Finance director reports small first-quarter variance and urges council direction on levy policy as 2026 budget gap widens

Wauwatosa’s finance director on Tuesday presented February (first-quarter) financial results and a five-year general fund forecast for 2026–2030, warning the committee that structural pressures—chiefly compensation increases, slower state aid growth, softer interest earnings and volatility in building-permit and ambulance revenues—have pushed the 2026 projected funding gap higher than earlier forecasts.

John Regeney told the Financial Affairs Committee that revenues are projecting a slight shortfall ($66,000) on an $80 million budget, while expenditures show a slight surplus compared with the original budget. When carryover appropriations approved previously are included, the forecast projects a roughly $760,000 positive balance at year-end and an unrestricted fund balance of just over $27 million — roughly 70 days of operating expenditures, above the city’s two-month policy minimum.

Key revenue risks and trends highlighted in the presentation included: - Building permits: Year-to-date permit valuation and permit counts were materially below the prior year, producing a forecasted shortfall of roughly $90,000 versus budget and a $231,000 decline versus the prior year through April. Staff said timing of several large permits (for example, projects on the St. Bernard’s site and a children’s campus) could offset some of the shortfall if those permits are issued in 2025. - Hotel/motel tax: Occupancy and average daily rates (RevPAR) trended above last year, producing a small projected surplus; most surplus hotel/motel tax revenue is directed to the tourism commission per city policy, with the city retaining 30% of any surplus. - Ambulance revenue: The city reported a declining number of ambulance runs, which has reduced revenue even as reimbursement rates were assumed to rise; Regeney said operational changes (including overtime trade-offs) affect the run count and revenue. - Interest earnings: Lower investable balances and an expectation of lower interest rates drove a projected $262,000 reduction in investment income versus prior year highs in 2024.

On expenditures, Regeney said salary and benefit pressures are the largest driver of projected cost increases. Police and fire overtime is a notable concern: overtime is being driven by vacancies (police) and a combination of sick-time, bargaining-unit arrangements and operational issues (fire). Staff are monitoring monthly and exploring operational trade-offs, including staffing levels and apparatus deployment.

Health insurance claims were a positive: the city’s health plan showed lower-than-budgeted spending in the first quarter (about 85–90% of budget to date) and fewer high-cost claimants than in the prior year, which reduced projected benefit costs.

Forecast and policy discussion for 2026–2030: Regeney presented a five-year forecast that assumes a 3% operating levy increase and a 0.5% debt-service levy increase (3.5% total) annually through 2029, then assumes the city will be limited to net-new construction growth for levy increases in 2030 (roughly a 1.7% increase in that scenario). Under those assumptions, the 2026 structural gap rose from an earlier estimate of about $500,000 to approximately $1.5 million, primarily because compensation costs are growing faster than revenues (compensation is roughly 70% of general fund spending).

Regeney told the committee that local councils and residents face a choice: pursue new local revenue options (the finance director identified a local sales tax as the most effective available tool) or reduce services. He noted that Wisconsin’s revenue framework leaves municipalities heavily reliant on property tax and that many nearby municipalities are confronting similar “fiscal-cliff” issues when excess levy capacity runs out.

Committee members discussed policy alternatives including variable levy increases, fee adjustments (vehicle registration and user fees), service-level changes (yard waste or scheduling changes), and the timing of potential referenda. Members and the mayor noted advocacy at the League of Wisconsin Municipalities for local revenue options; Regeney and alderpersons said any state-level change would likely take effect only in a subsequent budget cycle.

Ending: Finance staff will continue monitoring permit pipelines, ambulance runs and health claims, refine assumptions for the fall budget cycle, and return with departmental budget requests and the mayor’s proposed 2026 executive budget later this year. The committee gave staff feedback on levy assumptions, fee reviews and service-level trade-offs to inform the 2026 process.