By Kathleen Foody
Wausau Daily Herald
KRONENWETTER — Forming a municipality, like starting a business, is a pricey venture.
Officials leading the village of Kronenwetter’s incorporation in 2002 opted to borrow to finance the essentials — roads, utility connections, a municipal center. They expected that a boom in housing and business construction would continue, and they’d have plenty of property taxes to repay those bonds and loans.
But the national economic recession foiled every prediction for growth in Kronenwetter.
Now, the village must keep up with debt payments that are driving up tax rates, a trend expected to continue until 2014, when the payments begin to decrease. Until then, residents can expect higher taxes and lower spending as new Kronenwetter officials try to pay off loans and set up the community for growth.
Kronenwetter was one of the only municipalities in the state to exceed state-mandated debt caps in 2007 and 2008. Next year, the village will spend nearly a quarter of its budget paying off loans and bonds.
The debt caps are intended to limit how much municipalities can borrow and, in turn, how much taxpayers will have to repay. There’s no direct penalty for communities that exceed the limit, but lenders could increase interest rates for future loans if they’re worried about Kronenwetter’s financial track record.
Debt repayment became a central reason for the Village Board’s decision to increase the property tax rate to $3.72 per $1,000 of a home’s assessed value for 2011.
Administrator Blaine Oborn, who was hired in June 2009, and Village President Judi Akey, elected in April 2009, said they intend to move Kronenwetter officials toward a “pay as you go” mentality.
“The borrowing done as the village incorporated and in its early years gave an influx of cash to spend,” Oborn said. “We don’t have that luxury and need to plan our expenses and save for anticipated costs.”
The amount Kronenwetter must reserve for debt payments has ballooned the past several years, jumping by more than $96,000 from 2009 to 2010 and by $136,000 from 2010 to 2011.
The village expects to spend $1.17 million next year on debt payments, 24 percent of its total general expenses for the year.
Akey and Oborn said debt payments are expected to continue increasing each year until 2014 but that they have begun planning how to handle the expense. They acknowledge that tough decisions on property taxes and village expenses are ahead.
Spending cuts this year affected seal coating for roads, capital projects and staff training. Municipal employees also will contribute a higher percentage to their health insurance plans.
“Previous administrations planned these payments, anticipating that development would continue,” Oborn said. “If it had, we’d be in great shape.”
The village’s total property values increased by 49 percent from 2002 to 2003 and continued to climb until 2009. Property values in Kronenwetter decreased from $511 million in 2008 to $505 million for 2009 and $485 million for 2010.
As the tax base receded, the village faced rising payments owed on loans and bonds approved by previous village officials.
Akey said she intends to take a more active approach to bringing new business to
Kronenwetter by forming an economic development program to compile a list of available properties in the village.
“We’ve learned from this economy that you have to go looking for opportunities, not take a wait-and-see approach,” she said.
More than taxpayers’ displeasure can be at stake for municipalities that become too dependent on borrowing. State law prevents municipalities from borrowing more than 5 percent of total property value, as calculated by the state.
Philip Freeburg, a lecturer at the University of Wisconsin-Extension’s Local Government Center in Madison and a former Wausau municipal court judge, said municipal officials are responsible for ensuring they stay within that limit.
According to a Wisconsin Taxpayers Alliance review of 237 communities’ municipal debt, Kronenwetter was the only municipality included in the study to exceed the limit in 2008. The village also exceeded its limit in 2007.
No direct penalty from a state agency exists for municipalities that exceed the limit, but lenders could set a higher interest rate for future borrowing, said Kate Lawton, a finance specialist with the Local Government Center.
“If an individual files for a loan, they have to complete a lot of information for a bank,” Lawton said. “It’s the same thing for a municipality. The bank or lender decides what rate they feel comfortable setting based on a number of factors, including previous borrowing decisions.”
Borrowing generally can be a useful tool for municipalities, said Kyle Christianson, a policy research analyst with the Taxpayers Alliance.
The organization examines municipal debt totals each year. The most recent data released by the Department of Revenue is from 2008, the second year in a row Kronenwetter exceeded the debt cap.
Christianson said it’s unusual for a municipality to exceed its debt limit, particularly in consecutive years.
“I remember double-checking the numbers when we put this report together,” he said.
Oborn said he won’t speak for borrowing decisions made by previous staff or board members.
The village is within the debt cap for 2010, with room to spare, he said. If necessary, officials could borrow up to almost $1 million.
But Akey and Oborn said they intend to avoid borrowing altogether by following spending plans for each department, making the most of equipment and scrutinizing expenses.
“We can’t continue to borrow,” Akey said. “It’s disconcerting to put off things we’d like to do because of these payments. But (cuts) have to be made.”