City faces difficult budget, but keeps tax rate unchanged
While presenting their proposal for the city’s 2016 operational budget Tuesday, Oct. 27, officials cited the difficulties they face in an ever-increasingly restricted environment, doing more with less, but managed to keep the city’s tax rate the same as last year.
The proposed 2016 budget is $22,210,738 with a tax levy for Stevens Point for 2016 at $14,771,005. The 2015 budget was $21,955,492, with a levy at $14,635,000.
As in 2015, the rate for 2016 will be 9.84 percent, or $9.84 per $1,000 of assessed value. In other words, a home valued at $100,000 will pay $984 in taxes in 2016.
Keeping the tax rate stable for the city wasn’t an easy task for city officials and they had a few obstacles.
The first major obstacle the city faced was a drastic reduction in state aid. Gov. Scott Walker cut $467,606 from Stevens Point in his 2016 budget in various state aid programs such as road construction.
After Walker’s cuts, the state is providing the lowest amount of aid it has in more than 22 years.
“In 2016, we will have the lowest amount of state aid since 1994,” said Cory Ladick, Stevens Point comptroller/treasurer. “The buying power of those dollars is about 38 percent less than it would have been in 1994. So, that’s a real challenge.”
“Luckily we were able to find some ways to fill that gap without any reduction in services, which I think is important,” Ladick said.
The second obstacle isn’t a new one for Stevens Point and the other municipalities throughout Wisconsin. In 2005, the state imposed levy restrictions which limited how much a municipality can raise taxes. In essence, the state tied a city’s ability to raise taxes to its annual net growth.
However, it also included a provision that allowed Wisconsin municipalities to raise taxes up to 3 percent to compensate for inflation. But in 2011, the state tightened the restrictions even further and removed the inflation adjustments.
“Before 2011, levy limits were a challenge, but they were reasonable. They allowed for an annual increase of at least 3 percent to allow the city to have some inflationary adjustment, salary adjustment and fixed cost adjustments,” said Ladick.
“Then 2011 came around, and as we all know a lot of change happened in 2011. One of the biggest changes with levy limits was that we no longer had that automatic 3 percent,” Ladick said. “Basically the state said, ‘you get no inflation adjustment whatsoever, we don’t care if your costs go up. That’s too bad.’ The only way we can increase the levy is through new construction.”
“(The levy restrictions) only applies to the levy for operation. It does not apply to the levy for debt service,” said Ladick. “This is very important because the effect of that is our operational budget is very restricted, whereas our capital budget really is not.”
Ladick said it creates a real concern for all municipalities across the state. Revenue will continue to decline across the state and cities won’t have much in the way of options to keep services running as they are.
“The idea behind it is so no one has to pay more in taxes, even if values increase. So let’s say you have a $100,000 home in assessed value and you’re paying $984 in taxes, the concept is you’ll pay $984 this year, and next year and five years from now,” Ladick said. “It’s a very beautiful thing for people who don’t like to pay taxes, but it creates a real challenge to operate a city when you have that level of restriction.”
In 2012, the city saw only 0.97 in net new construction in the first year the harsh restrictions were imposed. In 2013, it dropped to 0.58 percent.
However, in 2014, the net growth jumped to 1.48 percent and jumped again in 2015 to 1.63. For the 2016 budget, the city had a 1.62.
“The state average in the state was about 1.2 percent and I believe the average in Portage County was around 1 percent. So, actually, for the last three years we have beat both the statewide average as well as the average in Portage County. That’s certainly encouraging and puts us in a little bit of a better position than other municipalities,” Ladick said.
“But we’re still not at the 3-percent level. And the other thing is we have to be prepared because at some point we could have another 2013 where that adjustment is less than 1 percent,” he said.
The total net new construction contributing to the 1.62 percent totaled just over $25 million. Ladick said two major constructions accounted for the majority of that total. Service Cold Storage was completed with an assessed value of $9.2 million and SentryWorld and Golf Course totaled $4.5 million.
“Our two top developments were 55 percent of the pie. Everything $630,000 or under was 34 percent. I guess the point I’m trying to make, and this has been the case every year for the last three years, we really rely on one or two big developments that are about $8 to $10 million,” Ladick said. “We just have to be prepared for a year we don’t have a big development. If that happens, we could certainly have an issue.”
The 2016 budget’s 1.62 only equates to about $166,000 out of the $14 million budget, and is just a drop in the bucket, Ladick said.
Coupled with the drop in state aid, hard decisions had to be made. The most controversial so far was a shifting in the city’s room tax.
Room tax is what a municipality imposes on each hotel room stay. The idea of a room tax is to help pay for the services, such as police and emergency medical care, visitors may need to use as well as to help fund the upkeep and capital needs for the parks and city-funded events that draw tourism.
Stevens Point’s is 8 percent of each room rented for a night in city limits. In 2014, the room tax brought in $738,000 and the city divided the revenues, as 46 percent went to the Stevens Point Visitors and Convention Bureau to help fund events and tourism boosters and the city kept 53 percent to go into the operational budget.
“The city could just be taking the 53 percent and putting it into the general fund and keeping it, but we’ve never really had that philosophy with the room tax. We wanted to use it for things that generate hotel room stays,” said Ladick. “We have transferred $100,000 from the room tax to the general fund each year to compensate for maintaining room tax projects like maintaining the Willet Arena and Goerke Stadium.”
However, for 2016, the city is looking at shifting the focus from capital projects for improving those hotel stay-generating facilities to the operation side of the equation.
“The reason we’re doing this is because of the levy limit restriction and just the fact that operations are restricted so tightly and capital projects are not,” Ladick said. “What we’ve been doing with room tax is using it for a lot of capital projects but where we really need the help is the operating side.”
As a result, the city is looking to increase the transfer from $100,000 to $220,000.
“This is absolutely based on need and based on wanting to be able to continue all city services in 2016,” Ladick said. “Frankly, the only reason we’re doing that is to back-fill some of the state aid that we lost.
“In exchange is that the city will have to cover those capital project obligations. I’ll be frank, that is going to be an extra burden on the capital budget if we’re looking at a major project in the KB Willet Arena and not having the room tax to do that anymore, we’ll have to work that into our capital budget,” Ladick said. “There has been some concern that these projects will have to compete with other capital projects and that is absolutely true. There’s a higher bar when you’re competing against a lot of other capital projects.”
Ladick said he completely understands the concerns with pitting hotel stay-generating projects with major projects like the Hoover Avenue grade separation, but at least there is significantly more options to find ways to complete those projects in the capital budget than there is in the operational budget.
However, some of the positives of the 2016 budget include a savings of $149,000 in worker’s compensation insurance premiums.
“I think a lot of that has do with the departments and some of the efforts they’ve made to make the city a safe place to work,” Ladick said.
Through diligent management and department planning, the city’s Safety Committee was able to lower workplace risks, which in turn lowered insurance premiums.
Also, Ladick was able to increase the interest revenue on city bonds through long-term financial investments.
“Basically, it’s not a real complicated process. It starts with cash flow forecasting and really looking at historical data on how much cash you have in the bank throughout the year and making projections and figuring out your extra cash and depositing it for longer terms,” Ladick said.
“First of all, that $167,000 in increased interest revenue, I had nothing to do with that,” said Stevens Point Mayor Mike Wiza. “That was all Cory (Ladick). And he’s not going to brag about himself, so I’m going to do it for him. His financial management is solely responsible for that increased revenue. That was him just figuring out different ways to earn money. It was a big help in closing that gap.”