RACINE — A growing portion of taxes paid to the City of Racine is being spent to pay down debt, a newly released analysis shows.
Racine spent more than 30 percent of the taxes it collected in 2016 on its debt, according to the study titled “City of Racine’s Fiscal Condition: Living Within Its Means.” The analysis was released Wednesday by the Wisconsin Policy Forum. It analyzes the city’s financial status and strategies to determine how healthy Racine’s future looks.
The analysis found the city’s finances are “well managed” and that Racine is “far from facing immediate fiscal crisis.” In the long term, though, it concluded that much of the city’s financial picture merits monitoring, and that many of the challenges Racine faces are unlikely to relent any time soon.
Mayor Cory Mason and Wisconsin Policy Forum President Rob Henken presented the report to the city’s Executive Committee at its meeting at City Hall Wednesday night. The report reviews four types of solvency evaluated by the International City/County Management Association: cash, budgetary, long-run and service-level.
The Johnson Foundation at Wingspread provided underwriting for the report as part of its Resilient Communities Initiative. The program is focused on improving the Racine region’s social and economic health.
Municipalities in Wisconsin are limited in their ability to increase their property tax levies by growth, calculated by how much new construction occurred in the area. For Racine, that figure never grew beyond a half-percentage point per year between 2012 and 2016, the report shows. State law, however, allows municipalities to increase their tax levy to fund debt service.
Racine has used that exception, a debt-management strategy that is positive in some respects, the report finds. On its face, Racine’s effort to aggressively address its long-term debt is a “laudable move to improve the city’s overall financial health.”
Jim Palenick, the city’s administrator, said Racine’s growing use of taxes to pay off debt is a conscious choice by the City Council to retire the city’s debt sooner, akin to a homeowner paying off a 30-year mortgage in 15 or 20 years. The city accumulated the debt for expenses such as buildings, parks and improvements to sewer and water infrastructure. Palenick said the approach is the kind of policy decision cities revisit periodically.
“Financial health of a city changes over time,” he said. “The kinds of things you ought to be doing in respect to that will change over time.”
Debt is a tool cities can use to manage their finances, he said. It allows a city to spread out the financial burden of a project, such as a road, over a portion of its useful life so that an appropriate share of people who use it also pay for it.
The property tax burden for the residents and businesses of Racine is “high and has grown sharply,” the policy forum’s analysis states. Between 2012 and 2016, the city increased the amount of its tax levy dedicated to general fund operations by 1.7 percent, or about $553,000. In contrast, the amount of tax levy devoted to paying off debt grew by $5.9 million — a 55 percent increase.
That means owners of a median-priced home in Racine — $104,000 in 2016, the analysis states — would have seen a $452 increase in their tax bill since 2012.
Meanwhile, the report states, the city has decreased the size of its staff and eliminated or reduced services such as routine pothole filling and asphalt crack filling because of budgetary constraints.
Such figures could harm Racine’s ability to compete with neighbors, as surrounding communities’ tax rates have been substantially lower and grew at a slower pace, data show.
That finding comes at a time when some believe a key to not only the city’s success but also Racine County’s is increased cooperation among regional municipalities. As Foxconn Technology Group’s liquid crystal display panel plant in Mount Pleasant inches closer to a reality, Racine could benefit from a boost to its population and increased development.
But that may hinge on Racine and its neighbors working as a united front — for everyone’s welfare.
“Arguably, the region needs a vital city center that contains the cultural and entertainment amenities and urban lifestyle that will be critical to attracting talent,” the policy forum wrote. “Yet, our analysis suggests that city government’s ability to maintain those amenities and an attractive urban core will come under increasing duress.”
Mason said the city does not exist in a vacuum and that all communities in the county have a “shared future in the region.”
“What we haven’t figured out is exactly how to govern together and share resources together very well,” Mason told The Journal Times’ Editorial Board during a March meeting.
Local leaders, including Mason, are already collaborating on regional transit through a task force organized by County Executive Jonathan Delagrave to address how Foxconn’s anticipated 13,000 employees could get to work.
Wisconsin Policy Forum’s Henken told the Editorial Board that the city’s transit system, RYDE, may be demonstrative of Racine’s overall financial struggles. In the face of declining ridership, stagnant state and federal support and questions about whether suburban communities are contributing their fair share, Racine taxpayers are shouldering more of RYDE’s budget.
Were Racine to raise fares to improve revenue, it might lose more ridership, Henken said. Losing riders could have a negative, unintended effect.
“It’s emblematic of the Catch-22 situation,” Henken said. “You try to solve a problem one place, and you create another problem in a different place.”
Despite the potential boon Foxconn represents for Racine’s economy, taxpayers are unlikely to reap the financial benefit through a decreased liability for the city’s debt, the analysis purports. Foxconn’s arrival may demand an expansion of regional bus service for Racine to realize the development’s benefits.
‘No way to wave a magic wand’
While the city looks to capitalize on future opportunities, it is also trying to resolve financial issues that stem from its history. The city’s employee benefit offerings are a likely culprit of Racine’s budgetary tribulations, for example.
Racine previously offered a health care benefit that the policy forum describes as “extremely generous:” The city paid 100 percent of the premium costs for life for eligible employees who retired prior to 2007. Employees hired after 2007 do not receive the benefit, but the city covers costs for eligible active employees and new hires between their retirement and when they become eligible for Medicare.
The policy has put Racine in a financial position the policy forum calls a “significant threat to its long-term fiscal health.” At the end of 2015, the city carried an estimated liability of $503 million — which amounts to $6,454 per resident.
Racine could reduce the liability, the report states, but available solutions may face legal challenges or could be applied to only new hires or select classes of active employees.
“There’s no way to wave a magic wand and make that liability go away,” Henken said. “This problem is going to be with the city for a while.”
Mason said the city needs to have a broad conversation about “resiliency,” and that its health care costs represent only a part of the issue.
Palenick said stagnant revenue growth is likely Racine’s biggest hurdle to improving its financial future. That means the city needs to focus on creating more new construction.
“We have to be both aggressive and strategic in using our scarce resources to leverage and drive large-scale private-sector investment into infill development and redevelopment,” he said.
Mason said the policy forum’s analysis serves as a good “diagnosis” of the challenges the city faces financially and that a cure has not yet been determined.
“Reading the diagnosis, acknowledging the diagnosis and acknowledging that there needs to be a plan of action to move forward to address it is important,” he said.
“There’s no way to wave a magic wand and make that liability go away.” Rob Henken, Wisconsin Policy Forum president, speaking about the city’s health care benefit commitments