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Balancing the General Fund Financial Forecast
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Submitted by:
John Ruggini
Department:
Finance
A. Issue
The City is facing a $6.0 million budget gap over the next five years of which $3.0 million occurs in 2025. As per the City’s Financial Resiliency a plan for balancing the five-year forecast is presented below.
B. Background/Options
The 2025-2029 General Fund forecast was presented at the June 11, 2024 Financial Affairs Committee meeting and showed a $6.0 million gap as shown in figures 1 and 2 below.
Figure 1- Cumulative Gap
Figure 2- Annual Gap
Per the Financial Resiliency policy, recommendations for closing the gap are presented below.
2025 Budget Year
The City is facing one of the larger gaps in the last 10 years in 2025 due to numerous factors described in the June 11th memo. Given the size of the gap, and repeated budget reductions over the past 15 years, there are few good options. Staff are still developing the 2025 Budget so no final decisions have been made. However, to keep the committee informed per the Budget Process Policy adopted earlier this year, the options being considered are described below in Figure 3.
Figure 3
Given that the gap is larger in 2025 than 2026, one strategy is to push some of the gap into the subsequent budget year. This is accomplished by using remaining ARPA budget stabilization funds in 2025. As a one-time revenue, this has that effect. Since there is no way to commit these funds by 12/31/2024, this will be actualized by re-estimating $300,000 of ARPA funds into the police department budget to cover unbudgeted overtime in 2024 so that $300,000 of property tax revenue will be pushed into fund balance. This $300,000 of fund balance will be used in 2025.
The City earned $787,000 in prescription drug rebates in 2023 compared to the 2024 Budget of $617,795 so we believe we can increase this budget reducing the gap by $184,000.
The City Assessor is estimating that Net New Construction will be approximately 3.0%. The forecast assumed an operational levy increase of 2.0%. We are recommending that in order to close the gap, and given that we have consistently increased the levy less than inflation, that the property tax levy be increased by another 1.0% which would bring the operational levy increase to 3.0% and a total increase including debt service of 3.5%. The chart below shows the historical increase in the levy remembering that the 7.1% increase in 2022 largely represents additional tax revenue earned by a portion of the medical campus becoming taxable.
Figure 4
The Police union contract included a 1.0% “Nationwide Policing Impact Adjustment” as of July 1, 2025 as well as an additional 1.5% step in their pay range for retention purposes. Knowing the financial challenges the City faces, the Wauwatosa Peace Officers Association and the Police command staff agreed to offset these extra ordinary increases by eliminating 3 vacant police officers positions.
The five-year forecast assumed a 3.0% cost of living increase for non-union employees. This is adjusted to a 2% increase split as a 1% on January 1, 2025 and 1% on July 1, 2025 which has the effect of pushing 0.5% of the cost into 2026.
Beginning in 2022 with the additional revenue from the hospitals, the City budgeted for a $125,000 contribution to the Affordable Housing Fund. This contribution is recommended to be eliminated in 2025. Similarly, $250,000 set aside annually as contingency for property tax appeals is also recommended to be eliminated.
Beginning in 2024, the City increased revenue for ambulance transport reimbursement as a new state law was passed that was supposed to enable the City to recover a larger percentage of its costs from Medicaid and Medicare. However, this additional revenue has not yet materialized as the Federal government has unexpectedly not yet approved the higher reimbursement rate. The five-year forecast did not assume this additional revenue. However, upon further discussions with the Fire Department and Wisconsin legislative staff involved with the issue, we still believe there is a possibility this higher reimbursement rate will be approved and retroactive so the additional revenue will be budgeted again in 2025.
A $10.00 vehicle registration fee is proposed of which half would offset roadway maintenance costs and the other half would fund infrastructure improvements to mitigate reckless driving. Attachment 1 includes a listing of Wisconsin Cities and Counties with vehicle registration fees.
City departments have been asked to reduce their use of property tax levy by $550,000. They are still developing their specific recommendations.
2026-2028 Budget Years
Given the relatively smaller gap amount, it is assumed that the gap can be closed in these 3 years through departmental levy reductions and potential changes to the City’s health insurance program.
2029 Budget Year
For illustration purposes, it is assumed that the City exhausts its extra levy capacity and is only able to increase the levy by the amount of net new construction, estimated at 1.3%. This results in a $1.1 million gap. Given the years of budget reductions, it is assumed at this point the City will face the decision of having to reduce services or go to referendum for a longer-term solution. If the referendum was not pursued or failed, possible reductions to make up this size gap could include a combination of:
• Elimination of one police patrol
• Elimination of one staffed Fire Engine
• Elimination of Yard Waste Pick-up
• Elimination of Crossing Guard program
• Reduction of property tax levy support of Library
To emphasize, it is not certain the City will exhaust its extra levying capacity in 2028. This depends on the amount of net new construction in 2025-2028. However, absent legislative changes at the state or federal levels, it is certain the City will face these decisions at some point in the future.
C. Strategic Plan (Area of Focus)
Financial Resiliency
D. Fiscal Impact
For discussion purposes only.
E. Recommendation
For discussion purposes only.