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Shorewood walks financial tightrope

Officials have to balance capital needs, reasonable tax bill

Sept. 5, 2012

Shorewood - Capital projects dominate the scene as Shorewood brings its financial future into focus.

The Village Board met last week to review the village's long-term financial plan and what that will mean to Shorewood taxpayers.

Costly capital projects, like an estimated total of $32 million in stormwater and sewer work, are the largest factors when it comes to planning future budgets - including the 2013 budget village administration will present to the board at its second meeting in September.

"That's the balance," Finance Director Stephanie Walker said, "trying to get to a point where we're taking our infrastructure where we need to and keeping tax rates as low as we can."

The village will be working within the bounds of a state-imposed levy limit, in conjunction with user fees and a proposed stormwater utility fee to make that happen.

A fundamental constraint of future budgets are state-mandated levy regulations, which limit any increases in the village property tax levy to net new construction, and the amount of any decreases in principal and interest payments on pre-2005 debt - though new debt service is exempt. Given those restrictions, the most the village could raise the nondebt levy after 2012 would be approximately $601,000, or 5.2 percent of the operating and capital levy.

"Given those parameters," Walker said, "there are multiple ways you could use that capacity."

The village could increase the levy by that whole 5.2 percent in one year, though village officials seem to prefer a "moderate levy" plan that spreads the increase out over a number of years and can be used to offset capital costs as they arise.

At the same time, officials concede that the borrowing for long-range capital projects have caused the village's balance sheet to look different from originally envisioned when financial policy guidelines were established in 2006 - in the "pre-flood" era.

According to the guidelines, the village should keep its total debt service at or below 2.25 percent of its total equalized value. However, when catastrophic 2010 flooding necessitated costly infrastructure work, and equalized values have continued to decrease, that percentage has grown in relation - to a projected peak of approximately 4 percent in 2014.

"It was a very different environment for our capital needs," Walker said, referring to 2006. "(The increased debt and decreasing property values) combined have brought us farther away from our target than we would want."

According to the long-range financial plan, taking into account future debt and the increase allowed by the state limits, the levy is estimated to increase by an approximate average of 1.5 percent over the next 10 years.

To help defray the costs of the stormwater overhaul, the village has been considering adding a stormwater utility bill. Since borrowing for the work is scheduled for 2014, and a fee schedule needs to be in place at least a year in advance of a revenue-back borrow, the stormwater utility is initially projected to begin in 2013 at an annual cost of $14 for one equivalent residential unit - a measurement for stormwater runoff potential based on impervious and pervious surface area, now defined by the village as a single-family home or duplex.

The stormwater utility fee is estimated to increase to $343 annually in 2022, and should scale down over time as the village pays off debt associated with the work.

Overall, including the village portion of property taxes and the water, sewer, and proposed stormwater bills, a taxpayer with a $300,000 home who pays $2,668 in 2012 is estimated to pay $3,871 in 2022.

Though the Village Board hasn't officially acted to create the stormwater utility, it's likely.

"We're definitely tracking in that direction," said Village President Guy Johnson.

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