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Thursday, October 30, 2014 |  Madison, WI: 43.0° F  Overcast
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Meltdown puts squeeze on Madison, Dane County budgets
City, county share in the pain of global economic crisis
Dave Gawenda: 'When interest rates fall, so does the return on our investments.'
Dave Gawenda: 'When interest rates fall, so does the return on our investments.'

It's a safe bet most statements that begin "The Wisconsin Legislature, in its wisdom" are going to be ironic, if not sarcastic - setting up dour observations about legislation born of stupidity or self-interest. Here's an exception:

The Wisconsin Legislature, in its wisdom, many decades ago limited where local governments could invest. Buying bonds and securities was permitted; sinking money into the stock market was not.

Due to this prohibition (and presumably not because local officials have too much sense to gamble on the stock market, like President Bush pushed to have happen with Social Security), municipalities and counties in Wisconsin have by and large been spared catastrophic consequences from the recent stock market crash.

"We're supposed to be investing very conservatively, and the stock market is not [a conservative investment]," says city treasurer Dave Gawenda. But still, the economic meltdown negatively affects local budgets, especially with regard to revenues on investments.

The city's investment portfolio (roughly 20% of which belongs to the Madison school district) had an average daily balance of $322 million in 2007. Most of this money is invested in short-term money markets, certificates of deposit and government agency bonds.

That's where the hurt comes in.

"We're dependent on whatever the level of interest rates is," says Gawenda. "When interest rates fall [as they did again last week], so does the return on our investments."

For 2008, the city projected investment income of $6 million. In mid-year, after calculating lower revenues due to falling interest rates, it revised this downward, to $5.25 million, a number it still hopes to reach. In late September, the projections for 2009 were cut further, to $4.75 million.

Dane County is taking a similar hit. "We're not collecting as much investment income as we hoped," says county treasurer David Worzala. He expects investment income in 2008, projected at $5 million, to fall far short: "I think we'll get approximately $3.5 million."

For 2009, Worzala is projecting investment income of $4.5 million. He admits this is optimistic, but says the county is in a good position with some longer-term bonds. And he expects that, with all of the money the feds are "putting out there," interest rates will rebound.

If that doesn't happen, the county's investment income will be even lower.

In other ways, the current fiscal crisis is hurting local governments.

Worzala notes that the county collects taxes for the city and other municipalities, school districts and the like. If taxpayers are delinquent, these other entities still get paid, but Dane County loses out. This also means it has less cash on hand to invest.

"The money we collect [for other entities] is not ours, but it's in our bank account, even if it's only for a short time," says Worzala.

Economic downturns entail other costs. According to Madison mayoral spokeswoman Rachel Strauch-Nelson, the city expects to lose nearly $1.5 million in building-permit fees in 2008, down to $3.2 million. It is estimating the same lower total for 2009.

Meanwhile, the county register of deeds is losing revenue from real estate transfer fees and document sales. County comptroller Charles Hicklin says the office is projecting revenues of $3.27 million for 2008, "a potential shortfall of $361,000." Topf Wells, an aide to County Executive Kathleen Falk, says 2008 will be the first year in memory that the office will not set a new revenue record.

Moreover, the county is bracing for bad news as sales tax revenues for the last several months begin to trickle in. "The last month we have is from July or August," says Wells. And while these were in line with projections for a banner $44.6 million year, "There's been a lot of bad economic news since."

Usually, says Wells, the county ends the year with about a $2 million surplus. But this year that's been wiped out by "about a $4.5 million to $5 million swing" in revenues.

There's one final measure of hurt identified by county officials. Since January, says human services director Lynn Green, the number of county households who get FoodShare Wisconsin (the state's food stamp program) has risen from 10,216 in January to 12,307 at the end of September.

Green says an expansion of BadgerCare may have pulled more eligible households into the program, but "that still doesn't account for what we're seeing in this program as a real dramatic increase."

The money for FoodShare comes from the state, but, notes Green, "the state does not pay for the increase in staffing" to meet rising demand.

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