By Keene Winters
Did city officials just make another big mistake? If you have been in Wausau for the past few years, you have lived through some doozies. There was the time the city had its federal highway dollars pulled because it violated residents’ rights in eminent domain takings for Thomas Street. Then there was the no-bid contract given out for the rusty birds on the Stewart Avenue medium. Staff tried to cover it up by coaching the vendor to submit a series of four invoices in an attempt to disguise the fact that the purchase was over the threshold that required bidding. And, who can forget how city officials let would-be developer Michael Frantz run around town for months without a signed contract, incurring more than $3 million in subcontractor charges for the riverfront apartments without putting up a dime of his own money.
Seriously, a person does not expect to see mistakes like this in a city of this size. Wausau is large enough to have a full compliment of professional staff. Why we do not have an administrator is an open question.
What has the city done this time? It has likely borrowed more money than the legal limit and will have to cease borrowing for a time, disrupting a lot of plans that are in the works.
Municipalities have a debt limit in Wisconsin. Article XI of the Wisconsin Constitution restricts borrowing to an amount no more than five percent of the municipality’s tax base. Those restrictions are mirrored and clarified in Wisconsin Statutes 67.03. This leads us to three questions:
1. What is the value of Wausau’s taxable property?
2. What is the constitutional debt limit for Wausau?
3. How much money has the city borrowed that counts toward the debt limit.
The first two are easy to answer. The Wisconsin Department of Revenue publishes an annual report every September that computes the equalized tax valuation and debt limit dollar amount for every municipality in the state. Those numbers are $3.68 billion and $184 million for Wausau respectively. See https://www.revenue.wi.gov/slfreportscotvc/2022mdv.pdf
The third questions—what counts as general obligation borrowing—has been the subject of litigation over time. For example, is a long-term lease paid with tax-levy dollars debt within the meaning of the state constitution? The answer is no. However, in the course of weighing these questions, the Wisconsin Supreme Court has put forward a test for what constitutes debt limited by the constitution.
The test established in our cases for indebtedness in art. XI secs. 3(2) and (3) [of the Wisconsin Constitution] is not whether the municipal body unit will probably pay or whether the municipal body would be foolish not to pay. The test is whether the municipal body is under an obligation to pay, and the creditor has the right to enforce payment against the municipal body or its assets. Dieck v. United School District of Antigo. See https://law.justia.com/cases/wisconsin/supreme court/1991/89-2356-9.html
In sum, if the terms of the loan allow the creditor to demand that the municipality raise property taxes to service the debt, then that loan counts toward the constitutional debt limit.
How much debt like that does Wausau have? As of December 31, 2022, the city acknowledged that it had $70 million in general obligation debt in line to be paid-off by property tax dollars. It represented the other $150 million in debt as “revenue bonds” slated to be paid-off by user fees from the water and wastewater utilities. Ergo, the city concluded that it was under the constitution debt limit and free to borrow more in 2023.
However, under closer examination, the lion’s share of that $150 million is not bonds at all. Rather, $90 million is a direct loan from the State Clean Water Fund and $45 million from the State Safe Drinking Water Fund.
They are revolving loan funds designed to help communities upgrade their water and sewerage infrastructure at a low interest rate.
A simple fact about revolving loan funds is that they do not work unless they get paid back. In other words, if current borrowers do not repay their loans there will be no money to loan-out to other communities in the future.
To ensure that these funds get their money back, municipalities are required to pledge their full faith and credit to guarantee that the utilities will make their payments. The terms of the Clean Water Fund and the Safe Drinking Water Fund loans are disclosed in the notes on page 58 of the city’s Annual Financial Report for 2021:
The City’s outstanding direct borrowings related to . . . [the water and wastewater utilities] contain the following provisions in the event of default: 1) The Wisconsin Department of Administration can deduct amounts due from any state payments due to the City or add the amounts due as a special surcharge to the property taxes apportioned; 2) may appoint a receiver for the Program’s benefit; 3) may declare the principal immediately due and payable; 4) may enforce any right or obligation under the financing agreement including the right to seek specific performance or mandamus; and 5) may increase the interest rate set forth in the financing agreement to the market interest rate.
Property taxpayers are, in fact, on the hook for these loans, and according to the State Supreme Court that makes the debt subject to the constitutional limit. Seventy million dollars in general obligation bonds plus the $90 million Clean Water Fund loan plus the $45 million Safe Drinking Water Fund loan equals $205 million in debt. That puts Wausau over the limit by more than $20 million.
In 2015, the citizens of Wausau narrowly defeated a referendum proposal to hire a city administrator. One has to wonder how many of those voters have changed their minds since then. In past eight years, we have had three mayors, have quadrupled city debt, have doubled water rates, increased the transfer payments from the utilities to the city from $530,000 to $2.5 million and have raised the city tax levy by 10.3%. Meanwhile, over the same period, the county has lowered its mill rate by 7.2%, and the school district has lowered its mill rate by 6.8%– even though they are buying labor and health insurance in the same market. That’s a 17 point spread!
Clearly, the current configuration of city government repeatedly produces outrageous and increasingly unsustainable results. The mayor and the council should immediately move to restore accountability and take up the question of hiring a city administrator.
Letters to the editor reflect the writer’s opinion and not that of the publication.