School Board Approves $2 Million Repayment in City's Lawsuit Loss

The Wauwatosa School Board on Monday night approved a budget revision to repay just over $2 million as its share of the property tax lawsuit the city lost in July to .

That leaves that was intended to cover the portion of the total $8.5 million repayment to Wheaton.

On Dec. 6, the city borrowed $4.5 million through bond sales to cover part of its own debt to Wheaton and all of the schools' portion. Under state law, even though the city collected the taxes from Wheaton wrongly, .

The city had already paid back part of its losses out of its Health Life Fund, which was considered healthy enough to absorb the loss without affecting the city's bond rating.

When the city borrowed the money on behalf of the schools, there was an assumption that the School District did not have sufficient funds to repay the large debt without damage to its budget. But the School District never actually agreed to accept the loan, and its finance staff decided that it was better off repaying the debt out of its cash reserves, saving $142,000 in interest charges.

Earlier this month, city Finance Director John Ruggini reported to the Common Council that the schools might not accept the funding plan conceived by the city and that the excess $2 million, already bonded out, would have to be spent elsewhere.

Ruggini said at the time that in order to avoid unwanted interest costs on the new debt, the city could take one of two courses:

• Reinvest the money in an interest-bearing account that at least equalled the finance costs of the debt, or, preferably;
• Roll the money into the next bond borrowing the city planned to do, likely for infrastructure costs in the UWM Innovation Park project tax incremental financing (TIF) district.

Ruggini said Tuesday that no final decision had yet been made.

"We're still researching the possibilities," he said. "We'll probably know within a week or so."

While interest is accruing on the debt, it isn't really hurting the city's position at this time, Ruggini said. The borrowing was done under a "capitalized interest" plan, meaning that the interest costs were rolled into the amount borrowed — "So we know exactly what return we need to make ourselves whole," he said.

"I said before that I was confident and I remain confident that we will settle on a course of action that will make the city whole."

Ruggini said he didn't know for sure whether formal action by the Common Council would need to be taken to accept a reinvestment plan for the $2 million, but, he said, "We'll definitely bring an informational report to the Budget and Finance Committee."

The city's borrowing plan hinged on another TIF. The intent was to repay the $4.5 million bonding debt from taxes collected to pay back the development costs of the Milwaukee County Research Park TIF when it is retired in 2015.

A portion of those funds would have accrued to the School District — in fact, an amount almost equal to the $2,082,000 the schools owed in the Wheaton case, plus interest.

It was that additional interest cost that put the School District off the deal. District business manager John Mack said that it would have been imprudent to accept nearly $150,000 in financing costs that could be avoided by repaying the debt from existing funds.

"It was done with good intent," School Superintendent Phil Ertl said of the city's loan offer. "It gave us another option to look at while we were talking to the Department of Public Instruction and our auditors about what the best option was.

"A payback that large, $2.1 million, was something new to us."