title
Presentation of the audited 2023 Annual Comprehensive Financial Report
body
Submitted by:
John Ruggini
Department:
Finance Department
A. Issue
As required by state law and governmental accounting rules, the City has compiled the 2023 financial statements. Assembled as an Annual Comprehensive Financial Report based on the Governmental Finance Officers Association requirements, the statements have been audited by Clifton Larsen Allen LLP. Representatives from Clifton Larsen Allen will review the financial results with the Committee and present any audit findings. A copy of the report is attached.
B. Background/Options
The Management Discussion and Analysis (MDA) section of the Annual Comprehensive Financial Report (ACFR) summarizes the 2023 financial results and will be presented in brief. The ACFR and specifically the MDA should be referred to for more detail.
Highlights from the financial statements include:
¨ The assets and deferred outflows of resources of the City of Wauwatosa exceeded its liabilities and deferred inflows of resources by $231,413,065 (net position) as of December 31, 2023.
¨ As of December 31, 2023, the City of Wauwatosa’s governmental funds reported combined ending fund balances of $60,391,480. Of this balance, $19,681,590 is available for spending at the government’s discretion (unassigned fund balance)
¨ At the end of the current fiscal year, $19,688,525 of unassigned fund balance for the general fund is equal to 27% of general fund expenditures and transfers out.
¨ The City’s net Other Postemployment Benefit (OPEB) liability decreased by $4,566,173 to $36,618,430 as of December 31, 2023.
¨ Total governmental activities long term liabilities decreased $3,281,661 to $124,789,502 while business-type long term liabilities increased $522,395 to $55,479,665. Governmental activities long term liabilities decreased as $2.9 million of Municipal Revenue Obligations used for economic development were paid and no additional obligations were incurred.
¨ The City maintained an Aaa rating from Moody’s.
Government-wide Financial Analysis
As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City of Wauwatosa assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $231,413,065 at the close of 2023 as shown below in Figure 1.
The largest portion of the City of Wauwatosa’s net position reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment, less any related debt used to acquire those assets that is still outstanding). Although the City of Wauwatosa’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since most of the capital assets themselves cannot be used to liquidate these liabilities.
An additional portion of the City of Wauwatosa’s net position represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position may be used to meet the city’s ongoing obligations to citizens and creditors.
Figure 1
City of Wauwatosa Net Position
December 31, 2023
Change in Net Position
Net position of the City of Wauwatosa increased by $18,555,597 (8.7%) in 2023 with increases in the Governmental-Type Activities and the Business-Type Activities. Net position of the City’s governmental activities totaled $73,618,192 as of December 31, 2023, an increase of $9,078,292 (14.1%). The City’s unrestricted net position for governmental activities is negative due development incentives associated with Tax Increment Districts that result in a liability without an associated asset. As the debt is repaid and when the TIF closes, this negative amount will be reduced. The net position of business-type activities totaled $157,794,873, an increase of $9,477,305 (6.4%). Following is a summary of the changes in net position for the City of Wauwatosa.
Governmental Activities
Governmental activities for 2023 increased the City’s net position by $9,078,292 as detailed below.
¨ Revenues increased by $9.1 million over the prior year:
o The $525,065 decrease in Charges for Services was driven largely by a slow-down in building construction and associated permit revenue.
o The capital grants increase of $835,260 can be attributed to $1.8 million in to American Rescue Plan Act spending on capital in 2023 as compared to zero in 2022. This was offset by decreases in contributed capital from governmental and internal service funds which fluctuates year over year depending on capital projects.
o Operating grants increased $2.2 million as American Rescue Plan spending shifted towards capital in 2023 as described above.
o Property taxes grew 3.5% due to a 2.6% increase in the property tax levy and 4.9% in Tax Increment District revenue. Tax Increment District revenue grew as District 7 - Burleigh Triangle value grew by 22% due to the build-out of restaurants and other retail space. In addition, District 13 revenue grew $212,909 due to the construction of the Walnut Glenn apartments, a low-income tax credit project, which include 87 senior apartments and 14 townhouses.
o Other taxes grew by 10.0% to $2,482,357 driven largely by a $158,067 increase in Hotel/Motel taxes which exceeded pre-COVID levels as occupancy increased 2.3% and the average daily rate 6.2% over 2022.
o The $8.7 million increase in investments was driven by the year-over-year change in investment rates and the stabilized interest rate environment. In 2023 the City earned 5.02% on its short-term portfolio compared with 1.58% the year prior. This 218.1% increase drove a $2.4 million year over year increase in investment earnings. In addition, the City posted a $1.9 million mark-to-market adjustment as compared to the negative $4.3 million adjustment in 2022 that resulted from rapidly increasing interest rates which drove down bond prices.
¨ Expenses decreased by 1.7% over the prior year:
o General government spending increased by 25.6% largely due to a $462,830 increase in outside legal service litigating property tax appeals.
o Public Safety expenses increased $9.3 million. Of that wages and benefits increased $1.65 million as police officer hours increased 6.1% and the police and fire employer pension rate increased approximately 9%.
o An approximate $183,000 increase in wages and benefits in the Parks department as more time was dedicated to the parks from Public Works employees contributed to the 18% increase in Education and Recreation spending. Library compensation also increased approximately $192,000 driven by an increase in the hourly wage paid to Library Shelvers and a 3% increase in hours paid.
o The $13.9 million decrease in Conservation and Development was largely the result of a one-time expense in 2022. The City financed the construction of an approximately $12.0 million parking structure that was privately owned (so not depreciated) to support economic development at Innovation campus.
o The increase in hotel/motel taxes described above allowed the Tourism Commission to increase its marketing activity by approximately $180,000 increasing Culture expenses.
o In addition, a $4.1 million increase in expenses related to pension activity contributed to increases in each functional category.
Figure 2
CHANGE IN NET POSITION- GOVERNMENTAL ACTIVITIES
For The Years Ended December 31, 2023 and 2022
Business Activities
Business activities for 2023 increased the City’s net position by $9,477,305 as detailed below. Some of the significant changes in revenues and expenses as shown in Figure 3 that contributed to that change were as follows:
Revenues
¨ Charges for services increased 6.8% largely due to a mid-year conventional rate increase of nearly 30% for the water utility.
¨ Capital Grants and contributions decreased 41% largely due to a one-time revenue of contributed capital from the American Rescue Plan funds for the reconstruction of the 68th Street Water Main received in 2022.
¨ Investment income increased 156% due to increasing short-term interest rates which increased earnings on the City’s investment portfolio as described above.
Expenses
¨ Water expenses increased 11.1% due largely to a 9.6% increase in wholesale water expenses as a result of wholesale rate increase.
¨ Sanitary expenses increased 5.9% due largely to a $672,845 increase in repairs largely associated with the private lateral grouting program.
Figure 3
CHANGE IN NET POSITION- BUSINESS ACTIVITIES
For The Years Ended December 31, 2023 and 2022
Fund Financial Analysis
As noted earlier, the City of Wauwatosa uses fund accounting to ensure and demonstrate compliance with finance-related laws and regulations. Fund financial reporting focuses on short-term spendable resources and balances of spendable resources available at year-end.
Governmental Funds
As of December 31, 2023, the City of Wauwatosa’s governmental funds reported combined ending balances of $60,391,483 an increase of $8,434,896 from the prior year. This increase is due to several factors described below and presented in Figure 4.
¨ The General Fund balance increased $1,096,500 to $23,341,031 as revenue growth of 14.1% exceeded 7.3% expenditure increases. Year over year revenue increases were driven largely by increases in investment earnings and property taxes as described above.
¨ The $1.4 million increase in the Tax Increment District fund was driven by $268,592 year over year increase in investment earnings and a $343,179 increase in property tax increment as described above as well as one-time expenses in 2022 associated with economic development incentives.
¨ The $5,156,112 increase in the Capital Projects fund was largely the result of receipting $11.9 million on bond proceeds but only spending $7.8 million on capital projects. The project with the largest unspent balance was the North Avenue paving project from the Menomonee River to Mayfair Road. $2.0 million remained to spent on this project which was completed in 2024.
¨ The Parks Reserve fund balance increased $548,312 largely due to lower than budgeted compensation costs. The Parks Reserve is also budgeted to surplus $105,000 for future improvements to the stadium as well.
¨ The Community Development Fund decreased $483,233 due spending down bond proceeds from fund balance for the costs of maintaining the vacant Boston Store as negotiations continue to transfer ownership.
¨ The Tourism Commission balance increased $461,034 as hotel/motel tax revenue increased as described above.
¨ Information Systems Equipment fund increased by $264,753 as there were no planned expenditures.
Figure 4
CHANGE IN GOVERNMENTAL FUND BALANCES
Proprietary Funds
Revenue and Expense highlights related to Water, Sanitary, and Storm water funds are discussed above. Internal Service Funds showed an increase in net position of $364,853. The following funds contributed to his change:
• The General Liability Fund had a $1,036,075 increase in net position based on annual contributions related to the Common Council’s fund balance policy requirements for this fund based on litigation and settlement risk.
• The Employee Health Insurance Fund decreased its net position by $133,442 due to health claims exceeding the original budget by 15.2%
• Municipal Complex net position decreased by $246,962 as $250,000 of fund balance was spent on a library restroom remodel project.
General Fund Budgetary Highlights
Differences between actual revenues and expenses and the final amended budget resulted in a positive revenue variance of $891,255 (1.2% of the final budget) and a positive expenditure variance of $899,040 (1.5% of the final budget). The following explains these variances:
Revenues
¨ Interest earning surplus as described previously made up most of the $1.3 million revenue surplus in Commercial Revenues which offset delayed grant reimbursements causing a deficit in Intergovernmental Revenues
¨ Licenses and Permits posted a $178,898 surplus despite a slow-down in construction due to a large building applied for in December but construction not occurring until 2024.
Expenditures
¨ General Government expenditures were $258,219 due largely to wage savings attributed to vacancies in multiple departments.
¨ Health and Human Services had a positive budget to actual variance of $501,430 due to expenditures budgeted for multi-year reimbursable grants that have not been spent. This was offset by a revenue shortfall described above.
¨ Conservation and Development had a $179,448 surplus as less spending on economic development grant programs and operating expenses offset wage and benefit overruns.
¨ $144,204 in principal and $13,428 in interest expense was not budgeted because it represents a reclassification of public safety expenses associated with subscription based information technology arrangements.
Capital Assets and Debt Administration
Capital Assets
The City of Wauwatosa investments in capital assets for its governmental and business-type activities as of December 31, 2023 increased $9,552,643 to $322,650,081 net of accumulated depreciation. This investment in capital assets includes land, buildings, sewer and water main improvements, machinery and equipment, parks facilities, roads, and bridges. The increase in the City of Wauwatosa’s investment in capital assets for the current fiscal year was 1.1% for governmental and 4.6% for business-type functions. The increase for business type functions reflects the continuation of the City’s enhanced capital improvement plan to replace infrastructure (largely roads, bridges and sewer mains) that are past-their useful life or of insufficient capacity.
Major capital assets improvements during 2023 included the following:
¨ 5,280 linear feet of reconstructed and resurfaced streets.
¨ 2,534 linear feet of replaced or relined sanitary sewer mains
¨ 10,021 linear feet of replaced or relined storm sewer mains
¨ 13,692 linear feet of replaced water mains
¨ $2,342,894 in updates to buildings including the police station access controls, police lobby and training room improvements and Fire Station 52 & 53 bunk house renovation design and updating police station access controls.
¨ $1,254,043 in machinery and equipment updates including 10 police vehicles, 2 Fire Department command and staff vehicles ambulance, 4 public works vehicles and a digital intelligence forensics server for the police.
Additional information on the City of Wauwatosa’s capital assets can be found on pages 53-54.
Debt Administration
At the end of the current fiscal year, the City of Wauwatosa had total net general bonded debt outstanding of $133,513,038 which equaled 1.39% of equalized value. This includes all General Obligation Debt, Bond Premium, Municipal Revenue Obligations and is net of net position restricted for debt service. Please see the statistical section for annual comparisons. During 2023, the City of Wauwatosa issued $16,375,000 in General Obligation bonds for street, sewer and water main improvements, and equipment purchases including a tactical rescue vehicle, a fire engine and stadium storage units for Hart Park. The City maintains an “Aaa” rating from Moody’s for its general obligation debt.
State Statutes limit the amount of general obligation debt a government entity may issue to 5% of its total equalized valuation. The current debt limitation for the City of Wauwatosa is $480,917,545 of which the City has utilized 25% for its current outstanding general obligation debt.
The remainder of the City of Wauwatosa’s debt represents bonds secured solely by specific revenue sources. The Wauwatosa Water Utility has outstanding debt of $26,960,000 of which $8,47000 are revenue bonds. The Water Utility maintains an Aa2 rating from Moody’s.
C. Strategic Plan (Area of Focus)
Priority Area One: Economic Development and Financial Resilience
D. Fiscal Impact
For informational purposes only
E. Recommendation
For informational purposes only