If 2019 was the year the city’s budget became grounded, 2020 could be the year Verona has to dig out of a hole.
After a few years of city services and facilities catching up with previous years’ growth, construction is below the county average and a belt-tightening not seen since the Great Recession could be imminent.
With available revenue and department requests more than $1 million apart on a $14 million budget, city leaders will have some difficult decisions to make as they sort out their priorities over the next few weeks. Those conversations are expected to begin Monday night after the last round of department presentations to the Finance committee.
“We’ve told the committee, department heads, everyone it was going to be a challenging budget,” city administrator Adam Sayre told the Press on Monday. “It comes down to what are the priorities they want to keep.”
The toughest one to hold on to might be Mayor Luke Diaz’s aversion to debt. While city staff foresaw 2020 being tight even before last year’s budget was worked up, the extent of it has left few options for appreciably narrowing the gap that don’t involve a bit of extra borrowing.
“The hope was that we were going to be wrong,” Sayre said. “It hasn’t happened.”
Part of the reason is simply the growth Verona had experienced for the previous 15 years, in the height of Epic’s unfettered expansion. That city-wide growth has quintupled the city’s total value, making the large percentage increases it was used to difficult to regain and keeping even major construction projects from having a big impact.
Meanwhile, several factors that will increase the city’s costs, such as debt load, two mid-year staffing additions from 2019 and agreements signed for additional library spending and a new sewer line, are essentially non-negotiable. Others, such as basic cost-of-living wage increases, come with significant pressure.
At least this year there’s a bit more stability helping the preparation.
Last year, the city had a new mayor, five new alders and an entirely new Finance committee. This time, everyone’s been around for at least a year. The committee has been talking about capital budgets since the summer, and has already heard its department heads’ budget presentations.
And while Sayre is new at city administrator, he too, has been around for a while, having been promoted after six years as planning and development director.
Sayre said while he’s obviously got a different perspective now, the process is similar to what he’s dealt with here for years – getting approval for large development projects.
“You have multiple people involved and you’re trying to get to the same result,” he explained. “It’s never going to make everybody happy, but you still have to get there at the end of the day.”
In 2018, for the first time in many years, the city’s growth rate was lower than the Dane County average, at just 1.6%. That’s one-tenth of what it had been five years earlier.
Because budget increases are tied to that number, known as net new construction, Verona faces an unusual problem – worrying about state levy limits, rather than tax rates.
“It’s a very average number across the state,” Sayre pointed out. “It’s lower than past years, which makes decisions challenging.”
It’s also predictable, as the number, released by the state each August, is defined by the city’s new construction (minus any properties that were torn down) as of Jan. 1, 2019. So as city staff prepared the 2019 budget, they had a good idea the next year would be tough.
In addition to Epic finally slowing down construction on its billion-dollar campus, several projects that had been expected to start last year did not materialize.
The Festival Foods grocery store was delayed by a year. The Sugar Creek Commons project is still in negotiations for a developer agreement. A senior housing complex on North Main Street remains in limbo. And partly because of those stalled projects, the city’s projected income from building inspection services next year is down, as well.
Fortunately, the increase in debt service – also predictable because it mostly involves bonds sold the year before – was far less than in recent years, too, at just $160,000. It was about $450,000 in 2019 and $630,000 in 2018.
Mainly, that is because the city had some large expenditures last year – buying land for the new public works facility, paying for the County Hwy. PD reconstruction, installing a splash pad and paying for part of the Sugar Creek Elementary School land. That totaled about $9 million.
This year, the biggest debt expense was a $1.1 million ladder truck as part of a $2.5 million capital borrowing package.
“The previous year hit us hard for debt,” Sayre said.
If it were just about keeping costs in line and not hiring for new positions, the budget process would be more simple.
But in addition to the standard cost-of-living adjustments for payroll – 2% would eat up half the roughly $200,000 in the city’s ability to increase taxes – the city has several obligations that aren’t really a choice.
One is the library, which is in the third year of a five-year deal between the city and county to phase in a roughly $500,000 increase in payments needed to avoid the county’s library tax. That accounts for more than $100,000.
Another is, strangely, the increase in the city’s water rates. Because the water utility is a separate enterprise (despite being run entirely by city employees), when it decided to increase water rates, the city’s rental costs for fire hydrants increased, too, by $138,000.
There’s also a national election in 2020 and a citywide reassessment of all properties is scheduled. Plus, two midyear staffing increases in 2019 – a new ambulance crew for Fitch-Rona EMS and an additional patrol officer – will mean paying for the rest of the costs in 2020.
Still unknown are state transportation aids – expected to be up a bit because of the County. Hwy. M project – the cost of health insurance and the outcome of negotiations with police and fire unions, which have averaged 3% cost-of-living adjustments each of the past three years.
As new information comes in, it’s generally been on the negative side, Sayre said.
“Every turn in this budget seems like it’s something else,” he said.
Unlike most years, the state’s levy limit is the primary consideration, not the state revenue-sharing expenditure restraint program or tax rates.
So when Finance committee members began asking about those numbers Monday, city staff pointed out they’re likely to stay low; the harder question will be what not to spend and what to borrow for.
None of the sizable discretionary items is likely to be a popular cut.
One of the biggest is wage increases, which are roughly $50,000 per 1%. Another would be a proposed $125,000 program to ensure school crossings are fully staffed; that was a big source of debate in the spring, and patrol officers have filled in some gaps this year.
Three alder-sponsored initiatives could also be considered – a fire department consolidation study for $40,000, sustainability initiatives for $30,000 and diversity assessment and training for $30,000.
Other proposals include police department body cameras at $95,000, filling a second driver/operator for the fire department with part-time help at $57,000, a replacement command car for the fire department at $65,000 and setting up a revolving fund to prevent Fitch-Rona EMS costs from having peaks and valleys, at $100,000.
One option would be using a larger amount of impact fees to offset debt payments, though much like taking out debt itself, using more impact fees puts off the pain to a future year.
On a larger scale, the city could also consider using more of its fund balance, though typically that’s supposed to be for one-time payments. Or it could pay for some of its capital expenditures – like road maintenance and vehicles – with debt.
Diaz cautioned at Monday’s Finance committee meeting the amount of debt the city has been taking in recent years made its budgets unsustainable.
“At some point we’ll have to stop borrowing money,” Diaz said.