Updated at 11 p.m. with the results of the East St. Louis City Council meeting- The East St. Louis City Council unanimously approved a 2016 budget Monday night with a projected deficit of nearly $6 million. Most of that deficit is carried over from prior years.
“We understand that there’s still a lot of work that needs to be done, but we wanted to make sure we pass a budget going into a new year,” said City Council President Pro Tem Robert Eastern. “We didn’t want to hold the city’s business up.”
“It’s a work in progress,” echoed Mayor Emeka Jackson-Hicks. “At this point we’re not going to resolve that $5.9 million deficit (immediately). Clearly we have some decisions we’ve got to make.”
The $38 million budget passed by the mayor and the city’s four other council members includes a plan of action to reduce the deficit that includes cutting the cost of insurance, reducing fire and police personnel through attrition, selling city land, and leasing the former industrial Alcoa site.
If all of those plans pan out, the city could save more than $2 million.
“The entire $2 million we can’t say is going to be for sure because there are too many moving pieces as far as who retires, things of that nature,” said budget director Egzabia Bennett after the city council meeting.
“This is not a one year fix. We know that we’re in for the long haul. We just got to do everything we can each year to reduce it as much as possible each year,” Bennett said.
City manager Alvin Parks said the greater challenge right now is finding the money to pay city employees in January.
“If we make it through the cash-crunch, which I’m sure we’ll find a way to make it through, I believe we will realize the things we need to realize the things we need to do to realize to reduce the deficit,” Parks said.
Parks also warned that the 2016 deficit could increase because 2015 revenue will likely be less than what was projected in this year’s budget.
During the city council meeting, the mayor said she wanted East St. Louis to do everything possible to clear the deficit quickly, and suggested looking into privatizing some departments in order to speed up the process.
“I would like to really see us address this issue and not drag out the deficit for four years,” Jackson-Hicks said.
After the meeting, Parks said privatization was a possibility but that it most likely would take the city four or five years to balance the budget “unless there’s a major shot from a revenue standpoint.”
The out-of-balance spending plan comes as the city continues to tighten its belt. So far eight police officers have been laid off and nine administrative positions have been eliminated.
Jackson-Hicks first laid out the city’s financial crisis in August, three months after she took office. A few weeks later her fellow city council members ousted her preferred city manager, replacing Jackson-Hick’s pick with her political rival, former mayor Alvin Parks, Jr.
As city manager Parks is in charge of the budget and makes the staffing decisions.
Jackson-Hicks said Friday if she were in charge she would have made different staffing decisions over the past few months in order to avoid the possibility of running out of money to pay city employees.
“For example, out of the eight police officers that were laid off, only three to four of them affected the general fund, Jackson-Hicks said.
“So it doesn’t do much for our general fund even though it may decrease the spending in those other funds, which is part of our overall budget. But it’s our general fund budget right now that’s in trouble because that’s the fund that we use for the general operations of our city.”
According to Jackson-Hicks, some of the administrative positions eliminated were also funded from a different source.
“I would like for the city manager to look at some of the departments that we have, and I don’t want to list them at this time, but some of the departments that we have and possibly eliminating those before (cutting police and fire), Jackson-Hicks said.
“Is it realistic to say that they won’t be touched? No,” she added, noting that about two-thirds of the city's employees are in the police and fire departments.
Jackson-Hicks said her primary concern right now is morale.
“I’m concerned always for the employees. They have families,” said Jackson-Hicks. “I’m concerned that citizens will possibly give up. We don’t want them to give up hope in the leadership and the direction we’re going in.”
Parks confirmed Monday that some of the positions he eliminated were funded through TIF, but according to the budget director the police who were funded through TIF were laid off by seniority and now that TIF funding goes towards other officers who were previously funded through the general operating fund.
How did the city get here?
At a public budget hearing in late October, and again at Friday’s press conference, City Manager Alvin Parks,Jr. said he wanted to focus on the future and not dwell on past mistakes. But when pressed, Parks pointed to two issues that weren’t caught until this year:
- From 2010 until 2015 the city budgeted for a $2.5 million loan it never received from the Financial Advisory Authority. (The state agency was tasked with helping East St. Louis return to financial stability. It dissolved in 2013.)
“The loan we just kept budgeting. When we understood that we weren’t getting it, unfortunately it was still in the city’s budget like we had received it,” Parks said Friday.
- From 2011 until 2015 the city underestimated how much it was paying in workers’ compensation claims.
“We were projecting $950,000 on a budget standpoint. We’ve actually been paying out about $1.6 million. And unfortunately that was not caught until 2015,” said Parks.
City administrators have also pointed to "unfunded liabilities" as contributing to the deficit. That includes the higher-than-budgeted workers' compensation, lawsuits for failing to meet its contractual obligations to police and fire, as well as the pension payments that East St. Louis is contractually obligated to pay.
Parks said Friday that East St. Louis made a $580,000 pension payment in September 2015, but has yet to pay its pension payment for 2014, a debt of approximately $2.2 million.
Lack of communication and awareness
Part of the reason those issues weren’t caught sooner appears to be a lack of communication between past and present administrators. At the October budget hearing, budget director Egzabia Bennett said he didn’t find out until earlier this year that the money spent on workers’ compensation for the past five years was more than the city had budgeted.
At the same hearing, Parks said former city manager Deletra Hudson didn’t fully reveal the budget problems to him or the rest of the city council when he was mayor.
Parks added that part of the responsibility for the current crisis does fall on him since he was mayor at the time the issues weren’t addressed.
Bennett began recommending the city file for bankruptcy to restructure its debt last year, when Hudson was still city manager and Parks was still mayor.
Lack of due diligence in collecting revenue
A cash management review made public at the end of October found that East St. Louis may have failed to collect a significant amount of food and beverage taxes and package liquor taxes in 2014 because “a formalized collection process is not in place to pursue the taxes due” and because the “businesses are an honor system to accurately report” their sales.
The city is also behind in cashing its checks and just recently caught up on asking for its bond residuals. City Treasurer Charlotte Moore said Friday that when she took office this spring she discovered the city hadn’t collected bond residuals for two years and had checks waiting to be cashed for more than six months.
“When we defeased the bonds in 2013 the $1.2 million was never collected,” Moore said. “It didn’t happen from 2013 to when I took office.”
According to Moore, the city also has a three-page list of 2014 checks that need to be cashed.
“All the outstanding checks from 2014 had never been voided and the money transferred back to the general fund, Moore said. “So that’s major because that’s money sitting over in the clearing account that should come back to the general fund.”
How will the city reduce its deficit?
At Friday’s press conference, Parks said that East St.Louis will be pursuing the back taxes it is owed, including the liquor taxes outlined in the cash management review.
“Anything that has been on the books that has not been collected we’ll certainly be pursuing. We’ll be pursuing old TIF loans. We’ll be pursuing any indebtedness that the city has not collected upon,” Parks said.
He was unable to estimate how much the city is owed, however, stating that “there are some things that you would have to go over line item by line item to exactly know what are the projections versus what was collected.”
Asked whether he will be following the cash management review’s recommendations, Parks said that he would.
“But in addition to that, simply making sure that individuals are doing what they can do. We have a regulatory affairs department that will certainly collect all the money that’s due it. We need to make sure that every parking ticket, every speeding ticket, every other kind of violation that is out there to collect upon we collect upon,” Parks said.
Parks also said that layoffs will continue, although he didn’t have a timeline.
“We at this point don’t know how many or how soon, but we have to continue looking for efficiencies,” Parks said.
After rumors circulated city hall last week, Parks also confirmed Friday that the city is trying to find a way to pay its bills in January.
Parks said it was an internal discussion that was made public, but financial consultant Dawayne Stewart told the mayor at October’s public hearing that the city could run out of money as early as December.
Despite the lack of a complete plan to deal with the city’s projected $5.9 million deficit, or a concrete way to pay its employees in January, Parks is optimistic about the city’s future.
“We’ve got a lot of reasons to be positive,” Parks said Friday, pointing to a new grocery store opening on Tuesday, plans to redevelop historic Broadview Hotel in downtown East St. Louis, and an East Coast company’s plan to build a solar farm on industrial land owned by the city. In March, St. Louis Public Radio reported that the solar farm requires state legislation to operate. That legislation has yet to be passed.
“We do have this short-term cash crunch that we have to get through,” Parks acknowledged. “It’s hard to get to October of 2016 or 2017 without first getting through of December of 2015, January 2016.”
But he added, “We’ll get through this cash crunch and then move onto the point where we’re all saying ‘look at our city rising.’ We’ve had several pieces of positive economic development already take place. It’s now just a matter of realizing what that means to the city’s budget.”
Follow Camille Phillips on Twitter: @cmpcamille.
An earlier version of this story incorrectly identified the name of the city's new grocery store and contained an old employee count.