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Presentation of the audited 2024 Annual Comprehensive Financial Report
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Submitted by:
John Ruggini
Department:
Finance Department
A. Issue
As required by state law and governmental accounting rules, the City has compiled the 2024 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 2024 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 $260,792,882 (net position) as of December 31, 2024.
* As of December 31, 2024, the City of Wauwatosa's governmental funds reported combined ending fund balances of $62,387,716. Of this balance, $23,256,215 is available for spending at the government's discretion (unassigned fund balance)
* At the end of the current fiscal year, $23,256,215 of unassigned fund balance for the general fund is equal to 32% of general fund expenditures and transfers out.
* The City's net Other Postemployment Benefit (OPEB) liability increased by $2,743,130 to $39,361,560 as of December 31, 2024.
* Total governmental activities long term liabilities decreased $12,852,327 to $172,284,765 due largely to a $11.7 million decrease in the Net Pension Liability. A $4.4 million decrease in General Obligation Debt was largely offset by the increase in the OPEB liability described above.
* Business-type long term liabilities increased $6,151,282 to $61,630,947 due almost entirely to increases in General Obligation Debt for infrastructure improvements.
* 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 $260,792,882 at the close of 2024 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, 2024
Change in Net Position
Net position of the City of Wauwatosa increased by $22,083,895 (9.3%) in 2024 with increases in the Governmental-Type Activities and the Business-Type Activities. Net position of the City's governmental activities totaled $86,263,158 as of December 31, 2024, an increase of $5,230,168 (6.5%). 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 $174,649,834, an increase of $16,854,061 (10.7%). Following is a summary of the changes in net position for the City of Wauwatosa.
Governmental Activities
Governmental activities for 2024 increased the City's net position by $9,078,292 as detailed below.
* Revenues increased by $10.9 million over the prior year:
o The $1,192,738 increase in Charges for Services was driven largely by a pick-up in building construction due to several large construction projects and associated permit revenue as well as improved parking citation collections due to filled vacancies and operational changes.
o The $1,287,247 increase in operating grants was almost entirely due to an increase in state shared revenue due to legislative changes associated with the state budget.
o The capital grants increase of $4.6 million can be attributed to American Rescue Plan Act spending on capital in 2024 as compared to 2023.
o Property taxes grew 3.3% due to a 2.6% increase in the property tax levy and 8.0% in Tax Increment District revenue. Tax Increment District revenue grew as District 6 - Innovation Campus value grew by 16% due to the build-out of a commercial building. Property Tax increment in District 8 - East State Street grew 13.7% with the completion of a 50-unit apartment and townhome affordable housing development. In addition, District 12 - Mayfair Hotel revenue grew $177,951 due to property appreciation.
o Other taxes grew by 6.0% to $2,631,586 driven largely by a $297,546 increase in special assessments due to an increase in projects.
o The $1.0 million increase in investments was driven by increases in the average cash balance as well as a 17.0% increase in the managed portfolio rate of return from 2.84% to 3.32% and a 4.1% increase in the liquid portfolio from 5.02% to 5.22%.
* Expenses decreased by $2.2 million over the prior year:
o General government spending increased by 10.9% partially due to a $238,003 increase in wages. $75,354 of this increase was in poll- worker pay due to the presidential election.
o Public Safety expenses decreased $2.9 million largely a result of a decrease in the pension expense. This was offset by a $691,220 increase in wages due mostly to cost of living and union contract increases.
o The $420,146 decrease in Public Works was driven by a $156,390 decrease in roadway maintenance as the annual crack-filling contract was not awarded. In addition, net recycling processing costs decreased 18% due to increases in the amount earned for the sale of materials in the second half of the year.
o Health and Human services costs increased 11.5% due to an increase in wages resulting from filling Public Health Specialist and Environmental Health Specialist vacancies as well as an $136,686 increase in program expenditures for American Rescue Plan projects.
o A $213,946 increase in marketing services contributed to the 25% increase Culture spending.
o A $160,333 increase in debt service interest resulted in a 5.3% increase in Interest and Fiscal Charges. This was driven higher interest rates on recently borrowed funds.
o In addition, a $1.1 million increase in expenses related to compensated absences was offset by a $1.5 million decrease in expenses related to pension activity.
Figure 2
CHANGE IN NET POSITION- GOVERNMENTAL ACTIVITIES
For The Years Ended December 31, 2024 and 2023
Business Activities
Business activities for 2024 increased the City's net position by $16,854,961 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 4.6% largely due to 2024 being the first full year following a conventional rate increase of nearly 30% for the water utility.
* Capital Grants and contributions increased $4.6 million largely due to a one-time revenue of contributed capital from the American Rescue Plan funds for the reconstruction of the Potter Road Water Main and the extension of water main to Elm Grove funded by a private development.
* Investment income increased 11.2% due to increasing short-term interest rates which increased earnings on the City's investment portfolio as described above.
Expenses
* Sanitary expenses increased 10.1% due largely to increased wastewater treatment service charges from the Milwaukee Metropolitan Sewerage District.
Figure 3
CHANGE IN NET POSITION- BUSINESS ACTIVITIES
For The Years Ended December 31, 2024 and 2024
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, 2024, the City of Wauwatosa's governmental funds reported combined ending balances of $62,387,716, 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 $3,210,561 to $26,551,590 as revenue growth of 3.9% exceeded 1.0% expenditure increases. Year over year revenue increases were driven largely by a $1.3 million increase in property taxes, due to a 2.5% levy increase and a $778,655 increase in State Shared Revenue resulting from the dedication of $0.01 of the state sales tax to local governments. A $704,606 increase in investment earnings, a 15% year over year change, due largely to rising interest rates also contributed to the revenue surplus. A 4.0% increase in wages was almost entirely offset by savings in multiple other areas.
* The $1.1 million increase in the Tax Increment District fund was driven by a $741,169 increase in property tax increment due to a 15% rise in equalized value within the Tax Increment Districts as well as a 38% year over year increase in interest earnings.
* The $2,329,959 decrease in the Capital Projects fund was largely the result of using $896,295 in prior year bond proceeds which were in restricted fund balance for projects that spanned multiple years. In addition, $401,246 less special assessment revenue was received than budgeted.
* The Parks Reserve fund balance increased $443,522 largely due to lower than budgeted compensation costs due to a combination of vacancies and less time being charged to the Parks than budgeted. This resulted in $258,679 in savings. Fund balance was budgeted to increase $105,000 to build surplus for the future replacement of the stadium track and turf. Lastly, rental revenue exceeded budget by $72,863 as closure of the Muellner building for remodeling had less of an impact on revenue than expected.
* The Community Development Fund decreased $133,757 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 decreased $664,284 due to the planned us of $623,287 of the capital reserve for the Muellner Building remodel and the construction of the Firefly Grove park.
* Information Systems Equipment fund increased by $245,225 as there were no planned expenditures.
* The Fleet Equipment reserve increased $93,303. It was budgeted to surplus by $288,391 to build up cash reserves for future purchases; however, the main reason this level was not realized was that the deprecation transfer was $149,992 less than budget.
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 a decrease in net position of $1,695,279. The following funds contributed to his change:
* Fleet Maintenance increased its net position by $790,055 due to a $143,919 in operating income and capital contributions from the Fleet Equipment Reserve exceeding the depreciation transfer to that fund by $667136
* The Public Works Building Reserve net position decreased $91,856 due the $108,512 depreciation transfer to the capital reserve.
* The General Liability Fund had a $1,139,727 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.
* Workers Compensation net position increased $460,268 as claims decreased 59% year over year and were $373,071 below budget. This was due mainly to prior year claims being less expensive than previously estimated.
* The Employee Health Insurance Fund decreased its net position by $609,538 due to the $1,651,762 OPEB expense (which is not budgeted) exceeding claims savings of $691,044
* Information Systems net position increased $126,648. This was mostly due to vacancy savings and deferred equipment replacement that was budgeted for in 2024 but will occur in 2025.
* Municipal Complex net position decreased by $130,225 as $250,000 of fund balance was transferred to the Capital Projects Fund for the Municipal Complex and Library Renovation project. This was offset by rate revenue generated to fund a $180,000 surplus for future capital projects.
General Fund Budgetary Highlights
Differences between actual revenues and expenses and the final amended budget resulted in a negative revenue variance of $1,007,165 (1.3% of the final budget) and a positive expenditure variance of $2,854,093 (4.7% of the final budget). Other Financing Sources had a $229,339 variance from budget. The following explains these variances:
Revenues
* Intergovernmental revenues fell short of budget by $604,583 due to unrealized grant revenue of $824,109 from the State Departments of Health Services and Administration (will be realized in 2025) which was offset by $221,274 of reimbursement revenue from the Federal Drug Enforcement Agency related to police support during the Republican National Convention that was not budgeted.
* Licenses and Permits posted a $325,637 surplus. This was nearly entirely due to building permits exceeding the budget. 2024 construction value, which drives building permit revenue grew 88% over 2023 and ended 21% over average.
* Public Charges for Services ended $158,595 under budget as Ambulance Fees fell $146,203 short. This was due to an assumed increase in Medicare reimbursement that is dependent on federal approval of a state law change. That approval did not occur until December.
* Commercial Revenues were $616,962 short of budget due to mark-to-market gains being short of estimates.
Expenditures
* General Government expenditures posted a $528,348 surplus due largely to wage savings attributed to vacancies in multiple departments.
* Public Safety had a $573,398 budgetary savings due to ongoing vacancies in the police department caused by recruitment challenges.
* Health and Human Services had a positive budget to actual variance of $593,800 due to expenditures budgeted for multi-year reimbursable grants that have not been spent. This was offset by a revenue shortfall described above.
* The $152,105 budget shortfall in capital outlay is due to a capital outlay purchase budgeted as a Health and Human Services operating expense but accounted for as capital outlay.
Other Financing Sources
* Transfers In and Out included a $3.0 million budget only expense and revenue used for the State of Wisconsin Expenditure Restraint program. The remainder of budget variance for Transfers Out was mainly due to a $420,584 reduction in the transfer to the Debt Service Fund due to the availability bond premium for debt service interest payments. The remainder of the budget variance for Transfers In was largely due to a budget-only revenue of $1,095,234 for the Appropriated Surplus Applied.
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, 2024 increased $22.7 million to $345,386,075 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 6.6% for governmental and 7.4% 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 2024 included the following:
* 2,665 linear feet of reconstructed and resurfaced streets.
* 5,146 linear feet of replaced or relined storm sewer mains
* 1,966 linear feet of replaced or relined sanitary sewer mains
* 7,7252 linear feet of replaced water mains
* 1,760,747 in governmental and $49,380 in business-type activates updates to buildings and improvements including Muellner building remodel and solar array installation, construction of the Firefly Grover Park, air handler upgrades at the Police Station Library and City Hall restroom renovations, City Hall Fitness Center upgrades, Hart Park Locker
* $3,324,809 in governmental and $1,725,435 in business-type machinery and equipment updates including 8 police vehicles, a Fire Ladder Truck, 8 public works vehicles and 2 attachments, a lift, high-speed ballot counter, a library automated materials handler and a solar array for the Potter Water Pumping Station.
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 $134,839,492 which equaled 1.31% 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 2024, the City of Wauwatosa issued $18,105,000in General Obligation bonds for street, sewer and water main improvements. 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 $514,238,735 of which the City has utilized 26% 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 $28,215,000 of which $7,795,000 are revenue bonds. The Water Utility maintains an Aa2 rating from Moody's.
Additional information on the City of Wauwatosa's long-term debt can be found in note 4.G on pages 57-64 of this report.
Economic Factors and Next Year's Budget and Rates
The City of Wauwatosa is an inner ring suburban community located in Milwaukee County. Wauwatosa is strategically located at the center of the Milwaukee metropolitan area with excellent transportation access. It is the home of a number of regionally significant institutions and companies - including the Milwaukee County Grounds, the County Medical Center, Research Park and Harley-Davidson - and is second only to downtown Milwaukee as a regional employment center. The City of Wauwatosa features walkable and bike-friendly neighborhoods, an excellent variety of housing stock, a thriving Village business district, and a key regional shopping center; the City is noted for its level of municipal services, excellent schools, the civic engagement of its citizens, and its high quality of life.
Other key economic factors include:
* The City's equalized property valuation (including tax increment district value) has increased 86% since 2015 to $10.3 billion in 2024.
* The unemployment rate for the City of Wauwatosa increased from 2.5% in 2023 to 2.7% annually for 2024. This compares favorably to the state's average of 3.0% and Milwaukee County's average rate of 3.7% during that same time period.
* The City maintains an Aaa bond rating from Moody's Investors Service, based in part on the relatively strong economic climate of the City.
The City adopts operating budgets for its governmental funds (General, Special Revenue, Debt Service, Capital Projects) and enterprise funds (Water and Sewer Utilities). The 2025 fiscal year operating budget for the General Fund includes $79.7 million in projected revenues and expenditures. The budget includes the use of approximately $260,000 of fund balance.
Funding for the operating budget of the City is provided from many sources, including property taxes, room taxes, grants and aids from the State and County, user fees, permits and licenses, fines, and other miscellaneous revenues. Several revenue sources are more sensitive to economic factors, in particular building permits, room taxes and investment earnings.
Revenues in the 2025 Budget increase 3.6% over 2024. This is largely driven by a 1.2% increase in the property tax levy an additional $1.2 million received in state revenue to offset the elimination of personal property taxes. A new $10 vehicle registration fee is also implemented with an estimated $395,985 in additional revenue. This is offset by an assumed reduction in interest earnings of $601,076 due to lower cash balances as American Rescue Plan funds are spent down. The 2025 Budget continues to assume a higher level of Medicaid and Medicare as enabling authority was approved at the Federal government level in December 2024.
These revenue increases help cover additional operating expenses. These include a 2.8% increase in regular pay which includes a 3.0% cost of living adjustment for non-represented employees and several departmental staffing changes. Full-time equivalent positions decreased 7.41 to 489.21 in the 2025 budget. Of this total, 6.0 FTE were providing an additional reimbursed police post at the Froedtert Hospital Emergency Room at the Regional Medical Campus but the start of this contract was delayed.
Property tax limitations put in place by the State of Wisconsin and flat or declining state and federal revenues (outside of one-time stimulus and pandemic funds) will continue to put pressure on the City's operating budget. These pressures will cause the City to continue to pursue tax base expansion, expenditure efficiencies and new revenue sources.
Revenue from water charges are budgeted to decrease due to reduced water consumption estimates over the 2024 budget due to loss of commercial customers. This loss of revenue is offset by a reduction of Wholesale water costs by 5%. The 2025 Budget assumes a 4.0% simplified rate increase implemented by July 1, 2025. This is offset by the reduced water consumption and results in a 1.55% increase in total public charge revenue from $12,150,200 to $12,338,500.
Sanitary public charge revenue is budgeted to increase 9.6% from $10,251,220 to $11,231,100. This is the result of an expected increase in residential winter quarter and residential multi-family sewer usage as well as well as an assumed Milwaukee Metropolitan Sewer District rate increase that is passed on to the rate payer. The budget includes a 0% increase in the local sanitary flow charge which would remain at 3.3115 per CCF for the first 50 CCF utilized based on the winter quarter average.
Storm Sewer public charge revenue increases as additional impervious surface has been added to the City resulting in Equivalent Residential Unit revenue increasing by 2.7% from $5,820,341 to $5,976,116. The budget includes a 0% increase in the storm sewer rate which would remain at 32.63 per ERU.
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