The Case For Economic Development

Two former city managers make their case for economic development and propose alternative funding sources.

by Dennis Kief, City Manager, (2003-2010) and Frank Mackaman, Mayor (2005-2007) and Interim City Manager (2010-2011)

Even more so than many other cities in Illinois and throughout the nation, Pekin faces considerable financial challenges if it is to deliver the public services our residents expect over the long haul.

We believe that a renewed investment in economic development will yield positive results for our community. Put simply, the promise of economic development boils down to this: growing business provides jobs; job-holders increase spending, which generates sales tax revenue; and more economic activity improves property values, which increases property tax revenue. The City has taken steps to reign in expenses. Now it’s time to generate revenue.

This effort needs to include not just the City but also the Chamber of Commerce, the Regional Economic Development Council, and the business community.

We propose that the City reinvigorate its economic development program by taking the following actions:

1. Increase the City’s gasoline tax from four to five cents per gallon, which matches the rate in Peoria. This increase will add $150,000 to the street maintenance budget.

2. In turn, reallocate $150,000 from the recent tax increase approved by the Council (and designated for street maintenance) to economic development.

3. Increase the hotel-motel tax from five to six percent to match neighboring communities. Earmark the additional $35,000 generated for economic development.

4. Consider allocating a portion of the current $170,000 generated by this tax for development.

These four actions would produce at least $185,000 annually to improve the City’s business climate. And it would do so without depriving the City of any existing revenue. Past City administrations have used economic development incentives successfully. Think of East Court Village, Riverway Business Park, and TIF support to downtown businesses. It is past time to build upon those successes.

Speaking of TIF, City officials need to evaluate the economic development opportunities presented by the downtown tax increment financing district (TIF 1). TIF 1 expires in 2021. The City has more than $3,000,000 in reserves which, in turn, generates about $500,000 annually in income. But there is no formal plan to use those funds to replicate the success of small businesses downtown such as those in the 200 block of Court Street.

The City’s financial health is precarious. The property tax levy produced $642,072 for the General Fund in FY2013-2014. By FY2016-2017, however, the levy generated $0 (that is a zero) for General Fund projects beyond pension and debt repayment obligations. In fact, the levy fell short of fully funding the Illinois Municipal Retirement Fund by $549,763.

We cannot count on financing basic City services with new debt. Nor is it likely that Pekin’s Equalized Assessed Valuation (the basis for property tax revenue) will increase. The wise use of economic development incentives is necessary to promote economic growth over the long term.

Written by:

Dennis Kief, City Manager, (2003-2010)

Frank Mackaman, Mayor (2005-2007) and Interim City Manager (2010-2011)

The views expressed in this post are those of the authors and do not necessarily reflect the views of the Pekin Area Chamber of Commerce or its members.