Keene Winters is a Wausau financial advisor who served two terms on the Wausau City Council from April 2012 to April 2016. (Photo credit: Life Touch)

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By Keene Winters

I am still waiting for a response from the city to my complaint and open records request. While we have a moment, let’s go to school on municipal bonds. There, we can talk about why the City of Wausau’s insistence on classifying loans from the Clean Water Fund and Safe Drinking Water Fund as revenue bonds is unsupportable and dangerous.

There are two standard types of municipal bonds. In Column A, we can see that the key features of General Obligation Bonds (G.O. Bonds). They are considered near risk-free investments because the municipality guarantees repayment of the debt even if it must raise taxes to do so. In fact, creditors, in this case, have the right to demand payment from taxpayers. Because the bonds carry almost no default risk, the issuer can get by with a very low rate of interest.

That risk and revenue trade-off is also a defining feature of revenue bonds. Revenue bonds can be issued when the municipality has user fee-supported undertakings like a municipal ice rink, a golf course, a tubing hill or a utility. Fees from operating the enterprise are used to repay debt associated with the enterprise.

An important distinction is what happens when fees are insufficient to make a scheduled interest or principal payment. In the case of a true revenue bond, the bond holders do not get paid. They have no right to demand that taxpayers make them whole. Buyers of revenue bonds willingly accept the risk of losing money in exchange for a high interest rate.

Wausau has not issued revenue bonds in this instance. Rather, it has taken-out loans from the Clean Water Fund and the Safe Drinking Water Fund. The plan is to repay the debt with fees collected by the utilities. However, to get into these low-interest programs, the city had to pledge that its assets and its taxing authority would be used to make creditors whole in the event of a default, and that is the key factor in classifying these loans. Here is what the loan covenants say:

Section 2.02 Representations of the Municipality

(x) The Municipality acknowledges that s. 281.59(11)(b), Wis. Stat., and the General Resolution provide that, if the Municipality fails to repay the Loan when due, the State

shall recover amounts due the [Clean Water Fund Program], CWFP, by deducting those amounts from any State payment due the Municipality. . .

The Municipality acknowledges that s. 70.60 Wis. Stats., and the General Resolution provide that, if the Municipality fails to repay the Loan when due, the State shall recover amounts due the CWFP by adding a special charge to the amount of taxes apportioned to and levied upon the county in which the Municipality is located.

(y) The Municipality acknowledges that the State reserves the right upon default by the Municipality hereunder to have a receiver appointed to collect the User Fees from the operations of the Municipality’s Sewerage System . . .

The Wisconsin Constitution—the supreme state law of the land—does not care what type of revenue is being used to repay the debt. Instead, it seeks to limit the amount of default risk that can be foisted on taxpayers to loans totaling no more than five percent of the community’s equalized valuation. “The test is whether the municipal body is under an obligation to pay and the creditor has the right to enforce payment against the municipal body or its assets.” (Dieck v. Unified School District of Antigo, 477 N.W.2d at 470). Without question, the city-backed utility loans should be counted toward the constitutional debt limit. Pretending that they do not deprives the public of an accurate accounting of the liabilities that have been placed on their shoulders.

At the end of the day, the Wausau Common Council can find a way to do what it wants. There is no way to compel them to be prudent. They can ignore the big, red five-percent stop sign and pay for legal opinions that keep us going down the road until the creditors say enough. That will bring borrowing to an abrupt halt–leaving the city without the cash to meet its obligations.

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Opinion: Stop at the stop sign, Wausau leaders