In just three years, city debt will increase by over $30 million, nearly 60% more than anything we saw in the twelve years under the former administration.
By Keene Winters, for Wausau Pilot & Review
By almost any standard, $10 million is a lot of money. So, when the City of Wausau’s outstanding debt surges by roughly $10 million in back-to-back years, a person might think that council members would be up-in-arms, and the matter would be front-page news. But, I guess we take our numbers with a grain of salt here in Wausau.
Here is a quick summary of the growth in total outstanding city debt:
- 12/31/2014: $47.9 million
- 12/31/2015: $56.4 million
- 12/31/2016: $66.7 million
- 12/31/2017: $78.3 million (2017 City Budget)
Perhaps a little more context for the debt numbers would be useful. For the ten years ending on December 31, 2014, the City of Wausau had an average annual outstanding debt of $51.1 million. It was as high as $55.1 million in 2008 and as low as $47.9 million in 2014. However, it generally stayed withing a narrow range around the average with retirements roughly equal to new debt issues on a yearly basis. Clearly, running the debt load up to $78.3 million is a significant departure from our past.
For the ten years ending in 2014, the city also managed the structure of its debt in a way that lowered interest expense. Year after year, the city took the opportunity to replace 15- and 20-year bonds with 10-year notes. Shorter term debt has lower interest rates and also accumulates less interest cost over the shorter term. By the end of 2014, 88% of the city’s debt was 10-year notes. With regard to its debt, the city was setting and achieving prudent financial targets.
But, in the blink of an eye, all of that has changed. In just three years, city debt will increase by over $30 million. That means that in his first year in office Mayor Robert Mielke has increased the city’s level of indebtedness by nearly 60% more than anything we saw in the twelve years under former Mayor James Tipple. That is a big change that should be big news.
Moreover, the majority of the increase has been achieved by selling new 20-year bonds and replacing retiring 10-year notes with 20-year bonds. Those 20-year bonds may have a lower annual payment, but they will be hanging over our heads longer, and citizens will end up paying a lot more in interest costs. The lifetime interest on the current $66.7 million in debt is estimated to exceed $10 million. Yet, to date, no one has questioned the wisdom of the mayor’s new city debt policy. Maybe that threat to sue critics of the city is working—especially with the council.
Much of the debt is being generated by Tax Incremental Financing Districts (TIDs). It is not free money as some policymakers tend to act, but rather is borrowed money. So, where are we going to get the cash to pay off this debt?
Adding to worries is the fact that budgeting in the city’s TIDs is notoriously loose. Let me give you one example. For 2015, that budget started the year with 30 enumerated projects estimated to cost a total of $13.5 million. Work was done on only 17 of the projects, totaling $4.9 million. During the course of the year, the council approved $4 million in spending in new projects not listed in the 2015 budget. In the end, 13 projects showed no financial activity for the year. That’s not a very meaningful one-year plan, so how can we expect well-thought-out 10- and 20-year plans.
The vast majority of spending in the city’s TIDs goes for infrastructure, and that does not generate future revenue to repay the bonds. For instance, on Thomas Street, we are buying up a swath of tax-paying properties and paving over them so that they never pay taxes again. Calling that project “economic development” is debatable.
A large portion of the borrowing is in TID #3, covering the downtown. That TID already failed to cash flow once and had to have its life extended from 27 to 37 years. Does piling on more debt in this TID make sense?
This is a huge change in policy that has been handled in a very stealthy way. Unfortunately, the city does not have the best reputation for good long-term planning, so it is hard to find comfort on that score. It has also cultivated a reputation for letting developers who take city money and do not deliver the promised tax base “off the hook” at taxpayer expense. Now the debt numbers are getting big and scary. Before we go any further the public deserves to see a robust plan for paying off the debt that does not depend on ever higher taxes.