Dunn County Board mulling over 5 options for financing $3.5 million in capital improvements
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by LeAnn R. Ralph
MENOMONIE — Members of the Dunn County Board are considering five different options for financing $3.5 million in capital improvements in 2024, three of which do not involve any long-term debt.
The 2023 budget has operating expenses of $92.5 million, compared to a budget of $76 million in 2016, representing a 22 percent increase over the last seven years, said Kristin Korpela, county manager, at a special meeting of the Dunn County Board Saturday, March 25.
According to levy limits set by the state legislature, the property tax levy is allowed to increase by a formula using net new construction, which is often less that 2 percent, Korpela said.
If the property tax levy were allowed to increase by 2 percent every year, the county would have an additional $3 million in 2023, and if the property tax levy was allowed to increase by the consumer price index the county would have an additional $1.5 million, she said.
Instead, the property tax levy has remained “flat” over the last eight years, Korpela said.
State aid in 2023 was 26 percent of the operating budget, or $13.5 million. In 1987, the state provided state aid in the amount of 46 percent of the operating budget, she said.
Instead of $18.5 million, Dunn County would have $32.7 million if state aid was still 46 percent of the operating budget, Korpela said.
Kelly McCullough, county board supervisor from Menomonie and chair of the Dunn County Board, said it was his opinion the state should be funding state aid at a higher percentage.
“Much of what counties do is mandated by the state [but is not funded by the state],” he said.
Since there is not much extra money available in the annual budget for capital improvements, and so the county does not end up delaying capital improvements, such as roof repairs, that by the time it is critical, ends up costing taxpayers more than necessary, the Dunn County Board agreed several years ago to have a capital improvement plan and to borrow $3 million per year to fund capital improvements, Korpela said.
Although Korpela did not mention it, another reason for having a capital improvement plan and agreeing to borrow $3 million per year is to avoid spikes in borrowing, so that Dunn County is not forced into a position where a capital improvement that should have been completed years ago is now so critical there is no choice but to borrow a larger sum of money, causing a spike in the property tax levy.
Current debt
As of December 31, 2022, Dunn County has $32.4 million of debt, said Dr. Beata Haug, Dunn County’s chief financial officer.
The county has a AA/Stable rating from the Standard & Poor Global Rating agency, she said.
According to information Dr. Haug provided to the county board, Dunn County will be paying off $4.5 million of that debt this year.
Payments of around $4.5 million per year on the principal will continue for the next several years, and then by 2027, the payment on principal will decrease to $3.5 million.
In 2028 and 2029, the payment on principal will be about $3.5 million, then the payment on principal drops to $1.98 million in 2030, to $1.8 million in 2031 and is paid off in 2032 with a payment on principal of $1.5 million.
4-year CIP
The original assumption approved by the county board was to borrow $3 million per year for five years to pay for capital improvements, Dr. Haug said.
The capital improvement plan over the next four years amounts to a total of $20.17 million, she said.
The capital improvement plan, with the assumption of borrowing $3 million per year, still allows the county to pay down the other debt over time, McCullough said.
Dunn County did not borrow $3 million for capital improvements either this year or last year, he noted.
According to information Dr. Haug presented to the Dunn County Board, the following amounts will be spent on capital improvements by 2028: $30,000 for the land and water division; $400,000 for the clerk of courts; $30,000 for the district attorney; $604,000 for emergency management and communications.
In addition, the spending on capital improvements by 2028 will include $1.96 million for the sheriff’s department; $1.47 million for facilities and parks; $13.68 million for the highway department; $1.78 million for Information Technology; and $235,000 for The Neighbors of Dunn County.
Capital improvement expenditures for 2024 will include $30,000 for land and water conservation; $30,000 for the district attorney’s office; $24,000 for emergency management and communications; $385,000 for the sheriff’s department; $915,000 for facilities and parks.
Additional spending for 2024 will include $1.86 million for the highway department; $200,000 for IT; and $105,000 for The Neighbors.
Total capital expenditures for 2024 on the capital improvement plan are listed at $3.56 million.
Debt balance
According to information Dr. Haug provided to the county board, the existing debt will be paid off in 2033, and the new debt for capital improvements will be paid off several years later.
By 2026, the county’s total debt, including capital improvement debt, will be $22.56 million.
By 2030, the total debt, including capital improvement debt, will be $12.01 million.
By 2036, the remaining debt including capital improvement debt will be $375,000.
Property taxes
Property tax payments on the borrowing of $3 million for five years for capital improvements would not start until 2025, according to information Dr. Haug provided to the county board.
In 2025, the property tax payment on a $150,000 property for the existing debt will be $187.59, and with the capital improvement debt added, will be $192.41, or about $5 more.
Currently, county taxpayers are paying, on a $150,000 property, the amount of $198.92 for existing debt. In 2024, the amount will be $191.41.
The property tax payment in 2023 on a $150,000 property for existing debt and capital improvement debt is $198.92.
In other words, even with borrowing $3 million per year for capital improvements for five years, the amount of property tax paid for debt service will be decreasing.
In 2026, the property tax payment for debt service on a $150,000 property, including capital improvements, decreases to $183.71.
By 2029, the property tax for debt service has decreased steadily to $148.49.
In 2030, the amount decreases to $112.80; by 2033, the amount is $37.33; and by 2038, the amount is $2.95.
Dunn County will have $8 million in debt paid off before the first debt service payment would be added in for $3 million for capital improvements, Dr. Haug said.
Outlook
The 2023 capital improvement budget uses $3.7 million dollars in American Rescue Plan Act (ARPA) funds, Dr. Haug said.
All together, Dunn County received a little more than $8 million in ARPA funds.
The 2023 budget also uses $2.3 million in general fund balance and $173,014 from the Information Technology fund balance for land information modernization and equipment, she said.
In 2024, with a 3.5 percent wage increase and no new positions added, the wage increase will amount to $2.4 million, and no health insurance increases are expected, Dr. Haug said.
General fund
The recommendation is to keep 25 to 33 percent of the general fund expenditures in the general fund balance, Dr. Haug said.
In 2017, there was $16.27 million in the general fund, representing 44 percent of expenditures, with $609,000 used out of the general fund.
In 2018, there was $15.97 million in the general fund, representing 39 percent of expenditures, with $761,000 used out of the general fund.
In 2019, there was $18.38 million in the general fund, representing 39 percent of expenditures, with $2.4 million added to the general fund.
In 2020, there was $12.3 million in the general fund, representing 44.6 percent of expenditures, with $6.04 million used out of the general fund.
In 2021, there was $17.2 million in the general fund, representing 60.6 percent of expenditures, with $4.9 million added to the general fund.
“Our fund balance is in really good shape, and that plays a role in (the county’s) AA rating,” Dr. Haug said.
Year-end surplus
Dunn County also is projected to have a year-end surplus from the 2022 budget, totaling $4.45 million, Dr. Haug said.
The transit commission will have a surplus of $63,545; jail assessment is expected to have a surplus of $59,239, while the health insurance fund is expected to have a surplus of $950,700.
The workers’ compensation fund is expected to have a surplus of $346,000, while the highway equipment replacement fund is expected to have $1.14 million, while postponed highway projects will amount to $1.29 million (an assigned amount), and the unassigned balance a total of $617,506.
The numbers will be confirmed when the county’s auditing firm has completed the financial audit for 2022.
A total of $2.2 million is expected to be put into the general fund, Dr. Haug said, noting that some of the surpluses account for money that is already in an assigned fund or assigned for a specific project.
Although the county had anticipated having to borrow $1 million for the 2023 budget, that “probably will not happen,” McCullough said.
Options
The county board will not be voting on which option to use to finance capital improvements at the March 25 meeting, McCullough emphasized.
The county board will, instead, be considering which option to approve at the regular county board meeting in April, he said.
The option recommended by the executive committee at a meeting just prior to the special county board meeting March 25 was Option 2, McCullough said.
Option 2 uses the county’s remaining $1.57 million in ARPA funds, along with $391,000 in short-term debt, $108,000 from the IT equipped replacement fund, $1.39 million from the highway equipment replacement fund, and $105,000 in fees.
Option 1 would use $486,000 in short-term debt, and instead of the ARPA money, would use $1.475 million in long-term debt.
Option 3 would use the $391,000 as long-term debt rather than short-term borrowing.
Option 4 would use $391,000 out of the fund balance instead of as short-term borrowing.
Option 5, instead of using ARPA money or borrowing money either short or long-term would take $1.96 million out of the general fund.
Although Dunn County has not typically used short-term borrowing, using short-term borrowing for items such as squad vehicle replacements for the sheriff’s department makes sense because the original vehicles would be replaced several times over by the time the long-term debt for the first set of squads was paid off, Korpela said.
Police squad vehicles are typically replaced every three years or five years, while the pay-back time for long-term debt is 10 years or 20 years or more.
It is also worth noting that the county’s ARPA money is in a fund where it is earning $30,000 in interest per month, Korpela said.
The county board has approved using $100,000 of the interest from the ARPA money for broadband matching funds, she noted.
Since the ARPA money is earning $30,000 per month in interest, it is possible Dunn County will not have to do short-term borrowing for the 2024 budget, Dr. Haug said.
The five options are by no means the only options, and county board members can offer their own options as well, Korpela said.
If county board members want additional numbers beyond what has already been provided, they should ask, and Dr. Haug said she would get the information for them.
“I will wait for your further direction,” Dr. Haug said.
