OnFocus – At their September 15 meeting, the City of Marshfield Finance, Budget, and Personnel Committee approved a request to recommend approval of Budget Resolution No. 05-2020, transferring $1,004,666 from General Fund (Other Financing Uses) to Debt Service Fund.
“This is just putting us to where we belong,” said City Administrator Steve Barg, explaining that this resolution is an accounting entry only. This move will not correct an anticipated budget deficit.
“We have this long history of not levying correctly,” said Ron Aumann, Finance Director. “We were underfunding.”
The reason the City was underlevying was because money was being transferred from TIF to the General Fund. There was nothing illegal about the transactions, but it did result in the current problem. Aumann said that if the strategy would have been communicated up front, it would have been ok.
“Now, there is a huge hole that nobody knew about,” he said.
According to Aumann, City taxes go into two broad categories: a General Fund, which is restricted by levy limits. The other is Debt Services – which includes buildings, police and fire equipment, and other items on the borrowing list.
According to the agenda packet, the City’s tax levy has two primary purposes, broadly:
General Fund – Operations, personnel costs, and operating supplies. Public Safety, Public Works, and Parks/Rec represented approximately 75% of the 2020 General Fund expense budget. The levy needed is the amount not covered by other revenue sources such as state aids.
Debt Service – To pay principal and interest on approved debt incurred for major construction projects, buildings, and capital equipment replacement. The levy needed is the total principal and interest due each year. TID / Enterprise debt is now paid directly by those funds, not by Debt Service.
Ideally, a Debt Service fund operates near breakeven each year. For many years, the City significantly under-levied in the Debt Service fund, using excess TID transfers to suppress the necessary tax rate.
The Debt Service Fund had a deficit of $1,004,666 at the end of 2019. The shortfall in the Debt Service fund is ultimately the responsibility of the General Fund. This resolution transfers money out of the General Fund, reducing General Fund – Fund Balance.
The transfer amount represents a reduction of General Fund – Fund Balance:
• 27.8% of the 2019 General Fund Unassigned Fund Balance of $3,611,272
• 13.3% of the 2019 General Fund Total Fund Balance of $7,527,219.
This resolution does not address continuing deficits in the Debt Service Fund after 12/31/2019, including an initial projected deficit of $1,167,294 in the 2021 Budget.
Alderman Ed Wagner asked about using “surplus” TIF/TID money to transfer to the General Fund, but according to Aumann that would be inadvisable. TIFs collect taxes from all jurisdictions, so when they have paid off their debts, the TIF is closed. There is an annual surplus, but never a total surplus.
“The timing of the debt is not going to match perfectly with the breakeven,” he explained. “When it gets to breakeven, we’re done and we can close it.”
The City generally loses money during the first few years of a TID, but makes it up during the life of the TID.
$3.5 million over three years is the amount that will be needed to be levied to fill the hole. If the levy is raised, Aumann said the City should try to flatten debt and payments.
“We need to get up to current expenses level and then manage as best as possible,” he said.
Five of the City’s TID’s are “cash positive,” meaning they are essentially self sufficient and covering their own costs. TID #7 is expected to be paid off at end of 2021. TID#5 is expected to be paid off at the end of 2023.
Common Council will further discuss this issue at their meeting on September 22.
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