Paul Soglin: Waxing America

Building the property tax base matters

A few days ago the Wisconsin State Journal ran an editorial commending Epic Systems Corporation as it convened its annual users' group meeting. The glowing account of this prized company was right on target except for one significant statement:

Some in Madison still lament that Madison lost Epic to Verona years ago. But that’s an outdated view. As long as Epic stays and expands anywhere in our region, we all should be happy.

After all, the real competition for the jobs of the future isn’t between one local community and its neighbors. Increasingly, the entire Capital Region is competing against other regions around the world.

Wrong. Very wrong. The failure of the city of Madison to respond a decade ago when Epic was looking for a site for its new campus was a costly mistake that reverberates today and will have adverse consequences to the city and the region for years to come.

Most distressing is that the Wisconsin State Journal thinking reflects centuries old planning, land use, transportation, and taxation views that were repudiated long ago as modern creative thinkers, system thinkers, understood these horrid economic and environmental consequences:

• While many of the young Epic workers prefer to live in the dynamic city of Madison, the move to Verona shifts a significant number out of the Madison Metropolitan School District, which desperately needs more children from middle and upper income households.
• The Madison property tax base lost millions in revenues (over $3 million a year!). These are very efficient revenues since these types of office buildings are 'profit centers' having little demand for municipal services.
• The transportation challenges with Epic located so far from the center of the existing public transit system is costly to commuters, to Epic and the entire community. Automobile demands are significant.

Speech to Madison Downtown Rotary September 14, 2011

I spoke to Madison's Downtown Rotary two weeks ago and Wisconsin Eye provides a video.* The first portion may be a bit clumsy to watch since I relied on a number of charts, some of which are in this post.

In any case I spent the last ten minutes addressing some of the major social and economic issues facing our community.

Interesting: when I gave this annual speech in the 1990's it was covered by at least two daily newspapers, a weekly paper, three television stations, and more than two radio stations. This year we had one journalist.

 

*It is 32 minutes long: click on the little TV to the left of the speaker button.

Our Very Own Ironpeople

There is no question the city of Madison has educated, hard-working and dedicated employees, but we can also celebrate their athletic ability and comittment needed to compete in the recent Ironman.  The training that proceeds a 2.4-mile swim, 112 miles on a bike and then a 26.2-mile marathon is incredible and I salute everyone who participated.  It was another great opportunity to showcase our city. The Greater Madison Convention and Visitors Bureau did another excellent job in accommodating the thousands of visitors that accompanied the event.

Many of you may have seen Rob Verhelst, he was the firefighter who ran the marathon in complete fire gear which weighs about 65 lbs. He was part of an amazing 911 First Responders Team, a group of dedicated first responders who competed and raised awareness and money for 911 charities. 

Madison Police Captain Carl Gloede began organizing this team when the 2011 Ironman was scheduled to coincide with the 10^th Anniversary of the September 11^th attack on our country.  Aside from Rob Verhelst and Captain Gloede members of the team included Police Officers Mike Beatty, Mindy Winter, Dave McCaw, Deanna Reilly, John Patterson, Angela Kamoske, Pat Green, Justin Adsit, Lorie Graham, Krista Verhelst, Heather Dzick and Linda Baehmann.  They were joined by Michael Flores, Aaron Zamzow, Peter Matt, Chris Hauski and Laura Laurenzi of the Madison Fire Department.

Another city employee who has a great story is Ray Shane the Madison Park Golf Program Supervisor.  He not only competed in this his 16th Ironman, he finished first in his age group and earned a spot in the Ironman World Championship in Hawaii in October!

Congratulations also go out to Steve Klett from the City Purchasing Department, to Dino Lucas a Waterworks Operator who competed in his 4^th Ironman and to Gray Williams who probably had more time to train as he recently retired from Planning and Community Services.

Most of us would never consider embarking on the training needed to compete in an Ironman, but the dedication of these workers and the hundreds of other competitors could serve as an inspiration to all of us, to set a goal and dedicate ourselves to the training and work needed to reach that goal.

 

Bicycling Madison Style: The 2012 Capital Budget

Amanda White, Associate Director of the Bicycle Federation of Wisconsin  (BFW) posted Madison continues to invest in bicycling. In what is the most comprehensive analysis of bicycling and pedestrian portions of the 2012 capital  budget she notes:

Mayor Soglin’s tone was serious and to the point.  He did not mince words when he said it was no fun putting together this budget.  Soglin said the constraints placed on Madison by the State combined with debt service from municipal borrowing leave the City with little choice but to cut planned increases in services and programs across the board. Still, he managed to save many planned bicycle projects, which dollar for dollar produce more jobs and higher economic returns on investment than traditional road projects.

The planning for bicycling in our community  starts with the bicyclists, the future bicyclists, and the folks who benefit from bicyclists. The latter would include automobile drivers and bus passengers who benefit from less congestion and more attractive roadways. It continues with a new breed of planners like Tony Fernandez, a civil engineer with the city of Madison who is responsible for translating aspirations into realities.

The agenda is daunting. We have completed projects such as the Southwest Path which needs widening and improvements. We have long planned improvements like the Sherman Flyer and the Cannonball Express which join a long list of cycling projects that must move from dreams to reality. Then there are the smaller projects, little connections that will fix major impediments to fun and safe cycling.

I do not believe that anyone was as excited and surprised at the size of Wednesday's BFW meeting as Amanda. Good for her and the organization for generating such interest.

That reminds me, I let my membership lapse some time ago. I wonder how long it will take to hear from her.

Another complimentary observation came from the A.V. Club of Madison:

...But remarkably, the Madison biking community came away pretty much unscathed.  In fact, between $4.4 million budgeted for biking and pedestrian projects next year, and $500,000 set aside to conduct a study on how to coordinate and harmonize all forms of transportation.....

But we can always find the cynics at Isthmus, Madison's weekly newspaper who were so skeptical earlier this year (look at the mocking article Soglin: The debt ceiling is rising) about the existence of severe capital budget problems, but have yet to master the fundamental of budget comparisons.

The article Soglin explains his biking cuts to a room full of Madison cyclists:

Soglin is proposing $8.3 million in cuts for biking and pedestrian projects in 2012. Although funding is predicted to rise in the following years, Soglin's proposing spending for biking and pedestrian projects is still about 11 percent less than former Mayor Dave Cieslewicz had budgeted through 2016.

As  budget analysts know, when comparing budgeting from one year to the next, the accepted practice is to compare actual budgeted numbers. If the city council makes no cuts to my recommendations, the 2012 capital budget for bicycling will be greater than it was for 2011.

The knowledgeable observer also knows that the five-year capital budget forecasts under Cieslewicz were nothing more than an unrealistic wish list ranging from highway constructions to bike paths. First, because it was a grab bag of projections designed to satisfy political constituencies it was worthless as a planning document. Secondly, if it was to be taken seriously for the  expenditures, it would have bankrupted Madison, doubling Dave's debt service to over 20 percent of expenditures.

 

Madison Capital Budget 2012: The Challenge

The problem facing the city of Madison is similar to that of a homeowner who borrowed too much and then saw their household income drop. They are spending too much for debt and have insufficient funds to pay for the basics - food, shelter, health care.

To make matters worse, they are committed to borrowing more money this year.

The city of Madison did some extraordinary borrowing the last several years. The chart below shows that the proposed 2012 borrowing is $52,600,615 less than last year's borrowing. The chart additionally shows that the proposed 2012 general obligation borrowing is $38,754,878 less than last year's. Even with these significant reductions, we face some serious problems.

The accompanying graph shows the department requests for borrowing, the Mayor's Executive Budget and the actual borrowing for the past four years.

   


 


The graph below shows the trends in debt service payments (purple) for the past two decades. 12.5% is a reasonable portion of your annual operating budget to spend on debt service. With the significant borrowing from the last three years, you can see the trajectory escalated and has a severe impact on future years.

Every dollar we spend on debt, is a dollar not available for basic city services. The enormity of the problem is demonstrated in the new line (blue), which shows the change in trajectory as a result of this year's cuts.

Our goal is to get the debt service down to the red line.

 


Despite reducing this year's borrowing by $38.7 million, we barely lowered the curve. We will have to severely limit borrowing for the remainder of this decade if we are to bring the line down.

It is possible in three to five years the situation may improve. There are two variables that could improve the situation - both require new income for the city of Madison. First, the state of Wisconsin can restore the cuts made in shared revenues and similar programs (As we will demonstrate in subsequent posts, the impact on Madison was far more severe than it was to other major Wisconsin cities such as Milwaukee.).

It is also possible that the city tax base could grow far in excess of present estimates. This, of course, would require a combination of a national economic recovery and attracting quality investment to Madison.  It will do no good if the investment is made outside of the city.

 

 

City of Madison Capital Budget Message for 2012

Despite the economic difficulties the City of Madison faces, the 2012 Executive Capital Budget will move Madison forward.

I have already reduced total authorized spending from the 2011 adopted budget by roughly $52.6 million. This action is allowing the city to reduce our general obligation borrowing by $38.7 million.

It is no secret that Madison is feeling pressure from both the revenue side and the expense side in this year’s budget. Our revenues are down dramatically. Madison’s portion of shared revenue has declined, as well as state funding for Madison Metro and the city’s recycling program. At the same time, the fees others charge us are up – utility bills will rise and the charges from Madison Metropolitan Sewer District are increasing. Even tipping fees at the Dane County landfill are going up.

Revenues and expenses are thought of as operating budget issues, but this year the impact of the capital budget on the operating budget is an issue of great importance.

Borrowing for the city capital budget has increased greatly over the past decade. That is a trend that we cannot sustain. Borrowed money must be repaid, no matter what the interest rate. Most of the borrowing of the past decade occurred in the last three years (budget years 2009-2011). While borrowing increased, debt has not been retired at the same rate, creating an imbalance of debt service in the operating budget. Because of this imbalance, any revenue growth in our operating budget in coming years will be consumed by this increased debt service.

It is imperative that we work to reduce borrowing. It is not enough to keep it at the same level as last year. Too many dollars must now go to pay for past borrowing, and those dollars are not available to plow streets, maintain parks, and provide public health or public safety services.

In spite of this reduction in capital spending, we are still able to use the budget to encourage private development. For example, the redevelopment of the Don Miller properties on East Washington Avenue is proceeding. The city is also creating a Tax Incremental Finance (TIF) District at Whitney Way and University Avenue as well as an additional district at the vacant Bancroft Dairy site at the intersection of Park Street and Fish Hatchery Road. Keep in mind that approval of a TIF district does not mean approval of the funding. In each instance a separate analysis must be conducted to ensure that a fair and proper funding proposal is developed.

This budget includes responsible funding for the Edgewater project as well as further preparation for a new parking ramp and potential new hotel development near the Madison Municipal Building.

An important new commitment in this budget is funding for the City's first comprehensive multi-modal transportation plan. Major goals for the Master Plan for a Livable City will be to make Madison a more walkable and bikeable city and to create more opportunities for bicycling and transit transportation. The planning process will include a review of land use plans and build on existing transportation plans for bicycling, pedestrians, transit and autos. Public outreach and participation will be a major component of the planning process.

Additional money for biking is targeted for the University Avenue Underpass and the Ice Age Junction Trail.

Public safety continues to be a priority, and I have included funding for completion of the new police training center and a new fire department training center. We continue to invest in our green space and city parks with work scheduled to get underway on our long-planned Central Park. Other neighborhood parks will continue to be upgraded and improved. A major project is the long anticipated renovation of the Central Library, which will be partially funded with private donations.

This budget provides over $3 million to maintain energy-efficient buildings. This includes a much needed new roof for Olbrich Garden.

We will continue our program of maintaining and replacing streets, including major projects on County Road M and University Avenue. However, there are a number of street projects that will be delayed. While these delays will help to hold down borrowing in 2012, they are unsustainable in the long run. The majority of our city streets were built in the 1950’s, 60’s and 70’s and their replacement cannot be delayed for very long.

As part of our efforts to reduce borrowing, I am also interrupting our normal schedule of vehicle replacement for the next two years.

This capital budget will provide for immediate needs, but if our overall fiscal situation does not improve in the next two years, there will be serious fiscal consequences. To maintain city services we must continually tend to our infrastructure, including street reconstruction and sewer repairs. To keep our operating costs down, we must purchase new equipment on a regular basis. Too many delays will lead to increased costs in the long run.

If the state modifies its allocation of shared revenue dollars or increases funding for other programs, future budgets will be easier. Another source of increased revenue would be an expansion of the tax base through new construction. We cannot assume that any of this will happen in the near term and so must take a fiscally prudent approach for 2012 and beyond.