MONROE - The City of Monroe may prepare for the long haul of carrying the debt of Tax Increment District (TID) No. 7, about 25 blocks in Monroe's downtown Square area.
Members of the Finance and Taxation Committee agreed last week that they want a very early jump start next year on the problem the city faced at budget time this fall.
The city is using more than $200,000 of its fund balance in 2012 to cover a shortfall in the district's debt payment and to buy some time to consider how to use the remaining $1.7 million fund balance in the future.
The tax increment district has about $26,000 in its own fund balance and only $47,000 of expected tax revenue coming to cover its debt payment of about $277,000 next year. According to the TID agreement with other taxing entities in the district, which are the Monroe school district, Blackhawk Technical College and Green County, the city is responsible for paying whatever amount the district can't cover.
At a meeting of the Finance and Taxation Committee on Tuesday, Nov. 15, Greg Johnson, an associate with Ehlers, Inc., the city's financial advisors, laid out several options for handling the TID's future payments, a financial problem that some aldermen do not see going away anytime soon.
According to Johnson, the city could pay off the bond debt, but, to do so, would have to dip into its committed working capital reserves of $3.1 million. Doing that requires approval by a super majority, two-thirds, of the council members.
The reserved funds were set aside June 21 under a newly adopted fund balance policy that commits 25 percent of the city's annual expenditures as a minimum amount to maintain for cash flow purposes. If any portion of that money is used, it must be replaced by the end of the fiscal year, according to the policy.
Johnson noted the council would have to adjust the policy wording to maintain goodwill and integrity with bond purchasers and raters, an indication that the money would probably not be replaced within the year it is used.
The city's double-A bond rating from Moody's is "very good," in part because of the city's healthy reserve funds, according to Johnson.
The reserved funds balance is the city's "primary financial strength," Johnson said, showing the city can "sustain its ability to manage its funds during a downturn in economy and liquidity."
The bond rating shows the city is a very low credit risk and allows it to borrow at low interest rates.
"Ratings are more important in the economy than previously," he added.
If the city takes on TID 7's debt, its goal would be to have the TID pay back as much as possible with interest.
The TID can repay the city or meet its own debt obligations, but "the TID needs to see development either way," Johnson said.
Johnson estimated the district would need to see about $700,000 to $900,000 of additional property value annually, from appreciation or new construction, to repay the city in full during the course of its remaining lifetime. The difference depends upon the interest rate the city charged. The TID is scheduled to end in 2027.
Based on its most recent annual revenue of about $45,000 and an interest rate of 2 percent, the TID would take almost 80 years to repay the city, according to city treasurer Cathy Maurer.
"Paying down debt is an appropriate use of fund balance," Johnson said. "But is it the best use?"
Another option for the city is to use another tax increment district as a donor for TID 7. Excess revenue from a TID that is meeting its own debt obligations would help to pay off the TID 7 debt.
TID 7 could be re-designated as a distressed or severely distressed district to extend its life another 10 or 20 years. But those designations would cut off the district's ability to accept donated funds from other TIDs, and the TID plan could not be changed, Johnson said.
Any change to the TID agreement or plan would need the approval of the Tax Increment Districts Joint Review Board, made up of representatives of the taxing entities - city, county and schools.
Monroe City Administrator Phil Rath is concerned that, if the city takes over the district's debt, the county and school districts would have no incentive to extend the life of the TID.
The amounts of revenue the taxing entities receive from the district are frozen at their 2005 levels, when the TID was created. Increases in tax revenues from infrastructure and other improvements or new construction are turned back into the district for more improvements. At the end of the TID life, all taxing entities resume their proportional tax levels, collecting revenues from the higher level of property value.
"TIDs are a financial tool for development," Rath said, but in the current economic period, lower tax rates and falling property values means less revenue to pay back debt.
Rath predicts revenues for the TIDs will be less next year, caused by falling property values compounded by Monroe School District's lower 2012 tax rate.
TID 7 and three of the city's four other TIDs saw falling equity values this fall.
Equity value in TID 7 dropped 9 percent, or about $2.9 million, between 2010 and 2011, from $34.4 million to $31.5 million. Its value has increased by $1.5 million since it was created with a base value of $30 million in 2005 .
TID 7 created $128,400 in extra tax revenue in 2009. Its equalized value dropped by $22,900 from 2009 to 2010.
The city does have the option of levying for the debt service, outside the state-imposed levy limit on operating expenses, meaning, in all likelihood, additional tax dollars for all city property owners to pay.
Members of the Finance and Taxation Committee agreed last week that they want a very early jump start next year on the problem the city faced at budget time this fall.
The city is using more than $200,000 of its fund balance in 2012 to cover a shortfall in the district's debt payment and to buy some time to consider how to use the remaining $1.7 million fund balance in the future.
The tax increment district has about $26,000 in its own fund balance and only $47,000 of expected tax revenue coming to cover its debt payment of about $277,000 next year. According to the TID agreement with other taxing entities in the district, which are the Monroe school district, Blackhawk Technical College and Green County, the city is responsible for paying whatever amount the district can't cover.
At a meeting of the Finance and Taxation Committee on Tuesday, Nov. 15, Greg Johnson, an associate with Ehlers, Inc., the city's financial advisors, laid out several options for handling the TID's future payments, a financial problem that some aldermen do not see going away anytime soon.
According to Johnson, the city could pay off the bond debt, but, to do so, would have to dip into its committed working capital reserves of $3.1 million. Doing that requires approval by a super majority, two-thirds, of the council members.
The reserved funds were set aside June 21 under a newly adopted fund balance policy that commits 25 percent of the city's annual expenditures as a minimum amount to maintain for cash flow purposes. If any portion of that money is used, it must be replaced by the end of the fiscal year, according to the policy.
Johnson noted the council would have to adjust the policy wording to maintain goodwill and integrity with bond purchasers and raters, an indication that the money would probably not be replaced within the year it is used.
The city's double-A bond rating from Moody's is "very good," in part because of the city's healthy reserve funds, according to Johnson.
The reserved funds balance is the city's "primary financial strength," Johnson said, showing the city can "sustain its ability to manage its funds during a downturn in economy and liquidity."
The bond rating shows the city is a very low credit risk and allows it to borrow at low interest rates.
"Ratings are more important in the economy than previously," he added.
If the city takes on TID 7's debt, its goal would be to have the TID pay back as much as possible with interest.
The TID can repay the city or meet its own debt obligations, but "the TID needs to see development either way," Johnson said.
Johnson estimated the district would need to see about $700,000 to $900,000 of additional property value annually, from appreciation or new construction, to repay the city in full during the course of its remaining lifetime. The difference depends upon the interest rate the city charged. The TID is scheduled to end in 2027.
Based on its most recent annual revenue of about $45,000 and an interest rate of 2 percent, the TID would take almost 80 years to repay the city, according to city treasurer Cathy Maurer.
"Paying down debt is an appropriate use of fund balance," Johnson said. "But is it the best use?"
Another option for the city is to use another tax increment district as a donor for TID 7. Excess revenue from a TID that is meeting its own debt obligations would help to pay off the TID 7 debt.
TID 7 could be re-designated as a distressed or severely distressed district to extend its life another 10 or 20 years. But those designations would cut off the district's ability to accept donated funds from other TIDs, and the TID plan could not be changed, Johnson said.
Any change to the TID agreement or plan would need the approval of the Tax Increment Districts Joint Review Board, made up of representatives of the taxing entities - city, county and schools.
Monroe City Administrator Phil Rath is concerned that, if the city takes over the district's debt, the county and school districts would have no incentive to extend the life of the TID.
The amounts of revenue the taxing entities receive from the district are frozen at their 2005 levels, when the TID was created. Increases in tax revenues from infrastructure and other improvements or new construction are turned back into the district for more improvements. At the end of the TID life, all taxing entities resume their proportional tax levels, collecting revenues from the higher level of property value.
"TIDs are a financial tool for development," Rath said, but in the current economic period, lower tax rates and falling property values means less revenue to pay back debt.
Rath predicts revenues for the TIDs will be less next year, caused by falling property values compounded by Monroe School District's lower 2012 tax rate.
TID 7 and three of the city's four other TIDs saw falling equity values this fall.
Equity value in TID 7 dropped 9 percent, or about $2.9 million, between 2010 and 2011, from $34.4 million to $31.5 million. Its value has increased by $1.5 million since it was created with a base value of $30 million in 2005 .
TID 7 created $128,400 in extra tax revenue in 2009. Its equalized value dropped by $22,900 from 2009 to 2010.
The city does have the option of levying for the debt service, outside the state-imposed levy limit on operating expenses, meaning, in all likelihood, additional tax dollars for all city property owners to pay.