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City Might Help Out Schools in Recovering Lawsuit Losses

The cost to Wauwatosa would be the loss of projected TIF funds in 2015, but taxpayers and schools would be spared now.

Through some creative financing — which city officials say is perfectly legal and responsible — the city might save its schools some major fiscal pain.

Under a plan recommended by the city's finance director, Wauwatosa would borrow to replenish not only its own losses in a major lawsuit but also those inadvertently incurred by the .

Eventually, the school system would still have to repay the city. But the debt would be structured in such a way that both the city and the schools would pay off borrowed funds from the retirement of the tax district in 2015.

The Tosa schools received approximately $2.25 million in property taxes collected by the city from 2003 to this year from Wheaton Franciscan Health Care on a large portion of its clinic on North Mayfair Road. In July, Wheaton was awarded repayent of all the property taxes collected during that time, plus interest, .

State law allows Wauwatosa to "charge back" all of the tax dollars, not including interest, that it collected and paid out to other taxing entities — the school district, Milwaukee County, MATC and MMSD.

On Sept. 8, Wauwatosa did repay Wheaton from liquid assets — money from the city's reserve funds. The total was about $8.4 million, of which about $6.2 million was in refunded taxes and just over $2.2 million was accrued interest.

The schools' $2.25 million share of that, comprising principal only, is more than the School District can safely afford to pay back at once. In Finance Director John Ruggini's words, "It would likely have a negative impact on its revenue cap, resulting in decreased state funds."

In the words of School Superintendent Phil Ertl, "We do not have $2 million just sitting around."

Ertl added, "It is all coming from the same pool; they're the same taxpayers," and said he was hopeful the city would find a way to see to it the school system was not harmed while still fulfilling its responsibilities.

Tapping future TIF funds

Ruggini believes he has found that way in one of several options presented Tuesday to the city's Budget and Finance Committee. Borrowing against the expected surplus generated by the retirement of the Research Park tax-incremental financing district in 2015 would supply all the needed revenue from the School District's projected share, and more than half of the city's.

The school district's share of the TIF's ending surplus is projected at about $2.57 million, Ruggini calculates, which would leave it slightly in the black after repaying the city for borrowing against that surplus.

"I think I speak for everybody, we don't want to penalize our schools," said Ald. Peter Donegan, a member of Budget and Finance. "We're sharing our strength with the schools."

The city, on the other hand, after receiving its $2.4 million share of TIF funds, would still be responsible for another $1.65 million in principal and $350,000 in interest to repay financing on the lawsuit pay-out.

That would be paid back out of city reserves under Ruggini's reckoning, but the key is not to let any of the reserve funds fall too low, possibly jeopardizing the city's bond rating or leaving it with insuffienct funds in an emergency.

The three largest reserves held by the city are the General Fund; the Amortization, or debt service, Fund; and the Health Life Fund. Of the three, the Health Life Fund is by far the "healthiest," sitting at 74 percent of all potential claims.

The "benchmark" for that fund — the amount recommended to be held against any reasonable expectation of increased claims — is only 30 percent, leaving a substantial buffer.

Donegan, himself a retired insurance executive, recommended paying the debt from that fund.

"Take $2 million out of Health and Life, borrow the rest (against the TIF surplus) and carry the School District," he said. "A 30 percent reserve is very healthy."

Ald. Dennis McBride concurred, saying, "Borrowing, although it seems counterintuitive, seems to be the best way. (The schools') taxpayers are our taxpayers."

Paying to avoid a greater backlash

Borrowing, as opposed to other options, will cost the city in debt interest, and ultimately those costs would trickle back to the taxpayer. But it would be a much softer blow than charging taxpayers to replenish those reserves in one fell swoop.

The option to replenish reserves by immediately raising property taxes has the advantage, Ruggini wrote, of rapidly replenishing the city's reserves without incurring borrowing costs.

However, he goes on, that would come with significant political and economic impact: A one-time tax hike in 2012 to pay back the Wheaton losses would amount to a whopping 11 percent increase for all taxpayers and a tax-bill uptick of $206 for the year for the average homeowner.

Another option would be to simply let the reserve funds already tapped to repay Wheaton lie below their optimal levels. But Ruggini points out that would not sit well with the bond rating agency that judges the city's financial health from the soundness of its ready reserves.

Finally, there is the option of targeting the taxpayer but spreading out the pain, replenishing reserves through increased property taxes over five to seven years. While that might make taxpayers merely grumble rather than froth, it would, like the previous scenario, leave the city vulnerable to inadequate reserves and weak bond ratings over a long period.

At any rate, the Common Council must decide upon and implement a payment plan before Nov. 30, Ruggini said, because the loss of investment revenues from cash reserves would adversely affect the city's cash flow to pay off complete and continuing capital projects.

Ray Ray Johnson September 28, 2011 at 05:09 PM
What this boils down to is YOU will pay either way; you'll pay for this from your left pocket, oryou'll pay for this from your right pocket. Just choose based on what govt department you like the most. What we COULD do is have the school kids sell magazine subscriptions/popcorn tins/collect box tops/etc. Wait...what?...we already do that stuff? OK, we could have vounteers at school to replace paid workers in some capacity. Then again, we are talking about $2.2 million. That's a whole lot of volunteerin'! We could work off the debt with Wheaton Franciscan by mowing their lawns and, oh, I don't know, I'm just brainstorming. Well, I'm out of ideas; we'll just have to raise property taxes! Let's see, paramedics and school debt and wheaton franciscan and-carry the one- multiply times 1.5, and, oh dear!..."KID'S let's start that zero-caloire water diet we were talking about today!" (How much is the water bill?)
John Pokrandt September 28, 2011 at 08:18 PM
Since Wheaton built this outside the scope of their original approved plan now they are able to dodge paying property tax. If anyone had a crystal ball we could have told them thanks but no thanks when they proposed building in Tosa. Another "for-profit" "non-profit" that's not on the tax roles. Last time I checked they weren't providing charity care. As for how to pay back the money I approve of what Ruggini is proposing as it softens the blow to the school system. Then again in the end we pay anyway so why not one and done? Oh, right because there would be political backlash and none of our officials is willing to face that and have an honest conversation with the citizens.
jdogmke October 07, 2011 at 12:30 AM
John, are you running on a platform of an immediate 11 percent tax increase? Really? I've lived in 'tosa for 5 years and seen my taxes steadily increase while the value of my home plummets. No more!
John Pokrandt October 07, 2011 at 02:07 PM
jdogmke: Not at all, my point is that you can either pay for this as Ruggini proposes or you can pay for it in a one year special assessment. The homeowners will bear the burden in the end one way or the other. Spreading it out may be a "softer blow" but a blow just the same. My oppinion is that if we insisted in continuing to collect taxes from Wheaton while they were challenging us in court at the very least those funds should have been set aside on the prospect that we may lose the lawsuit. This is a crisis of the City's making combined with a less than truthful bid to build here from Wheaton. The problem I have with "softening the blow" is that it will cost more in the long run.
Ray Ray Johnson October 07, 2011 at 04:19 PM
I have an idea. It's out of the box, but it's worth examining. I wonder what it would mean if municipalities sold property tax futures. What I mean is that for a lump sum, the property owner could pre-pay for 10 years (example) of property taxes. This could be sold as a one-time payment, with 10% discount based on last year's tax bill, times 10. That amount paid in full and up front would guarantee the property owner a tax discount and fixed payment, while the city leverages a bulk sum. This could work because only a few property owners would capitalize on it, but each year more may consider it as their situations change or improve. The risk to the property owner would be a non-refundable payment. The risk to the city would be that they can't stop spending money they don't have, and they will probably shoot themselves in the foot on this (which would have to be done OUTSIDE of city hall, of course) and find a way to screw it up. But to get back on point, example: Last year's bill $4500-10%=$4050 x 10 = $40,500 paid to the city this year. Next tax payment due: 10 years down the road. Yes, that takes that property off the rolls for 10 years, but if even 1% or property owners could take advantag of this, it would be a 10%-ish revenue boost this year. Considering that there may be a 'rolling' of properties in this type of plan, some in, some out each year it could work. And the plan would cover past-dues and collections. Just brainstorming.

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