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Janesville City Council to discuss finance options

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MARCIA A. NELESEN
April 26, 2011
— Janesville City Council members concerned about the city’s level of borrowing and use of its rainy-day fund could find it difficult to make changes.

That’s the conclusion of a memo written for a study session on finances scheduled for 5:30 p.m. Wednesday in City Hall.


The report also says the city’s ratio of debt and unrestricted funds are in good shape, especially when compared to peer cities.


At least one councilmember, Tom McDonald, agrees that the city is in good shape now, but he said it won’t be if it continues to spend from its fund reserve.


Jay Winzenz, assistant city manager, and Patty Lynch, comptroller, recommend that:


-- The city cap borrowing at 50 percent of its general obligation debt limit.


-- Keep the use of reserve funds at 15 to 25 percent of operating expenses.


Staff recommends that those limits could be changed only by a supermajority vote of the council.


Borrowing

The council would have to make “significant” cuts to move some spending from borrowing back into the operating budget and to lower reliance on the reserve funds, Winzenz said. That would make a $2 million hole in the 2012 budget grow by another $1.5 million.


Gov. Scott Walker proposes a freeze in local property taxes that would prevent the city from increasing revenue by raising property taxes.


Councilman Tom McDonald earlier likened borrowing to pay for street maintenance to a homeowner borrowing to pay utilities.


Borrowing for street maintenance began in 2006 because of state-imposed levy limits. By shifting street maintenance into borrowing, the city was able to spend more on other services and still stay below the levy limit.


That means the city eventually will be paying more for past borrowing—paying off principal and interest—than for what it borrows each year for street maintenance, McDonald said.


City staff said the council can consider road improvements a capital improvement because it lasts for at least 15 years so it makes sense that future beneficiaries pay a portion of the cost.


The city recently was at 39 percent of its debt limit set by the state. The state limits borrowing to no more than 5 percent of the equalized assessed valuation of the taxable property in the city.


Over the last five years, debt in Janesville as a percentage of the legal limit has fluctuated between 38 percent and 41 percent, staff said. Among peer cities, the average percentage of debt was 43 percent in 2010.


Staff recommends capping debt at 50 percent of the limit.


“If the city council determines that it wants to move street resurfacing and reconstruction projects back to being funded by the general fund operating budget, the funding will come from other general fund programs due to the constraints on the city’s revenues,” according to the memo.


Fund balance

The city should maintain general fund balance so it can respond to emergencies, both natural and financial, according to the memo. The fund balance helps the city avoid the need for short-term borrowing and preserves the city’s credit rating.


The unrestricted fund balance—defined as money on hand the city has discretion to spend and money committed to other purposes—decreased from $8 million in 2006 to $7 million in 2010.


Staff recommends that the fund balance be between 15 and 25 percent of the budgeted general fund operating expenditures for the next year.



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