seven categories of qualifying expenditures dictated by state statute, Trustee Terry Mastandrea suggested including projects in the annual capital improvement plan.

The board was polled, By a 4-1 vote, it directed village staff to use non-home rule sales tax funds "for expenditures on public infrastructure," which include (as dictated in state statute): municipal roads and streets; access roads, bridges and sidewalks; waste disposal systems; water and sewer line extension; water distribution and purification facilities; storm water and retention facilities; and sewage treatment facilities.

Trustees Sustich, Mastandrea, Tom Poynton and Dana Rzeznik voted yes, while Trustee Jeff Halen voted no. Trustee Jonathan Sprawka was absent and excused from the meeting.

“I view capital improvements as roads, sewers and what the general public views as infrastructure, which is how we presented the referendum to voters; those are the things I think the NHRST should pay for,” Halen said.

See more on this issue at: Can NHRST Funds Cover TIF Debt?

Water and Sewer Fund Deficit

Trustees also discussed the Water and Sewer Fund, in addition to new ways to bring revenue into the village.

“We’ve always been operating at a deficit in the Water and Sewer Fund; our debt service is a couple of million dollars more than the revenue brought in,” Vitas said. “Rates weren’t adjusted in the past when bonds were used for the ion-exchange program.”

About a dozen residents living outside the village receive water service, and the possibility of charging for that service was proposed. Mayor Suzanne Branding said the village needs to consider selling water.

The village is awaiting a report from engineering consultant Ruekert & Mielke, which has been investigating current charges to residents and overall fund operations.

Trustees also raised questions about charging for services to communities outside of the Lake Zurich Rural Fire Protection District.

The district covers Lake Zurich and portions of Hawthorn Woods, Kildeer, Deer Park and North Barrington, in addition to other unincorporated areas around the village.  

Residents in the district living outside of Lake Zurich do not pay any overhead for governance, administration and human resources costs of the fire department, in addition to finance, accounting and reporting costs.

“Can we consider passing those costs on to the district?” Sustich asked.

“We’ve gone around on that; We do subsidize that service to the outside” communities, Vitas said. “The question is, how much cost do you want to pass on and how much will they pay?”

“I think these numbers need to be thoroughly reviewed before we get ahead of ourselves,” said Fire Chief Dave Wheelock.

“Members of the fire protection district are willing to pay, but I agree with the chief: There must be documentation supporting why we are asking them to pay more,” Mastandrea said.

Discussion led back to the non-home rule sales tax, and Mayor Branding stated she would look into whether the allowable uses of the funds could be broadened to include all village operations.

“In July of 2010, the state of Illinois decided that non-home rule sales taxes could be used for anything; I will be asking our attorney if there have been any changes,” Branding said.  

The General Assembly at that time instituted a five-year moratorium on non-home rule sales tax funds to make it easier for municipalities to handle budget constraints, according to Zochowski.

The sticking point could be the way the referendum was worded on the ballot in Lake Zurich, which might not allow the village to change what the initially included expenditures portrayed to the public would be.

Trustees also discussed the end of the municipal utility tax on May 31, 2012.

Zochowski warned the board that if the tax no longer were levied, handling expenditures already in the budget would become an issue.

“We will not be able to meet all the guiding principles based on anticipated revenue streams; revenue sources at best are remaining constant while the cost of doing village business is rising,” Zochowski said.

Depending on use, the tax represents 2½ percent of the total electric and gas bill on average per household.

Whether or not the tax will be allowed to end or will be reinstated will be a topic at board meetings in the near future as the new budget is presented.

The board did give village staff direction on how to utilize the telecommunications tax for fiscal 2012.

“The tax generates more than $1 million a year, and the board directed us to use the funds for general operations for general government purposes and not earmark a portion for road improvements as was done in last year’s budget,” Zochowski said. “Road improvements can now be funded by the NHRST funds.”

“We need to ensure that all of the taxes are being used for what they were intended to be used for when they were implemented,” Halen said.

More discussion on water rates, as well the TIF district debt obligations and their effect on the community, will be presented by consultants at the Nov. 7 village board meeting.