title
Recommendation by Finance Director for approval of issuing 2026 General Obligation Notes to debt finance capital improvements and economic development activities
body
Submitted by:
John Ruggini
Department:
Finance Director
A. Issue
As part of the 2026-2030 Capital Improvement Plan, bond proceeds are required to fund approved capital projects. As a result, it is necessary to authorize the issuance of these general obligation and water revenue bonds. It is important to consider the impact of these bonds on the City’s total debt capacity, tax and utility rates.
B. Background/Options
Capital Budget
The 2026-2030 Capital Improvement Budget included $10.8 million in general obligation note proceeds for approved projects as shown in Figure 1. The total amount to be borrowed is $15.4 million. This is a not-to-exceed amount although we don’t anticipate the amount to change.
Levy-backed bonds are $56,693 more than budgeted due to adding $350,000 for an Aerial Bucket Truck which the Council pre-approved and increasing the budget for Project 6626 - Fire Station 53 Concrete Pavement Replacement which cam in higher than budget. These are mostly offset by postponing or canceling the following projects:
|
Project |
Project Title |
Budget |
Comment |
|
2402 |
Construct Fiber Optic Connections between Critical City Facilities |
332,500 |
Sufficient cash from prior projects |
|
2403 |
Street Light Conversion |
1,800 |
Will use cash for small amount |
|
6627 |
Fire Station 51 North Parking Lot Replacement |
8,000 |
Consolidated with project 6626 |
|
6690-6699 |
Utility Vehicle Replacement |
60,000 |
Surplus available from Fire truck purchase - |
|
8055 |
Hart Park Picnic Pavilion |
125,000 |
Project postponed due to flood |
The Storm borrowing is $295,472 less than budgeted due also to better than budgeted contract figures for the 2026 paving program which also allowed for the complete elimination of 2026 water borrowing.
The acquisition of the Lineage warehouse using Tax Increment District 7 funds was not contemplated by the 2026 Budget but was approved subsequently by Council.
The bond amortization schedules have been adjusted so that the same impact on the 2027 Budget is maintained and sufficient funds are included in the 2027 Budget to cover the debt service associated with this bond offering. Within that issuance, the levy funded portion will be repaid over 15 years, the storm over 10 years and the TIF 7 over 14 years (the remaining life of the District). As was the case in previous years, General Obligation Notes are proposed instead of Revenue Bonds for the water projects. This is recommended to reduce interest costs, eliminate the need for a debt reserve and provide debt coverage relief
Figure 1
The specific projects included in these totals are shown in Attachment 1 which were all part of the approved 2026-2030 capital budget. That document can be found here: <https://www.wauwatosa.net/home/showpublisheddocument/6400/639069224670500000>
Debt Capacity
An important component of assessing a debt issuance is measuring its impact on debt capacity as governed by the Debt Management Policy (Attachment 2). Figure 2 compares the City of Wauwatosa’s debt profile (assuming issuance of this debt) to its policy goals and to the Aaa average.
Assuming this debt issuance, the City will have $147,700,000 in outstanding General Obligation debt; an increase of $50,000, or 0.3%, from the prior year. This includes all debt backed by property taxes, but does not include water revenue bonds. The amount of debt actually paid for with general fund property taxes (net debt) is $58,120,000; an increase of $2,290,000 or 4%. This does not include general obligation debt paid for by the utilities or debt paid for by TIF Districts.
The City is below its stated debt policy goal for total debt as a percentage of full value - 1.3% compared to 4.0% per the City policy and below the 5.0% allowable under state statute. The City also remains below its policy goal of net debt service as a percentage of expenditures to not exceed 15%. It is estimated to be 11.4% in Figure 2 and remain relatively flat over the next 5 years (not including any assumed debt for a future City Hall/Library project that is being contemplated). This is shown in Figure 3.
Figure 2 - Debt Profile Comparisons
Figure 3 - Projected Annual Levy Debt Service
The debt profile is just one measure used for determining a bond rating. Figures 4 and 5 present several other measures used to assess financial and economic strength. These figures are based on the 2024 financial results and also are compared to the most recent available Moody’s Aaa medians. While the City’s financial and economic profiles are strong, some of the benchmarks come in lower than Aaa peers.
Figure 4 - Economic Comparisons
Figure 5- Financial Operations
Figure 6 presents the analysis from the City’s bond rating agency, Moody’s, as of the last full rating in September 2025 which demonstrates how the strength of our finances and growing tax base help overcome other weaknesses and maintain our Aaa rating.
Figure 6- Moody’s Rating Scorecard
Finally, it is important to examine the sanitary, storm and water coverage ratios and cash surplus. It is recommended to maintain a 1.10 coverage ratio and 25% cash surplus. A coverage ratio is the net operating income divided by the debt service amount.
Storm
Assuming the issuance of the 2025 bonds as well as the debt necessary to finance the 2026-2030 capital budget, the storm sewer will maintain a 1.05 coverage ratio through 2030 (Figure 10). The Storm Sewer cash balance is forecasted to be 35% of operating expenditures in 2026 (Figure 11) and remain constant until a planned reduction in for the Schoonmaker Creek project. A 5% increase is considered in 2026. The necessary rate increases to support the 2025-2029 capital budget and coverage ratio are shown below in figure 12.
Figure 7
Figure 11
Figure 12
Tax Increment Borrowing
The City maintains a policy of ensuring that a Tax Increment District has sufficient surplus cash flow to ensure a 1.25 coverage ratio for annual debt service payments and municipal revenue obligations. This means that after collecting annual revenues and paying for all annual expenditures (excluding debt service and municipal revenue obligations), there are sufficient funds to cover 125% of the annual debt service amounts. Assuming the additional debt service for the proposed borrowing, Tax Increment District 7 will maintain an average debt service coverage ratio of 3.73 over the life of the debt and only fall below 1.25 in a single year (2031). Given we are projecting $30.4 million of surplus increment at the end-of-life, this causes no concerns.
Debt Issuance Process
As in prior years, the Council must approve a Parameters Resolution included with this report. The actual sale date for the 2026 general obligation bonds is scheduled to be the week of October 19th as a competitive sale. Moody’s will assign a rating to the City over the next several weeks. The credit strengths and challenges from the prior rating are noted below.
C. Strategic Plan (Area of Focus)
Priority Area Three: Infrastructure
D. Fiscal Impact
Annual debt service costs are included in the 2027 Budget.
E. Recommendation
I recommend the approval of the debt issuance not to exceed the amounts and terms shown below.
