Borrowing worries council members
The city is borrowing for major street projects because debt—unlike the operating budget—is not capped by state spending limits.
The city starts each budget in the hole because costs such as wages increase above the allowed cap.
The city plans to borrow $432,000 in 2009 rather than pay for street projects from the general fund, as it traditionally has done.
That’s an additional cost of $97,000 over a 10-year period, assuming an interest rate of 4.25 percent.
The 2009 borrowing is in addition to $200,000 this year and $1 million next year.
“Is this going to put us in a position where we’re going to have to continue borrowing over $600,000 a year every year for street maintenance?” council member George Brunner asked.
Or will the city shift the costs back to the general fund over time?
Jay Winzenz, acting city manager, said the city is forced to shift the costs to continue with the current level of services and meet levy limits.
After 2010, the city plans to borrow “a million plus” each year for major street projects, Winzenz said.
Janesville has been fortunate in the past that it was able to include street repair in its general fund, Winzenz said. Many communities borrow to pay for those projects.
Brunner said the practice scares him, and he worries that Janesville might end up like the state of Wisconsin.
“They’ve shifted so much borrowing from their general fund budget that now just the interest payments alone are almost to the point it’s killing them,” Brunner said.
Borrowing for street maintenance eventually will affect its capital projects if the city is to keep its debt service steady, Brunner said.
The council six years from now will have to face the problems created by borrowing, he predicted.
Winzenz said Brunner is right that the city must manage its debt. In 2009, it will pay $3.2 million in interest.
Borrowing “can’t be done in isolation from capital planning” if a stable debt service is maintained, Winzenz said.
“Levy limits are forcing us to make some of these types of decisions in order to provide other services to the citizens of Janesville,” Winzenz said.
Council member Tom McDonald agreed with Brunner, and McDonald said he would prefer that the city keep the initial 2.5 percent tax rate increase so it could borrow less.
He also noted that the landfill is transferring $400,000 to the general fund.
Even though the landfill has a surplus, the city borrows for capital sanitation projects.
“Again, that’s another thing I have a problem with,” McDonald said. “We’re essentially borrowing for operating expenses.”
McDonald said the city should keep the excess money in the sanitation fund to pay for capital projects and reduce borrowing.