The city of Zion won’t be able to pay its bills without a short-term loan, its city administrator told the Zion City Council last week ahead of a unanimous vote to approve the move.
The city has been struggling with deficit spending that has drained its cash reserves, and City Administrator David Knabel said the city is on track to run out of money in mid-April.
The city won’t get the next significant infusion of property tax dollars until June, he said.
“It’s not a good situation to be in,” Knabel said. “It starts a financial cycle if you can’t get out of it, but we need to be able to bridge that gap operationally for cash flow purposes.”
The type of debt the city is pursuing is called tax anticipation warrants, a form of borrowing that is more short-term than the bonds governments typically use.
The council approved taking on up to $1 million in debt with a maximum interest rate of 5%, though Knabel said the hope is to get a lower rate.
While the financial markets have been volatile in the wake of the spreading coronavirus pandemic, the debt the city is looking to take on is a relatively sure thing for would-be investors, city officials said. The city has already levied for the property taxes that would be used to pay the loan back.
“I definitely don’t want to go down this path because I think it’s a dangerous path,” said Commissioner Mike McDowell, who ultimately voted for the move. “It will affect not only this budget year, but next budget year.”
City staff attempted to bridge the gap in other ways, including looking at invoices and attempting to hold off payments as long as possible, Knabel said. Payroll, though, is rigid and has to be paid regularly.
The city’s Fire Department has also had a lot of overtime costs due to personnel resigning, which has contributed to the financial crunch, he said.
He said he doesn’t think there’s anything else the city could do to avoid the short-term borrowing that hasn’t already been done.
The city is already “bare bones” when it comes to personnel and expenses, Knabel said, pointing to cuts that were made leading into the current budget year, an attempt by the city to minimize its deficit. The number of firefighters per shift was also dropped to six through an agreement with the firefighters union, he said.
“I wouldn’t be proposing this if I had another solution available for cost-saving measures,” he said.
Knabel pointed to proposed legislation at the federal level that would assist communities like Zion that have nuclear waste; the upcoming Census pushing the city over the 25,000 population level, which would give the city home rule powers; and a proposed medical marijuana cultivation center that has been tied up in the courts, but was informed recently that its case would be heard by the Illinois Supreme Court.
All of these solutions, though, have lengthy timetables between approval and the city actually seeing any dollars, he said.
“I’m looking at those as our way to break the cycle, but not to prevent current issues,” Knabel said.
