Bond Sale Proceeds to Cover City's Lawsuit Losses

Facing a looming year-end deadliine, the City of Wauwatosa was set to conduct a sale Tuesday of $4.3 million in bonds to pay off its losses in a lawsuit covering eight years in wrongly collected taxes.

The terms of the sale will be approved Tuesday evening in a special meeting of the Budget and Finance Committee.

There is no way to really sugar-coat the loss of an $8.5 million lawsuit.

But city Finance Director John Ruggini seemed nearly giddy last week when he announced to the committee how much the direct damage to Wauwatosa and its taxpayers had been minimized in the wake of the state Supreme Court's finding in favor of the suit filed against the city by Wheaton Franciscan Health Care.

"We have received word," Ruggini said, "from the Department of Revenue — you may have heard the giant sigh of relief from City Hall — that all of our chargebacks have been approved."

A "chargeback," in this case, means that other entities that received taxes wrongly collected by Wauwatosa can be required to pay back the amount they received — not including interest — even though they had no part in the decision to collect those challenged taxes.

When your property tax bill arrives from the City of Wauwatosa, it has separate lines showing just how much you are paying to support the city's operations, its schools, the County of Milwaukee, the Milwaukee Area Technical College and the Milwaukee Metropolitan Sewerage District.

The city and the schools each gobble up just under a third of the total. The county gets the next largest chunk, a little more than 20 percent, and the remaining fractions go to MATC and MMSD.

So, when on its Wauwatosa outpatient clinics, it immediately turned to the state Department of Revenue to ask that each of those entities — the schools, county, tech school and sewer district — pay back the principal in taxes that the city had collected in their names.

"We'll receive $2.1 million in chargebacks" from the county, MATC and MMSD "and transfer $2 million from the Health Life Fund," Ruggini said. "That leaves us needing to borrow $4.3 million through the sale of bonds.

"It was ."

In other words, the , which has its own budgetary problems, won't be required to cough up $2 million to make good the city's losses.

Ruggini said that the chargebacks from the other recipients would be paid by Feb. 21, in time to meet a 60-day grace period allowing those payments to be recorded on the books for 2011.

In the final tally, the $2 million transfer from the well-off Health Life Fund will cover the school system's portion for now — Health Life was carrying more than twice the balance considered necessary to meet a reasonable expectation of claims.

The $2.1 million from the county, tech school system and sewerage district and the $4.3 million from sale of bonds will balance other funds tapped to pay off Wheaton.

As a result, the only imminent impact on taxpayers through the deal will be to cover interest on the bond borrowing, which Ruggini had calculated was by far the least painful solution for the average citizen.

Nothing comes for free, though, or even that cheap. The key to the whole plan is to pay back the borrowed $4.3 million through through liquidation of the gains the city expected to realize through the retirement of the 's tax-incremental financing district in 2015.

The school's portion will also come out of that pie, meaning that the city and its citizens lose out on part of the long-term investment made in that development project.