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Running up a tab: Debts of local municipalities continue to grow

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Pedro Oliveira Jr.
September 12, 2009

Municipalities in Rock and Walworth counties have continued to rack up millions of dollars in debt, an upward spiral of borrowing that some local officials say will only increase.


The findings come from the Wisconsin Taxpayers Alliance in a recently unveiled study of Wisconsin’s 232 most populous cities and villages.


According to the report, almost all Rock County communities—except Janesville—have higher per capita debt than the state average. Among the eight municipalities studied in Walworth County, three—Delavan, East Troy and Elkhorn—had higher per capita debt than the state average.


The study included municipalities with 2,000 or more residents.


Elkhorn Administrator Sam Tapson is not sure a one-size-fits-all approach to studying debt would work, and evaluating how much debt impacts a community depends on its size.


But it doesn’t look like borrowing is slowing, Tapson said.


“I would guess communities are or will become more dependent upon the use of borrowing simply because as levy limits creep in, there are certain things you will have to do,” he said.


Taking Elkhorn as example, Tapson said the city has normally managed its vehicle and auto equipment purchases through a fund designated for such needs.


“We’re not able to do that any longer because the general tax won’t allow us to do that anymore,” Tapson said.


So when the fund runs out, the city would have to borrow to replace a squad car or a snowplow, Tapson said.


“If you have long-term maintenance issues that have been set aside for a variety of reasons, sooner or later you have to do them,” he said.


Effects of borrowing

Municipal borrowing has a variety of consequences, said Dale Knapp, research director at the Wisconsin Taxpayers Alliance.


The first one is more borrowing means higher tax rates for a number of years, depending on interest rates and the longevity of loans.


But that’s not all.


“More importantly, it tells you something about the ability of that municipality to grow further,” Knapp said. “Because if the municipality is at 85 or 90 percent of the limit, it’s not going to be able to do much additionally in terms of infrastructure or items like that, that have significant cost, that you would borrow for.


“The district is basically handcuffed in terms of big projects that typically come to a growing community.”


Keeping borrowing down


David Rasmussen, a 22-year veteran of the Walworth Village Board, has one piece of advice to other communities: Grow only as much as your tax collection allows.


Rasmussen’s credentials speak for themselves. Despite a 50 percent increase in borrowing between 2003 and 2007, Walworth’s $1.6 million debt represents $630 per capita—the smallest per capita amount among communities in Walworth or Rock counties.


“We didn’t spend money we didn’t have … and we paid for capital improvements with out-of-pocket cash,” Rasmussen said.


The secret to low spending is taking a cold look at the community’s needs, he said. When the Walworth Library Board asked for a new library, the village board turned down the $2.5 million plan.


Municipal leaders can’t forget about community needs, but they don’t have to yield to everybody’s wants, he said.


“It’s good financial planning,” he said. “As much as people talk about it, a lot of people (in other municipalities) took on a lot of debt. I think their village halls may be better than ours, their library is nicer.


“But we haven’t increased our tax rates.”


Delavan Administrator Joe Salitros sees it differently.


Among Walworth and Rock County communities, Delavan reported the most debt per capita in 2007 at $2,703. The closest communities would be Milton with $2,606 per capita in the same year and East Troy at $2,064.


“The city has borrowed dollars for street improvements, infrastructure improvements for industrial and improvements in our tax increment district,” Salitros said.


The administrator said the borrowing was based on Delavan’s east side TIF district, which he said is ranked one of the most successful in the county.


BORROWING FACTS

--Statewide, average per capita debt rose from $1,242 in 2003 to $1,397 in 2007.


--Total municipal debt in Wisconsin has grown 15.7 percent between 2003 and 2007, a 3.7 percent average increase per year.


--Three communities in Rock and Walworth counties reduced debt between 2003 and 2007—Elkhorn, down 0.6 percent; Genoa City, down 1.5 percent, and Lake Geneva, down 12.8 percent.


--Evansville led Rock County with 21.6 percent average annual increase in debt, from $4.4 million in 2003 to $9.8 million in 2007. Milton took second place with a 17.7 percent average annual debt increase from $7.6 million in 2003 to $14.7 in 2007. Beloit was third with a 13.1 percent average annual increase from $31.4 million in 2003 to $51.4 million in 2007.


--In Rock County, four communities had per capita debt higher than the state average: Milton ($2,606), Evansville ($2,000), Edgerton ($1,552) and Clinton ($1,472).


--In Walworth County, three municipalities had per capita debt higher than Wisconsin’s average: Delavan ($2,703), East Troy ($2,064) and Elkhorn ($1,949).


--In Walworth County, Walworth has had the highest statistical increase among all municipalities in either county. General obligation debt increased from $330,700 in 2003 to $1.6 million in 2007, a 50 percent increase. Per capita debt increased from $414 to $631, a 53.5 percent change. Dollar-wise, the village has the least amount of debt in Walworth and Rock counties.


BORROWING LIMITS

The amount of debt municipalities are allowed to carry is governed by state statute. The limit is calculated on total equalized property value, including the value of property in tax incremental financing districts.


Each municipality is limited to 5 percent of the combined property values. If property values go up, municipalities are allowed to borrow more money.


If a city borrows a high percentage of what they are allowed, they get worse ratings, making it harder to get good interest rates.


According to a new report by the Wisconsin Taxpayers Alliance, Milton in 2007 was one of three Wisconsin communities to exceed 80 percent of what they were allowed, along with Menasha and Antigo. Forty-nine of the 232 municipalities had debt levels between zero and 20 percent of their allowable maximum, according to the report.



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