Either construction projects or city programs will take a hit in Madison’s next budget as officials try to control debt and the crushing interest that comes with borrowing money.
“The reality is it’s a huge issue,” said Alderman Michael Verveer. “And it’s at the crux of what to do with building project dilemmas, such as Central Library.”
City staff members are assembling the capital budget, which lays out city resources for new construction and general maintenance of roads and buildings. Madison Mayor Dave Cieslewicz will introduce his capital budget Sept. 1. The operating budget, which provides money for city agencies and programs, is due Oct. 6.
With agency proposals for the operating budget due Friday, Cieslewicz this week began holding public hearings to get feedback on what programs and projects are most deserving of city money.
So far, the hearings have not touched on such city construction projects as the proposed $43.6 million new Central Library, a new Central Park or even road maintenance. But Verveer said eventually the projects will have to be balanced against the programs.
“The capital budget does include tax incremental financing items and project grants, as well as general obligation bonding,” he said. “You have to pay the piper eventually, and with every project we do, we’re adding to our debt.”
The city averages about $140,000 in interest for every $1 million it borrows, and Cieslewicz said interest on city debt increased as much as $5.8 million since the last budget.
“It’s not necessarily a bad thing,” Cieslewicz said. “It means we’re investing in the city, maintaining infrastructure and putting in new buildings.”
But debt also accounts for a larger piece of the budget, and the slowed economy means it takes longer to pay off the loans. Just to maintain existing city services, Cieslewicz said, the city would have to budget $21 million more than it did last year.
That means cuts are coming. Verveer said the city only digs itself a deeper hole if it opts not to cut program revenues or delay projects.
“It’s something we’re not reminded of all that often, to be honest,” he said. “You hear it on talk radio or in editorial columns, but very seldom at these hearings do you have members of the community saying, ‘You all are spending like drunken sailors and need to stop.’”
The problem for contractors in the Madison area is cutting down on city work shuts down one of a dwindling number of opportunities, said Randy Handel, vice president of Madison-based McGann Construction Inc.
McGann deals primarily with private-sector work, Handel said, but as that market dries up, contractors in the area are scrambling for whatever state and municipal work becomes available.
McGann snagged work on the Allied Drive reconstruction project and also is keeping watch on a proposed city project to renovate about 70 apartments near Truax Field. If that does not happen, Handel said, McGann will be left scraping for smaller city concrete and sidewalk repair projects.
“And that’s not going to keep a company in business,” he said. “At the end of the day, the fact is the private sector needs to bounce back. There are more than 20 general contractors in this community alone competing on whatever’s available. You need breadth to grow.”
Verveer said he does not know if the city can help.
“Every item in the budget includes a line item to what the debt service will be,” he said. “In the fall, you look to general obligation borrowing as this savior, but those numbers come back to haunt us quickly.”