 Hello and welcome to the Donahue Group, we're so excited that you could join us. We have a wonderful opportunity this month to speak on two separate occasions with Mayor Juan Perez of the City of Sheboygan. We have some interesting topics to discuss that relate, of course, to the city, but maybe there's some broader application as well. Joining me along with Mayor Perez today is our part of our usual cast, former State Senator Cal Potter and Professor Tom Paneski, math professor at the University of Wisconsin Sheboygan. I always say if I'd had Tom as a professor, it would have been a sad day for me, not being a math whiz. So in any event, speaking of math, we're going to be talking about budgeting and a former alder person, absolutely. So all of us here, one way or another, have been involved in governmental processes. We have sympathy for the mayor. And we have a lot of sympathy. Every day and in every way. I went to the Smithsonian exhibit on the Presidents, which is just a fabulous exhibit about all of the Presidents and their various times and whatever. But one of the buttons that you could get was from Harry Truman who said, this is a hell of a job. So I gave that to all my school board members when I was retiring. So I think you probably... I got one too. You did. I used to start wearing that all the time. But in any event, these are interesting and challenging times for the city. And what we're going to talk about in this show is part of the budgeting process for the city, because that's coming up. And I know that you're working on that. And it's a difficult time with limited resources. You've been conducting a number of listening sessions around the city and voting districts and also at service clubs in various parts. And we've asked you to bring your show, take your show on the road, but at least talk with us and the audience about some of the issues that are facing the city. I've been in a couple of those sessions and have found that the charts that you have used to show where our money is coming from and where it's going to be real interesting. So we thought we would just launch off on that discussion and see where we go from there. I think it's great. The citizen's budget process is actually a fulfillment of a promise that I made to the public when I ran for office. And the promise was that I would involve the community in some of the key decisions that are being made in City Hall. And one of those key decisions that is currently being made is the budget and the challenges of the budget. So what I did, of course, I worked with you and with Susan Hart and with Dr. Jack Westwall and put together a process, a citizen budget process together that will entail 16 listening sessions, some surveys, and then some evaluations of those surveys. The 16 listening sessions have been concluded formally, 16 listening sessions, two in each district, one in the morning, one in the evening, so everybody had an opportunity to attend. But I've also done, I would say, about six informal listening sessions and I have yet to make about two, three more. So total will be over 25 listening sessions, including this one here, that I will have gone out to the community and talked to them about what the budget process is all about, what kind of money we're talking about, what kind of expenditures, what kind of budget trends we've seen in the past, what kind of budget trends we can expect in the future. It's all part of that process of getting the citizens educated and involved in our budget. Okay. And I'm going to ask Cal and Tom just to chime in with questions and comments as we go along. But if you don't mind, Mayor, I'd really like just to, I just found these charts to be, for me, personally, real informative, just to talk a little bit about where our money comes from and kind of what the state of it is. Well, I'll talk about that, but I might add first that the citizen budget process, the 16 listening sessions that were held did not cost the city any money. The amount of work that went into preparing for it and the amount of work that went into holding the sessions cost the city no taxpayer's money. It was down on a voluntary basis. Obviously, I did them at night during the day when I do my job, but it cost, it didn't cost the taxpayer any money. I think people need to understand that. But when we talk in terms of revenue, we need to understand that it's 47% of our budget, of our operating budget, which translates to about a little over $33 million comes from the state in the form of state revenue sharing. State revenue sharing has been around for a little bit over 100 years, I believe, and some people are actually questioning should that continue or not to the point where now it's no longer called revenue sharing, it's called municipal aid. So that sort of sheds a different light into it. You take that with the state's recent legislation to cap our levy, cap that at 3.339%, and our levy actually makes 41% of our budget. So the state by capping our levy and by controlling our revenue sharing for the last two years and for the next two years, they in effect control 88% of our budget. So we know that we have no more money to budget to appropriate for whatever the needs are of the community. So we're pretty locked in with our revenue. So the tax levy essentially is what we pay. The tax payers. The tax levy is the money we get out of people's pockets. Yeah, the property tax. That's how I like to put it. We go in your pocket and get the money. I think Professor Paneski is going to use that. But I was going to ask your chart here on revenues. Is that for the year 2005? Because you're budgeting for 2006. But this was for the year 2005. And OK, so in the last four or five years, has state revenue always been at 47%? Or do you recall if it's been higher or lower? Well, there's been a fluctuation in the amount of revenue we get from the state. But for the last two years, it's remained stagnant. And we can expect it not to go up. We're not getting any more, but we're not getting any less in 2006 and 2007. So what we have to do is, as we prepare 06 budget, we almost have to look at preparing 07 budget at the same time. And the rest of the amount, 88% coming from revenue sharing and the levy, the rest of the revenue comes from fines and forfeitures. It comes from what is the other one? License and permits, et cetera. But the line share is 88% is pretty fixed. Now, we also have some revenue that comes to us in the form of the cable franchise fees. We get about $210,000 out of that, I believe. And that's under a threat of being disallowed now. There's federal legislation pending that may do away with the cable franchise fees, which will take away about $210,000 from us. That helps pay for this program. Yes, it does. As a matter of fact, the four of us made a tearful plea not so long ago, urging whoever is listening to contact their federal legislators. It's actually about $410,000. Right. So it is a substantial chunk of change for the city to bring programming like this that hard as it is to believe probably would not be a commercial success. $110,000 of that goes to pay for this cable television network. And $300,000 generally has been going for capital outlay, primarily squad cars. So if that is done away with, we'll have to make that difference from somewhere. Sure. We're not going to have that $300,000 to pay for squad cars. Sure. So that money is going to have to be shifted from somewhere else. So the money. And that barks you into looking at fees and other types of revenue because you just don't have any alternative, really. Well, we're going to have to look at alternative sources of revenue in the form of fees as investments or taxes, which is taboo right now. Everywhere I go, people say, don't you dare tax me anymore? We don't want to be assessed anymore. We don't want any kind of fees attached to any of the services that we're already paying for. So we're locked in as far as what kind of money we're getting. If I dare to even speak to work raising taxes or fees or assessments, the first thing I would do is do what I'm doing now and go to the public and let them have input as to what they feel about these things. And Wisconsin historically is not up to fees. Whereas in many other states, it's been a long history of water fees, garbage fees. You name it. But Wisconsin having revenue sharing to the extent it has and the high property taxes has institutionalized those two sources as being the bulk of the revenue. So now when you embark upon change, people don't always have the understanding or the empathy that you're locked in with 88% of your budget. Now where do you go? Exactly. Let's take a look at where the money is being spent right now. As we look at the chart, it appears that really the lion's, I'm sorry, not the lion's share, but more than half is for public safety. 52% actually goes to police and fire protection. Right now I know the chart indicates it's 113 employees, actually 130 employees that are there at the time that I got that information that may have reflected a previous amount of people that were working for the police department. The fire department 76, I think there are about 79 right now. But they're adequately funded in my mind and adequately staffed as the chart reflects. The other bigger chunk goes to public works. It's 21% and then 17% for administration, administrative costs. Now administrative is a tricky word because it actually really should be per statute of municipal government. And that involves a lot of other things beyond administration. We cover costs for the shanties, the senior center, the armory, municipal building, and things of that nature. All right, all right. Public works, does that include the wastewater treatment plant? No, the wastewater treatment functions on a separate budget. So revenues from there from the other communities are all separate. It's a separate budget. It's their own budget and they appropriated it. Likewise, the water utility. Likewise, the water utility. And the library, although the library gets a chunk of the levy, a third, generally. Right, but they have other sources of revenue as well. Fairly complex, actually. It is very complicated. For a lot of people, it's hard to understand. That's why I try to keep my charts a little simple and the discussion a little simple so I can understand it from a business standpoint. You've got so much money to work with. You've got so many expenditures. Can you balance? And that's what's called balancing a budget. And that's good for me, too. So what have the trends been? It looks as if we've charted here original budgets for major departments from 1996 to date. And it appears that the growth industry has been the police department, as well as fire to a lesser extent. Well, I think the interesting thing to note when we look at the trend from 1996 to 2005 is that traditionally the police department and the fire department have been receiving a little bit more money annually that has been budgeted for. And when we look at original budgets, that's the budget amount that's budgeted, not the actual amount that's spent. I was challenged on that point. I went back and checked actual versus budgeted. The actuals were a little higher. But I think the important thing to draw from that chart is that the amount of money that has been appropriated for fire and police, which is protection and safety, has gone increasingly up. But when that happens, one needs to understand that somebody's gonna take the hit because if there's only so much money to use and you shift some to give to someone else, somebody has a little bit less. And that chart will tell you that Public Works took a hit. And there are about 24 people short of their full staff status right now. Okay. All right, you know, if this were a high budgeted TV show, we'd have somebody here to switch the charts around. But I'm just, I'm gonna do that and hang on and you'll all be happy not to hear me talk for just a brief minute. Let me just look at one chart just so, you look at the Public Works chart, 1996. They're a little under $8 million, maybe seven and a half million. And in 2005, seven and a half million. So basically, it looks like they're flat across the board. And then if you look at the police, so about seven and a half million in 1996 to over 10 million. So that's a quarter, about 25% increase in the police department. So it looks like Public Works has been flat and the police have grown by about 25%. That's correct. That's what I thought, yeah. Make it exciting. Where is Bantlewhite when we need her? Just remove completely. So, you guys keep talking. Oh, all right. You had talked about what the history of revenue sharing has been in that chart that you just flipped over reflects what the history has been for revenue sharing. If you can keep it there. Revenue sharing has been an interesting history because it was Pat Lucy, particularly when he was governor in the 1970s who really felt that shared revenue was something that ought to provide property tax relief, not just be a shared revenue as historically as it began as sort of a percentage of what you paid in. It really was sort of a gift to communities that were wealthy because they got a lot back. And then when Pat Lucy came in, he saw in the 70s, particularly the decline of the inner city, Milwaukee, good example, white flight, decreasing tax base. And as a result, he tried to change the formula and he did. And it voted well for communities like Shiboy and Milwaukee and elsewhere who depended very heavily on that property tax and they needed some relief. So the formula as instituted by Pat Lucy at that time has been somewhat under attack over the years because there are communities that don't get what they think is their fair share in return. But in many cases, they have their own growth and affluence and they don't need it as much as other communities. So there's always a debate, I guess, between need and what you think you should get back. Well, and finding any formula that is truly fair. Number one, you have to agree on the values on which the whole system is based and people don't necessarily agree on that. And number two, then to figure out a system that's fair again requires, I think, a complex decision-making process that's really very tough. There's too many variables and those variables keep varying. Yeah, exactly, exactly. And then the political wins going back and forth, it's hard. The chart up here reflects, Mayor, what you had said before about revenue payments remaining pretty, actually a fairly dramatic decline. You were on the council when that decline took place and is staying pretty stable right now. So... And that big drop was when the budget of the state was a great deficit. And we always told in budget letters that you can talk smart and cut the state budget, but when 75% of the state budget is local aids, the buck stops somewhere else and it isn't on the state level, it's on the local level. And that chart just dramatically shows what happens when you cut state revenues in order to balance your budget. But now we're seeing the same thing happen when 47% of our budget is state aid. And that goes away, we're in trouble. Because then you have to go to other sources of revenue and primarily the source you go to is people. The chart reflects in 0405 how it just leveled off and we know for sure it's gonna remain at that level for the 06 and 07, so we're not getting any more but we're not getting any less if that's any good news at all. Yeah, so it's not completely grim. The next charts I think really address the next one in particular. And I just, I think we're interested in your input on just what the challenges are that are facing. What appears to be a widening gap or at least a professor, a stable gap as you review the chart between expenditures and revenues. It's at least as I'm looking at it a fairly grim picture. Well what this whole citizen's budget process is about is again is to give the public an opportunity to provide input and to understand the budget process but also so that they can give us some idea what is that they hold more important than other things. That's prioritizing. When the governor came here about a month ago to NPARC he very eloquently and very passionately told us how he prioritized education. But by prioritizing education he'd de-prioritize something else and guess what, somebody took the hit and that means municipalities. So we have to do that too. We have to constantly be prioritizing. What is it that we're gonna hold more important than something else and put more money in there or the very little money we already have but when that happens, as I said earlier, somebody, some department is going to take the hit and that's just the way it's gonna be. What you see here though is to me is probably my most important chart because it reflects what's happening with our expenditures when they automatically go up every year but our revenues don't. And when you have that trend going and spiraling of revenues going up it creates a huge gap. The only way to balance is to bring your expenditures down or your revenues up. Yeah, you've got a little history, Mayor, 201, 202, 203. I thought the city was kinda to break even operating expenditures and revenues kinda zero out there but it looks like the expenditures before you came on board were always above the revenues all the way through even so there was a gap to start with. City was spending more that they could, that they took in for the last five years. And trying to go back and figure out exactly what happened it's not easy. And part of it I think is you talked about automatic increases, what's automatic? Well, steps in longevity in many instances salary and wages, we have premium shares, we have cost and energy, cost and gasoline, we have over six and a half million dollars in police and fire vehicles. They don't run on water, they run on gas, we're already budgeted right now, we're zeroed out on our budget on gasoline we're not even done with the year yet though that's gonna cause a gap that money will have to be shifted from somewhere else so we've got automatic everything and people don't care if our revenues don't go up. These expenses keep going up at an incredibly fast rate that our revenues can keep up with our expenditures and that's called a budget deficit. The only way to do that is to bring your revenues up people don't wanna be taxed anymore assess or feeding anymore so we can't go up. We're not getting more money from the state or the levy so our expenses have to come down you cut services, you cut people, you got problems. That's healthcare costs, all your employees have not been less than probably 13% a year the last couple years. 12 to 13, yes. Yeah and those are good plans but they're terribly expensive, there's no good, even bad plans are terribly expensive these days so it doesn't really make much difference. But when you talk in terms of revenue we know that the only revenue we have is from the state, 88% come in from 47 from the state, 41% from the levy. So people will say well why don't you go borrow money? A lot of times when a couple gets in trouble and they need more money well they go out and borrow. Well the city has that ability to borrow also but we really can't in a way as you can see with a chart that demonstrates what our debt looks like it's gone increasingly up to a point where we no longer have a lot of borrowing capacity and that chart reflects $70 million which is about 3% or equalized value at 05 and we're allowed to borrow 5% maximum of our equalized value which is about 120 million but the council at some point in time before I became Alderman or Mayor, capped it, I don't know if you were there Tom but they capped it at 3% which is smart and I hope the council never violates at 3% and tries to up it. Just for our listeners, equalized value is essentially the value as set by the Department of Revenue for all the property in the city. Correct. And so we can borrow up to 3% of that value. It looks like we're getting there. But we're up there already, now granted our equalized value fluctuates up so we'll have a little room there and we pay off $6 million a year but that's where the police station is gonna come in so that's gonna take up that amount of money there and that's why we're trying to work right now with the police station cost we cannot afford $17 million police station that's all there is to it. I promise to people that I champion construction of a police station and I will continue to do that but it won't be at $17 million and I think everybody understands that. Right, yeah. What does in dollars, does one employee represent? Salary plus benefits or whatever do you have any number on that? $80,000, $50,000. It's no, I wouldn't have that amount. I can go back and find out for you though. Right now we're trying to set up a computer system where we can retrieve information that's usable not just retrieve it for any reason and a lot of their information just wasn't available. Now I was interested in our discussions about just the debt service, how much money we pay on the debt and I think a lot of us are used to talking about that in the national context because we know the payments on the national debt constitute what 26, 27% of the entire budget if I'm not mistaken, a huge amount of money. Right now, city residents are paying a fair amount of money for debt service as well. Are they not? Right, I think the chart that's around here somewhere reflects that of the $1.8 million increase in the levy. 20, it'll be about 59% when that police station is built, 59% of that is going to go automatically to pay for debt. So that does not include the fire station or the capital improvements. So when you add those two, 75% will go automatically to pay debt or with default on our loans. So what you're saying and I just think that this is kind of extraordinary is that that amount of money out of, and we're just talking the tax levy now which is that 41% figure, so 74 cents I think you just said for each dollar that we pay in our property taxes is going to go for debt relief? Pay debt. It's unconscionable. That's fairly extraordinary. 74%, I thought you said 75. 75%. If, if, depending on the borrowing for the police station. And we'll be talking about that in our next episode. Okay, wow, okay. Coming to attractions, you know, just like you get in West Wing, but right now, the amount is still quite high. 59 cents for every dollar. Right now, right now, 59 cents. And that's the- 23 for existing debt. Okay. 23 to 25 for existing debt. And then when you add on the police station, the fire station, and the capital improvements program will be up to 75. Okay, so that, that's a little crazy. That's my point. I think it's what people need to understand that we're facing some very serious budget times right now. And I need help. I need, I need to be able to turn over a budget to the council that truly reflects the will of the people. And you know what I can do is to get some feedback from the people. And that's what I want to do. As a, do you think if you, you're working on the budget right now? Are they not? Aren't the committees working on the budget or department heads? We just got done with the department head meetings. I think you recall how that works. And they have, you have a proposed initial budget at this point? Not yet. Not yet. Okay, so we don't, you don't know where it is at this point. No, well, we've still had some issues that were unknown from the state as to how they're going to handle our debt, our existing debt and new debt. So this formula was being put together on that, not to put down the state, but a lot of times the state takes our time and without regard to what, how it impacts municipalities. And that's just what we have to live with. I understand that. It's okay with me, where we're held back a lot of times. Okay. Well, I think this whole chart's put forth to the taxpayer that there's going to have to be some cuts made and that when you do make them, you don't have any choice. Correct. So if you want less taxes, you have to have less services. Every department is going to come and tell the public and tell us, tell the mayor and tell us we're more important. Police will say we're more important than everybody. Fire will tell everybody we're more important than anybody. Public works will do the same. Everybody is going to tell everybody they're more important. Question is, how do we strike a fair and equitable balance of the appropriations that we have to make so that everybody is okay and then we provide some sort of a balanced service to the community? Just as we close out, what is the schedule that the, your office will have the budget to the city council by what time do you expect? Yeah, and let's see, second week in November, I believe. Second week in November. And then the process is a prolonged debate or? No, actually the process, there's only one budget hearing and that happens during the council floor and then the budget gets voted on. That's why these soliciting sessions are very important. Time to talk about the budget is now, not when you get your tax bill in January. The mail in mid December. Right. We'll be talking about the citizens budget process, the listening sessions, what you've heard and what you're going to be bringing to the council in just a few minutes or in our next episode. But for now, it's been most interesting and charts away, here we go. And. Glad to be here. And remember what Harry Truman said. So thank you.