Wauwatosa to consider tax increase, borrowing to pay lawsuit settlement

Wauwatosa residents could see the city portion of their taxes increase 11 percent to cover an $8.4 million payment to Wheaton Franciscan Healthcare.

Increasing taxes is one option, but not the recommended one, to pay back the money spent by the city earlier this month on a court settlement with the health care system, according to a letter from city Finance Director John Ruggini to the Budget and Finance Committee.

This summer, the state Supreme Court found in favor of Covenant Healthcare that a portion of the outpatient health care facility property at 201 N. Mayfair Road should be tax-exempt. The city reached a settlement, agreeing to refund $6.2 million in taxes and pay $2.2 million in interest.

The city used liquid investments to pay the settlement, but those funds will need to be replenished. About $4 million will be the city's responsibility, and the remainder will come through charge-backs from other taxing entities, including the Wauwatosa School District, that will also need to find a way to refund their portions.

Tonight, the city's Budget and Finance Committee will have to determine how to cover the settlement payment. Staff members have provided three options.

Ruggini supports borrowing funds with a plan to repay the money when the Milwaukee County Research Park tax-financing district closes, likely in 2015. The district is reaching a value of more than $180 million and the money set aside to make improvements looks to include $8 million in surplus funds, $2.4 million of which would go to the city. Another $2.2 million would go to the school district, so it could also pay off its portion the same way, Ruggini said.

Borrowing brings interest fees and prevents the TIF disbursement from going toward capital projects, but it keeps taxes down, he said.

The city could increase the property tax levy for 2012 by $4 million, which translates to about $206 more on the city portion of the average homeowner's tax bill. On the downside, this spike would come during a down economy, putting a pinch on taxpayers and likely proving politically unpopular. But it would be allowed by state laws that exempt refunds from tax caps and the city wouldn't have to tap into its reserves, Ruggini said.

A third option is to use reserve funds. While this would eliminate the need to borrow funds or increase taxes, it would not be looked at favorably by rating agencies and it would take some time to replenish reserves.