By Keene Winters
As the community eagerly awaits announcements from city hall about new plans to move the downtown mall and the east-side riverfront projects forward, it is important to remember that our resources are not infinite.
In the eight years prior to 2016, the city carried an average of approximately $51 million in outstanding debt in any given year. That was slightly below the average level of indebtedness for a Wisconsin city of its size. Over 70% of the debt was in short-term, 10-year general obligation notes, minimizing the costs to taxpayers.
Beginning in 2016, the issuance of debt accelerated. By one estimate, city debt could grow to around $105 million by the end of 2018, placing Wausau among the most indebted municipalities in the state. To add that much borrowing in such a short time, the structure of the debt has had to change. The city has used more longer-term general obligation bonds, spreading payments over 15- and 20-year time horizons. It also refinanced water utility debt as revenue bonds, and it issued $18.4 million in five-year, interest-only bond anticipation notes, leaving the payment of principal to be refinanced in the next mayoral term. All of these changes will have an adverse effect on the city’s cost of borrowing.
Debt Policy in Wausau 2009 – 2015
- From the beginning of 2009 to the end of 2015, the city’s debt load averaged about $51 million per year. Outstanding general obligation debt varied between 36% and 38% of the state statutory limit.
- According to the Wisconsin Policy Forum (formerly the Wisconsin Taxpayers’ Alliance), the 24 municipalities with populations between 30,000 and 150,000 carried average debt loads of 40% – 42% of the statutory limit at the end of this period. The most indebted cities in the group came in at 78% – 79%.
- In this era, the city used almost exclusively general obligation bonds and notes as its primary source of financing. It also issued general obligation debt on behalf of the city’s water utility to take advantage of the lower interest rates on debt backed by the full taxing authority of the city rather than just a revenue stream.
- With the goal of reducing interest costs, the city made a concerted effort over this period to shift its borrowing to the shorter-term, general obligation notes. At the peak of this policy in 2013, nearly $44 million (93%) of the city’s $47 million in outstanding debt was in the lower-interest,10-year notes.
City Debt Policy 2016 to 2018
- The policy focus changed in 2016, and debt expanded rapidly. The city budget for that year anticipated debt would grow to $65,158,575. Instead, the newly-elected city council and mayor amended the budget, and the city ended 2016 with debt of $75,079,604, an increase of roughly $19 million over year-start levels.
- Similarly, the city budget for 2018 projected debt to be $92.4 million at years end, but that number may not be firm. Early on, it was revised to $96.5 million. Then, on May 9th, 2018, the Wausau Pilot and Review reported on a presentation by City Finance Director Maryanne Groat stating that city debt could reach $105.3 million with amendments by year’s end.
- On November 10, 2017, Moody’s downgraded Wausau’s credit rating from AA2 to AA3.
- In February of 2018, the city found itself unable to make a promised payment of $750,000 on a loan from the Judd S. Alexander Foundation and an extension was negotiated.
- In three years, the city’s will have restructured its debt to higher-interest, longer-term debt instruments:
- Of the $75.2 million in new debt issued or budgeted to be issued from 2016 to 2018, 63.5% will be for Tax Incremental Financing Districts. The key projects are east-side riverfront development (36.2%), Thomas Street (15.3%), business campus expansions (11.0%) and west-side downtown development (1.0%).
- The remaining approximately one-third of the borrowing was for city capital improvements (10.5%), refinancing of sewer and water debt from general obligation bonds to revenue bonds (10.2%), improvement of water and sewer infrastructure (9.8%), swimming pool reconstruction (4.3%) and other refinancing (1.7%).
- In the end, only about one-quarter of the $75.2 million borrowed from 2016 to 2018 will be used for infrastructure replacement and maintenance outside of the Tax Incremental Financing Districts.
Unfortunately, much of this borrowing was done without a master plan or forecast of future needs. Commitments have been made, and the future seems to be filled with more borrowing. The numbers here do not yet include money for projects like moving Great Lakes Cheese to the industrial park, phases 2 through 5 of the east-side riverfront development, any substantial money for re-development of the mall or any capital projects like upgrading the wastewater treatment plant, the water plant or the central fire station. It is hard to see how this works out well.
My guess is that future mayors and council members—hamstrung by having to make the payments on this debt—will not look kindly on this period of excess nor the policy-makers who created it.
Editor’s note: The views of our readers and guest columnists are independent of this newspaper and do not necessarily reflect the views of Wausau Pilot and Review. To submit a letter, email firstname.lastname@example.org or mail to P.O. Box 532, Wausau, Wis., 54402-0532.