City Prepared to Pay $8.4 Million in Lawsuit Settlement

The City of Wauwatosa will pay off its losses of just over $8.4 million on Thursday in a lump sum to , the city attorney said Wednesday.

The city reached a settlement agreement on overpaid taxes with Wheaton, and the Common Council voted Tuesday night to approve it. over tax-exempt status of its Mayfair Road clinic in July before the Wisconsin Supreme Court.

City Attorney Alan Kesner said the resolution passed by the council agrees to a settlement figure; directs that it be paid from available funds; settles other outstanding claims with Wheaton that were still in court; and directs the city to claim chargebacks from the other taxing entities.

Taken one by one, that means:

The city and Wheaton agreed on an exact figure owed to Wheaton of $8,439,284.90. However, Kesner said, that is as of Sept. 30, and the city can be credited the more than $1,600 a day in interest that would accrue on the total.

"So I think we're going to pay them tomorrow," he said.

With those credits, the city saves just over $36,000 for a repayment of $8,403,199.40 if it pays in full Thursday.

The only way to do that is to pay out of available funds. Last week, city Finance Director John Ruggini that included borrowing, raising taxes and paying out of city reserve funds, or some combination of those options. But the interest figures made it clear that full payment at the earliest date possible was the only responsible move, so the city decided to tap its reserves.

"The council will work on methods to replenish those funds," Kesner said. "They should have a plan in place before the end of the year."

While the state has barred increases in municipal property taxes without a referendum, debts from judgment are exempt from that ban. The city can and likely will raise taxpayers' rates to keep its reserves sufficient.

The settlement of outstanding cases means that Wauwatosa has dropped ongoing challenges to Wheaton's tax-exempt status and will pay as the settled amount all tax dollars reclaimed in lawsuits by Wheaton, including those that were not part of the Supreme Court decision.

The high court case covered taxes demanded of Wheaton from 2003 through 2006, totaling about $4 million. Cases still making their way through the courts on taxes Wheaton paid since 2007 were made moot by the precedent of the first case, adding $4.4 million to the settlement.

Finally, chargebacks to other taxing entities might allow the city to recoup a large part of its losses, but only at the cost to those for whom it collects and distributes property tax revenues — most notably, the Wauwatosa Public Schools.

The city keeps about 31 cents of every property tax dollar it collects for city operations. About 32 cents of every dollar goes to support the schools. Almost 25 cents more goes to Milwaukee County, and the rest is split between the Milwaukee Metropolitan Sewerage District and Milwaukee Area Technical College.

The city can and will try to get back the principal in taxes it collected in the names of each of those institutions, but it isn't an absolute certainty. State law directs a municipality in such a case to forward its requests for repayment through the state Department of Revenue.

Upon its review, the state would notify those entities if its decision is that the tax revenues have to be paid back to the collector, Wauwatosa.

But don't think that even if the city gets back every one of those dollars you'll have to pay only 31 cents on the dollar as the city's portion. The schools and others are responsible only for the principal they received from the city. As the collecting entity, the City of Wauwatosa is responsible for all interest and legal fees accrued since the suit began in 2003.

Those figures were not immediately available Wednesday.

The lawsuit resulted from the city's insistence that all of Wheaton's outpatient clinic space was taxable property because it was not a hospital. Wheaton said that about 40 percent of the facility provided services like a hospital or for a hospital.

Wheaton filed claims with the city and then a lawsuit in circuit court, where it won. The city appealed and won its appellate case. Finally, the Supreme Court heard the case in April and ruled in July that Wheaton was wrongly taxed.