Village of Riverwoods

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Village Revenues and Budgeting

January/February 2016


In the last edition of the Village Voice, I explained how only 1.8% of a resident’s entire property tax bill is received by the Village. Our property tax is used for police services. The police levy collected in 2016 will amount to $496,000, which is less than the cost of operating the department and none of it is used to pay for other village services. In this installment, I would like to give a brief, if simplified, overview of how the Village raises other revenues, pays bills, and keeps track of our finances.

Village Services

Some of the functions that the Village performs could be stated as follows: (1) building department, (2) police protection, (3) operating the water and sewer systems, (4) protecting the natural environment, and (5) maintaining village properties, infrastructure and streets.

The revenue sources that generally correspond to these functions are: (1) general fund revenues, (2) police levy, (3) water and sewer user charges, (4) tree mitigation fees, and (5) motor fuel tax money from the State of Illinois. Another revenue category, special service area taxes, is collected from residents for particular projects to repair private streets or extend water service.

Village Funds

There are accounting rules for governmental units known as Fund Accounting. The Village must track the revenues it receives according to the sources and the purposes for which received. The annual appropriation ordinance includes detailed line items of sources and uses within each fund, and state law regulates the transfer of money between line items and among funds. The reason is to ensure that moneys are spent for the purposes explained and voted upon when the appropriations ordinance is adopted.

We have 4 major funds: General Fund, Motor Fuel Tax, Water Fund, and Sewer Fund.

There are other funds for special services areas, fiduciary accounts and escrows, but they are not material to the operating cash flow of the Village.

The General Fund has diverse revenue sources: taxes on telecommunications, utilities, cable TV, tree mitigation fees, cell tower leases, local share of income tax and state sales tax, home rule sales tax, building permits, liquor licenses, hotel tax, police fines, of course, the police levy that you see on your tax bill.

Village Budget

The Board has worked hard to develop a formal budget process to forecast our revenues and expenses. For 2016, our budget anticipates the General Fund spending about $1.43 million on non police-services and $1.64 million on the police department. Against more than $3 million of expenses, we are recovering only $496,000 from property taxes! Thus, the varied revenues of the Village are really important to its fiscal health.

With our budget, we strive to achieve a small surplus or at least a break-even in the annual performance of the General Fund. Our forecasting efforts are not perfect, as many of our revenue sources can be affected by what happens with the financial crisis in Springfield. We have little control over some of these revenue sources.

Also, the General Fund has to stand by to lend to other funds when there is a major unplanned expenditure. For example, if Motor Fuel Tax monies from the state are not sufficient, the General Fund will end up paying for street resurfacing projects.

The Water and Sewer Funds constitute “enterprise funds” which are supposed to be self-perpetuating based on user fees. These enterprise funds have to generate their own reserves to handle anticipated capital replacements.

Village Investments

The desired outcome of our budget efforts and focus on spending and revenue is a healthy investment portfolio that provides a cushion to absorb future costs if operating cash flow is insufficient. The Village’s investment portfolio has been built up patiently over time and provides a solid financial backing to our government.

We have engaged JP Morgan Chase as our portfolio manager and are using their expertise to develop a conservative blend of fixed income investments. We have recently updated our investment policy and increased our monthly tracking of investments and returns.

Interest on investments, while low in today’s environment, is nevertheless an additional revenue component to the General Fund. Our portfolio will adjust if interest rates rise in the future.

Future Contingencies

Fortunately, the Village has no direct unfunded pension or similar liabilities. Our employees participate in the Illinois Municipal Retirement Fund (which is better funded than the other pensions in the state) and if this fund were to become seriously underfunded, our share of contributions would go up. We do not believe for our number of employees that we would have any major financial exposure.


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