Minutes - 09/04/2009 - Citizen’s Finance Advisory Committee �PGE of CAt TO: Village Board
FROM: Citizens Finance Advisory Committee
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G SUBJECT: First Committee Interim Report
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DATE: September 4,2009 ' ` 1,
Village of Y
Oak rook
1200 Oak Brook Road I. Introduction
Oak Brook,IL 60523-2255 This is the.first of what the Citizens Finance Advisory Committee("Committee")
Website envisions will be a number of reports to the Village Board("Board")as the work of
NYWI .oak-brook.org
the Committee progresses. We believe that issuing ongoing reports and
Administration communicating with the Board is the most effective and efficient means for the
630.368.5000 Committee to address our charge from the Board.
FAX 630.368.5045 g
Community II. The Committee's Approach to and its Work to Date
Development In response to the Committee's charge from the Board(Attachment 1),we have
630.368.5101
FAX 630.368.5128 identified several areas of focus and inquiry for its efforts.This interim report
focuses on employee compensation and benefits. The Committee chose this area for
Engineering its initial work in light of the fact that these costs account for approximately 75%of
Department the costs of General Fund operations expenses.
630.368.5130
FAX 630.368.5128
As of this writing,the Committee has held four(4)meetings. It has received input
Fire Department form 15 residents of the Village at these meetings along with a presentation by the
630.368.5200 30.36 .5 Village's independent auditor cGladre &Pullen and has had requested and
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received a significant amount of information from the Village's staff,including the
Police Department Village Manager, Assistant Village Manager, Acting Finance Director, and the Fire
630.368.8700 Chief. The Committee expresses its appreciation for the support provided by these
FAX 630.368.8739 Village employees in its work,which has involved late evening meetings.
Public Works
Department The Committee wants to make clear the nature of its effort from the outset. We are
630.368.5270 not performing a detailed study or management consulting review of the Village's
FAX 630.368.5295
finances and operations. Rather,in its work,the Committee is applying its substantial
collective business,commercial and professional experience in reviewing
Oak Brook information about the Villages finances and operations and offering its observations
Public Library g p g '
comments and recommendations for the consideration of the Village Board and
600 Oak Brook Road Management(the Village Manager and his staff along with heads of the Villages
Oak Brook,IL 60523-2200 various departments--e.g., Fire Chief,Police Chief, etc.)which together have the
630.368.7700 responsibility and authority to effect changes.
FAX 630.368.7704
Oak Brook Sports Core III. The Village's Financial Situation
Bath&Tennis Club In simple terms,the Committee is of the view that the Village is now facing.
700 Oak Brook Road significant financial challenges which will not be resolved without substantial,
Oak B 630.368 64203-4600 proactive efforts on the part of the Village's Board, its management/leadership
FAX 630.368.6439 group, and its employees.The current economic downturn has exacerbated a
negative trend in the Villages finances which,based upon information reviewed by
Golf Club the Committee,has been developing over a number of years. The Committee
2606 York Road observes the following relative to this trend:
Oak Brook,IL 60523-4602
630.368.6400
FAX 630.368.6419
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• During the 10-year period ending 12/31/08,the General Fund's general sales
tax revenues (exclusive of non-home rule sales)the Village's largest single
source of revenue,have declined from approximately$112 Million in 1999
to approximately$10.8 Million in 2008. The Village does not control these
revenues.They are collected by the State of Illinois and remitted to the
Village. The Committee observes that a substantial portion/of i e sales tax
revenues result from sales at the Oak Brook Center,which contains a
significant number of high-end retail establishments which are now facing
business challenges relative to maintaining sales pricing and volumes relative
to pre-2008 levels.
• During the same 10-year period,the total costs of overall Village General
Fund operations,exclusive of capital outlays,have increased from
approximately$13.2 Million in 1999 to approximately$19.6 Million in 2008,
or a mean increase of about 4.8%per year,which the Committee observes
was substantially in excess of the general rates of inflation during those years,
as reflected in the overall US Consumer Price Index(CPD,which had a mean
increase.of approximately 2.9%over the same period. As previously noted,
approximately 75%of all costs of Village General Fund operations are
employee compensation and benefits costs,indicating that those costs have
grown significantly above general inflation rates during that period.
+ Total Village General Fund revenues, exclusive of enacted Non-home rule
sales taxes,have grown from approximately$14.7 Million in 1999 to$19.3
Million in 2008, or a simple arithmetic mean increase of about 3.1%per year.
The combination of the growth in expenses and the decline in sales tax
revenues,as noted above,which would have otherwise resulted in deficits,
was substantially funded by significant increases in Village utility taxes. The
Committee understands that the utility taxes are now at their maximum
allowable rates(6%)on natural gas and telecommunications and are assessed
at 5%on electricity.
• In 2008,the Villages General Fund incurred a deficit of approximately
$657,000.Actual general sales tax revenues for 2008 were$10.8 Million
compared to budgeted sales tax revenues of$12.2 Million,or a shortfall of
approximately$1.4 Million. Actual expenses were about$1.0 Million below
budget,but this favorable variance was not enough to offset the shortfall in
budgeted revenues.
• For 2009, year-to-date general fund revenues through August are
approximately 9.4%below prior year revenues, and the overall pattern for
sales tax revenues,which do demonstrate month to month variations,is an
increasing rate of decline.
• Oak Brook and its residents have clearly been the beneficiaries of the
significant funding provided by sales taxes. As a result,the Village is in the
unusual position of not levying any real estate taxes to fund its operations.
However,this situation has also likely resulted in the current strained
financial situation developing over time. Sales taxes and other revenue
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sources covered increasing costs and no"bill"for the cost of Village
operations has been directly presented to the Village's residents.Today's
economic climate has changed dramatically,and sales taxes,along with other
revenue sources,are on the decline and will not cover the costs of Village:."
operations which have grown markedly ovdr the years.
Based upon the above observations,the Committee believes that the Village's
financial situation is ur-gent and requires commensurate action on the part of the
Village's Board and Management.
IV. The Committee's Observations/Comments/and Recommendations—Short
Term
Preface/General
Before offering specific recommendations,we want to start with a simple preface.
The types of changes that we are suggesting will require significant focused effort
and commitment on the part of the Village Board and Management and will present
challenges that go beyond the current year and next year as well. The adage"change
is never easy"applies here. Difficult decisions will be needed and it is unlikely that
all parties will agree on solutions or find them to their liking. Simply stated,we
believe that collectively the Village—its Board,Management and employees-are
facing a situation which mandates doing more with less. This challenge of reducing
costs must be balanced against maintaining the high level of services that the
residents and business community of Oak Brook have had and expect.
Specifies
• We commend the Board and Management for the efforts and actions they
have already taken addressing the Villages financial challenges.These
actions have included moving employees from a 35 hour work week,limiting
overtime,and the consolidation/elimination of certain positions. Cuts and
reductions of this nature are never easy to implement.While we understand
that the impact upon the 2009 budget will be modest due to the costs of
severance and benefit payouts,the impact upon 2010 will be significant
(estimated cost reduction in excess of$1.0 Million on an annual basis).
• We recommend that all salaries and pay grades be frozen at 2009 levels as
the starting point for the 2010 budget process.The only exception should be
for critical promotions needed to sustain Village operations which are fully
reviewed and approved by the Board,which we would expect to be few. We
believe that this would be a prudent,precautionary move in the face of a
trend of declining sales tax revenues in the current year,the full extent of
which will not be known until after the 2010 budget is finalized in December.
We believe that the future direction on sales tax revenues, in light of the
current economic downturn,will not be known for some time to come.
However, as noted above, sales tax revenues have actually declined in
nominal dollars, and have declined by a greater amount and percentage in
real terms. if necessary to arrive at a balanced budget for 2010 which
considers appropriate negative contingencies which could materialize(e.g.,
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further declines in revenues)the Board and Management should consider
across-the-board salary decreases which can be implemented.
• We recommend that all Village job descriptions be updated and reviewed as
soon as possible,but no later than Noveifibet 30,2009. We pnderstand that
some job descriptions were last updated as long as ten(10),yew"s ago.Based
upon the cumulative effect of changes in the Villages operations,we believe
that it is unlikely that these job descriptions are reflective of current
responsibilities and the Village's organization structure as it presently exists.
As a part of this process,jobs and their responsibilities need to be reevaluated
and"reengineered"in line with the objective of maximizing effectiveness
and efficiency. The need for the performance of work tasks and their output
should be critically evaluated by the incumbent employees and supervisors.
We recommend that this facet of the review be completed no later than
March 31,2010.
• The Village's current compensation practices, system and structure has
numerous problems inherent in it,including:
- Nearly 80%of all current employees are at their pay grade maximum.
Employees have received cast-of-living adjustments (COLA's-2%for
2009)plus merit adjustments(up to 3%for non-fire/police; 5%for
fire/police for 2009). Over the past ten years,total possible salary
adjustments ranged from a low of 2%to a high of 12%.
- Most Village employees receive performance ratings on a 0-5 rating scale
(0 =Unsatisfactory; 5 =Excellent).Based upon review,the average
rating for all employees appeared to be somewhere around 4.4 for the
year 2007.
Taken together,we believe that these practices explain in large part the
growth in the Villages General Fund operating costs, as noted in Section III
above.We believe that the current practices/system/structure are
unsustainable.The Committee was not aware of the use of COLA's in its
private industry experience. Rather,merit adjustments, generally based upon
an overall allowable percentage increase guideline which must be managed
to, was the collective private industry experience of the Committee.
Consequently,the Committee suggests that use of COLA's be permanently
eliminated.
• A salary study should be undertaken for all Village positions,based upon the
updated job descriptions, as recommended above. We recommend that the
Village's prior practice of obtaining salary surveys which only considered
peer positions in other local municipal government units be discontinued, and
that private industry comparable positions be included in the study,as the
Committee believes that there are private sector comparables for many of the
Village's positions.More particularly,the Committee would observe that
currently ,the lowest paid Village employee is a non-exempt employee in a
pay grade 1 position with an annual salary of about$39,100.The Committee
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understands that the Village has a number of nonexempt positions in pay
grades 1 through 5 which require a high school diploma and may,or may not,
require prior work experience:The 2009 maximum,pay amounts for the
positions range from$45,291 (Pay grade 1)to$66,058 (Pay grade 5),
exclusive of fringe benefit costs. 1,
• The Committee recommends that all fringe benefits(vacation,holidays,
insurance coverages, auto usage,compensatory time off,sick pay,etc.)be
reevaluated for their alignment with prevailing market practices,including
those of private industry employers. Specifically we suggest that where
possible,the employee share of medical insurance costs be increased to levels
more representative of that in private industry(25-33%)vs. the current 17.5%.
We also suggest that medical insurance benefit levels and related costs be
reevaluated.The current unused sick day carryover accrual policy/practice
should be eliminated.
The Committee's Observations/Comments/and Recommendations—
Intermediate and Longer Term
Overall,the Committee believes that the Village is in a difficult situation relative to
the costs of employee compensation and benefits. Compensation and benefits for a
significant portion of its workforce are determined by collective bargaining and it
appears that more Village employees will soon adopt union representation.
Additionally,the Village's pension arrangements are mandated by the State of
Illinois and are costly. For example,for 2009,the fire and police pension
contribution are approximately 30%and 35%,respectively of base compensation.
While the contribution rate for 2009 is abnoarmally high due to recent capital markets
losses in the value of the related pension funds,the overall costs are high in order to
fund generous retirement benefits, including pension benefits that escalate annually.
For 2009,the total percentage of add oncosts to cover all fringe benefits for fire and
police employees to the Village is approximately 54% and 46%,respectively, as a
percentage of annual base salary.
In the face of this type of cost structure,the Committee recommends the following
for the Board's review all of which must be considered against the backdrop of
maintaining acceptable levels of services to the Village's residents and maintaining a
competent,capable and motivated workforce to deliver those services:
• Utilize part-time workers where possible and appropriate in order to limit
fringe benefit costs.
• Consider outsourcing and/or eliminating services where logical and
appropriate.
• Take a disciplined and appropriately aggressive approach in collective
bargaining with employee unions,in accordance with governing legal
requirements. The Village's stressed financial condition and lack available
revenues and resources,and the Village Board's resolve for prudent financial
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management must be made clear in collective bargaining and arbitration
proceedings.
• Consider cost sharing, combining operations,partnerships and similar
arrangements with other local units of goveftiment which oiTer She opportunity
for
increased effectiveness and efficiency.
• Given the Board's recent retention of state-level lobbying resources,we
believe that the Village should address the issue of costly,state-mandated
benefits (e.g.,mandated pension participations and arrangements)which are a
"one-size fits all"approach,and are no longer reflective of labor market
benefits. The Committee believes that Oak Brook is not the only municipality
which is adversely burdened by these requirements,and it would seem logical
that the Village could find allies in addressing this issue at the state level.
Conclusion
The Committee hopes that the above report is useful to the Board.We suspect that
we have raised as many questions as we have answered. However,we appreciate the
opportunity to be part of a process that we believe to be very important to our
Village and its future.
While the Committee has tried to capture all of its observations/comments and
recommendations regarding employee compensation and benefits matters,it may
have further points in this area as its work progresses, which it will communicate to
the Board.
The Committee's Chair will be present at the September 8th Board meeting to answer
questions you may have.
Respectfully submitted,
Citizens Finance Advisory Committee
Donald N. Adler, Chairman Norma Lauder Randall Teteak
George Paul Klein Todd Rusteberg