Synopsis: The general rule in Wisconsin prohibits municipalities from accumulating unappropriated surplus tax revenues. Accordingly, unspent funds in municipal accounts, if not designated for any particular purpose, must be considered “funds on hand” under Wis. Stat. 65.90(1), and used to defray budgetary costs and reduce the tax levy for the ensuing year. Immega v. City of Elkhorn, 253 Wis. 282, 34 N.W.2d 101 (1948). However, this general rule has been qualified by subsequent court decisions. (LWM Financial Procedure FAQ 7) (Emphasis Added)
” … the Wisconsin cases are read to mean that while municipalities may not lawfully create and accumulate unappropriated surplus funds, they may “maintain reasonable amounts necessary in the exercise of sound business principles to meet their immediate cash flow needs during the current budgetary period or to accumulate needed capital in non-lapsing funds to finance specifically identified future capital expenditures. (Emphasis Added, Counties are included in the applicable statutory definition of municipalities, see statutes below)
Marathon County’s End of Year 2023 Highway Reserves (Unrestricted Net Position) were $56,245,138. Per Marathon County’s Highway reserve policy – according to the formula stated in the 2023 audit – the minimum Highway Reserves should have been $3,365,713. Accordingly, at the end of 2023, Marathon County had $52.8 million in excess highway reserves and had not specifically identified a future capital expenditure for these reserves.
RECOMMENDATIONS
In my opinion, as part of this year’s Budget process, the County Board needs to either designate a minimum of $48.000,000 of the highway reserves for use in construction of a new Highway Facility and/or abolish the County Wheel Tax. Furthermore, in my opinion, the cost of the proposed Highway Facility should be limited to $48.000.000 and should not use additional debt, as the County has already exceeded its internal debt limit policy.
What is a Reasonable amount of Highway Reserves?
From page 29 of the County’s 2023 Audited Financial Statements, the County has a policy of maintaining a working capital fund of 10% of the current year’s budgeted expenditures. The audit states this amount as $7,172,340, which is not 10% of any recent budgeted Highway Expenditures.
The County Board and HRFC Committee should review and determine an appropriate percentage, but I would recommend 25% based on the recent auditor presentations and other information. Using the recommended 25% would have resulted in a minimum balance of $8,412,933 and a surplus of about $47.8 million, which was the basis for the $48 million recommendation above.
What would the Highway Reserves be with No County Wheel Tax?
The wheel tax (or vehicle registration fee) brings in about $3,000,000 per year and was first collected in 2017. By the end of 2023, the additional tax raised was roughly $21,000,000.
Assuming everything else was unchanged, the year end 2023 Highway unrestricted net position would have still been about $35 million. This is well above the minimum balance set by policy and is about $1.5 million less than the 2017 unrestricted net position.
State Law Regarding Municipal Reserves
https://www.lwm-info.org/941/Financial-Procedure-FAQ-7
This post is my opinion. I am not an attorney and this post is not legal advice.
REFERENCES:
WI Attorney General Opinion: May local units of governments lawfully create and accumulate unappropriated surplus funds?
https://docs.legis.wisconsin.gov/misc/oag/archival/_263
Wisconsin Statute – Chapter 65 Municipal Budget Systems
Marathon County 2023 Audit/Financial Statements
From Marathon County 2024 Budget Message
