City Borrowed $2 Million for Schools That District Likely Won't Accept

A city plan to help out the may have backfired, as Wauwatosa has borrowed $2 million for the schools that the district now says it probably won't want.

Finance Director John Ruggini told Common Council members Tuesday that the schools' administration had informed him the district would prefer to pay back money the city lost in a tax case right away rather than waiting to pay off a loan from the city.

John Mack, the schools' business director, confirmed Wednesday that he would recommend to the School Board on Monday that the debt be repaid now from the district's cash reserves. Mack said that the School District had never agreed to the city's borrowing plan and had learned that it wasn't in its best interest.

That leaves the city looking for a way to use the already borrowed money and a way to mitigate the interest costs on the borrowing.

City paid back Wheaton

The $2 million was the schools' share of revenue from taxes collected from Wheaton Franciscan Health Care, formerly Covenant, since 2003. .

Under state law, in a judgment against a tax collecting authority — in this case. Wauwatosa — any other entities for which those taxes were also collected — in this case, the schools, Milwaukee County, MMSD and MATC — is in turn liable to repay its portion of that money.

After losing the lawsuit in July before the Wisconsin Supreme Court, the city had until the end of September to repay Wheaton in full without interest penalties. Wauwatosa did pay off Wheaton from existing funds and then applied to the state Department of Revenue to get those shares back from the schools and other entities. The state reviewed the case and approved.

'Don't have $2 million just sitting around'

At that time, Superintendent of Schools Phi Ertl was in a head-shaking mood, having just gone through the process of covering a $6 million budget shortfall for this school year. When asked what the schools would do about the recovery of lawsuit losses, he said, "I don't know. We don't have $2 million just sitting around."

Later, however, when Mack looked closely at the mechanism the city was proposing — to borrow on the schools' behalf and await repayment in 2015 — he realized that, while well-intentioned, the plan wasn't the best deal for the schools' or the city's taxpayers.

The plan hinged on the School District repaying the city's generosity from its share of the 2015 retirement of "TIF No. 2," the tax incremental finance district the city set up to fund infrastructure of the Milwaukee County Research Park.

Mack explained that debt service on the city's borrowed money, compared to the relative pittance it would cost the district to replenish its own coffers from the TIF money, would cost the district and taxpayers $142,000.

"Based on our financial situation and given what interest rates are," he said, "it's much more prudent to pay it off now.

"Even though we discussed this (city borrowing plan), there was no approval. We'd still have to have it on our books as a loan."

Mack said that the School District's fund balance — the cash reserves it keeps on hand — is healthy enough to sustain the payout to the city.

School Board still must approve

Mack cautioned that the School Board had not yet approved any plan and could not before its Jan. 16 meeting. The board did not hear the city's plan, in fact, before the city went ahead with a bond sale Dec. 6 to borrow about $4.5 million for itself and the schools.

The School Board is likely to listen to the recommendation of its own business director. "I can't imagine why they wouldn't," Mack said.

If that's the case, the city, left with $2 million extra on loan, will need to find something to do with the money and some way to keep taxpayers from having to eat the interest payments.

"We will need to find a good investment," Ruggini said, citing something like a CD that would net 2 percent interest or better, or, and more likely, "We would swap out the money with other borrowing that we would have done," such as for the new TIF district created for UWM's Innovation Park.

"I'm fairly certain that we can recoup the borrowing and interest costs," he said.