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Taxpayers in Onalaska spend a greater percentage of their taxes paying off the city’s debt compared to what residents of surrounding municipalities pay.
Onalaska’s approved 2010 budget includes $3,108,119 for debt service, which is 33 percent of the operations budget.
That percentage of the budget going towards debt service is higher than the city of La Crosse, where 26 percent of the 2010 operational budget is going toward debt reduction.
It is much higher than the 3.8 percent of the operating budget going towards debt service in La Crosse County and higher than the 6.6 percent of Holmen’s operating budget.
As families hunker down, try to spend less and pay down personal credit card bills to get through this economic downturn, many have concerns about their credit rating for home-buying and other consumer borrowing.
Municipalities like the city of Onalaska have the same worries about mounting debt.
“In 2008 or so, we committed to staying under $2.8 million per year so we can get out from under that shadow,” Mayor Mike Giese said.
“It’s a tradeoff, however,” Giese continued. “We have to be practical. An example where debt may be indicated even in the face of a high comparative debt service payment is our need for a new fire station. Increasing the mill rate is not going to work; at some point we will have to borrow.
“That’s what’s so painful about the lift station, a major 2010 project for which the city will bond $2.3 million in 2010,” Giese added. “We anticipated a need for it. Which is the greater risk: flooding in the city or the risk of fire damage and death?”
A key factor in determining credit ratings, a municipality’s debt level affects the interest rates cities and villages are charged, which in turn affects what taxpayers pay through the tax levy.
Because property values and other situations differ among various communities, financial institutions and advisors such as the Government Finance Officers Association, use many key factors to compare debt levels. But for an apples to apples approach, two of those factors are commonly compared by organizations such as the Wisconsin Taxpayer’s Alliance: how much of the budget is being used to pay down debt, as described above, and per capita debt.
Moody’s looks at per capita debt as operational debt, before reserves and revenue producing debt, divided by the population in that year.
The general fund portion of Onalaska’s debt as of Dec. 31, 2009, was $27.78 million, which results in $1,664.75 for each resident. It’s 13 percent higher than it was in 2004 when it was $1,467.
However, Onalaska has managed to get the 2009 per capita debt lower than the city of La Crosse’s for the first time since 2004.
Per capita debt for city of La Crosse residents at the end of 2009 was $2,002, 47 percent more than it was in 2004 when it was $1,360.
Holmen residents are paying $524.92 per person for the village’s debt at the end of 2009, 47 percent more than $356 in 2004.
La Crosse County has a per capita debt of $564.39 as of the end of 2009.
The analysis for this article does not take into account reserve revenue funds that offset debt, other tax burdens such as Western Technical College or the school district’s contribution to taxes.
Nor does it take into account other debt for enterprise funds such as water and sewer and capital improvements.
As they do with consumers, investors like Moody’s look at how much of the total budget is going toward debt servicing when considering a municipality’s credit rating and whether to lend it new money.
Those debt as a percentage of operating budget figures, 33 percent for Onalaska’s and 26 percent for the city of La Crosse, might be devastating for the credit ratings of individuals. But, is that too high for municipalities?
Apparently investors are not uncomfortable with Onalaska’s debt load. Moody’s, a leading bond rating firm, has rated the city of Onalaska’s credit at Aa-3 since 2006, a high grade rating with very low risk of default.
The city of La Crosse is rated AA by Standard & Poors and A1 by Moody’s investment companies, again a high rating.
While municipal debt is long-term debt instead of a credit card, some financial institutions believe the annual debt service should only be between 5 percent and 15 percent of a municipalities annual budget.
According to a 2004 paper titled “Moody’s Approach to Analyzing Municipal Long-Term Debt,” “Debt service as a percent of operating expenditures can vary, and frequently ranges from 5 percent to 15 percent. However, for communities experiencing rapid growth or pursuing aggressive principal amortization, this range can increase significantly.”
Onalaska has not pursued an aggressive payment program, nor is the city experiencing rapid growth.
However, city officials have taken a more conservative spending approach, forgoing public works projects by keeping borrowing below $2.8 million per year.
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