The problem facing the city of Madison is similar to that of a homeowner who borrowed too much and then saw their household income drop. They are spending too much for debt and have insufficient funds to pay for the basics - food, shelter, health care.
To make matters worse, they are committed to borrowing more money this year.
The city of Madison did some extraordinary borrowing the last several years. The chart below shows that the proposed 2012 borrowing is $52,600,615 less than last year's borrowing. The chart additionally shows that the proposed 2012 general obligation borrowing is $38,754,878 less than last year's. Even with these significant reductions, we face some serious problems.
The accompanying graph shows the department requests for borrowing, the Mayor's Executive Budget and the actual borrowing for the past four years.
The graph below shows the trends in debt service payments (purple) for the past two decades. 12.5% is a reasonable portion of your annual operating budget to spend on debt service. With the significant borrowing from the last three years, you can see the trajectory escalated and has a severe impact on future years.
Every dollar we spend on debt, is a dollar not available for basic city services. The enormity of the problem is demonstrated in the new line (blue), which shows the change in trajectory as a result of this year's cuts.
Our goal is to get the debt service down to the red line.
Despite reducing this year's borrowing by $38.7 million, we barely lowered the curve. We will have to severely limit borrowing for the remainder of this decade if we are to bring the line down.
It is possible in three to five years the situation may improve. There are two variables that could improve the situation - both require new income for the city of Madison. First, the state of Wisconsin can restore the cuts made in shared revenues and similar programs. (As we will demonstrate in subsequent posts, the impact on Madison was far more severe than it was to other major Wisconsin cities such as Milwaukee.)
It is also possible that the city tax base could grow far in excess of present estimates. This, of course, would require a combination of a national economic recovery and attracting quality investment to Madison. It will do no good if the investment is made outside of the city.