Finance Committee - Regular Meeting

Good afternoon. I'd like to call to order this meeting of the Finance Committee for Monday, August 10th, 2026 at 5.30 p.m. Please rise and join me for the Pledge of Allegiance.

I pledge allegiance to the flag of the United States of America and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all.

All right, roll call on membership. Let the record show that all members are present, with the exception of Alder Crote, who might have been trying to be remote, but if we see him, we'll see him. All right, our first action item is approval of the minutes from our previous meeting, 26-1049, the minutes from July 20th, 2026. Can I get a motion? Move to approve. Second. All right. We have a motion and a second. Are there any updates or corrections to the meeting minutes? Seeing none, let's go ahead and vote. All those in favor, please signify by saying aye. Aye. That passes 4-0. We have no public hearings or appearances, so Director Messerschmidt, will we call on Mr. Veiga at the time for the action item? Okay. Okay. Thank you. All right. So our first action item is 26-1050, request to award sole source purchase of two hydrostol E5KS digester circulation pumps to LAI Limited in the amount of $57,640. Make it a motion.

Move to approve. Second.

All right. We have a motion and a second. Director Stimpa, do you have anything on this? OK. Questions, comments from up here? All right. Seeing none, let's go ahead and vote. All those in favor, please signify by saying aye. Aye. That passes 4-0. Our next action item is 26-1053, request to award the Appleton Wastewater Treatment Plant Truck Scale Paving Project contract to Vinton Construction Company in the amount of $384,566.98. with a contingency of 10% for a total project cost not to exceed $423,023.68. Can I get a motion?

Move to approve.

Second. All right, we have a motion and a second. Anything on this one? Director Flick, what mic are you on? All right, Director Flick.

Thank you, Chair. Besides answering any questions that you may have, Of course, we'd like to see more bidders on this project, but we are very pleased with the bidder that we did receive, and it's within budget.

All right. Thank you. Anything from up here? All right. Seeing none, we'll go ahead and vote. All those in favor, please signify by saying aye. Aye. That passes for zero. Chair?

Point of order. When I choose the July, I know this is going back to item 26-1049. When I choose to open the link for the meeting minutes, it actually brings up the meeting agenda. It does not bring up the minutes. Oh.

You are correct.

Now, I would suspect that we all voted on the actual minutes, but I do not see them as a link in this item.

Thank you for pointing that out.

Yeah, they're in the, huh? I suspect that I just wanted to make it clear.

I feel like I saw it at some point earlier this week. Correct. Okay. We can fix that administratively, right? Okay. Thank you, Alder Hartzheim, for having sharp eyes.

Well, apologies that it was four items too late.

All good. All right. Moving on. Action item 26-1056. Request to approve recommendation to change the funding source for eligible capital equipment from property tax levy to short-term general obligation debt. Can we get a motion to get this on the floor? Move to approve.

Second.

All right. We have a motion and a second. Am I throwing it to the mayor or to Director Messerschmitt? Okay. What mics? All right.

Mayor Woodford, you have the floor. Hello, Finance Committee. And thank you, Chair. We are back to talk about CEA funding. You have in your materials a memo prepared by Director Messerschmitt. And I think maybe just to start out, what we've been up to since the last time we talked about this is digging more deeply into the financial model So we've had extensive conversations with Baird, and we've conducted analysis of our current funding sources and uses for CEA. And we've also started the process of digging into CEA policy. So I want to say out of the gates, We have identified some modifications that will be necessary one way or another with CEA policy. It's just time to run back through that and make sure we're up to date, regardless of the direction we take with the funding mechanism. The other thing I'll say is this is not a conversation about the entire budget. We're still in the budget development process. So at this point, we're not at a stage where we have a concrete roll up on the overall budget. And I understand that we would love to have that for this conversation. But that's just not where we are in the budget development process. And that's not anything particularly special about this year. That's just typically where we are at early August with budget development. However, I did think it would be helpful for the committee to have a sense of where we are trending with the budget overall through the lens of one particular data point. And this relates to the information that was shared with members of the committee, and that'll be included in the minutes of this meeting. But analyzing just wage and fringe as we look at 2027, I think this is a helpful illustration of the challenge that we have in front of us with the 2027 budget. And the basic bottom line of what was shared with you is that as it currently stands on a status quo table of organization, and given our net new construction percentage and the levy growth at 1.28%, We currently sit at a gap, so a deficit, of $668,000, $669,000. That is strictly salary infringes. So when we layer in then the other costs that we don't control, insurance, so our city's property liability insurance, coverages, our utility expenses, fuel costs, salt, all of these things, we start to layer in all of the other areas where we can't maintain a status quo budget. you start to see the challenge that we're going to be up against as we roll up the 27 budget and bring it forward. It's meant to be illustrative, but not all inclusive of all of the areas. This is not to suggest that our deficit is going to remain at 600, call it $670,000. That's just one component of the overall picture. It's likely it will be significantly more than that when we get to roll up. So we are bringing forward this recommendation in essence use our liquidity to fund our operations and rely more on borrowing to fund CEA purchases. We've talked about the financial model before of the central equipment agency, but in essence, we're tying up operating dollars, depreciating the vehicles in our fleet, and that limits our liquidity. And at a time where We're facing challenges on the operating budget side, especially with the net new construction at 1.28. Last year's 1.7 was not great either, but still better. We are certainly facing some challenges on that side. As we've talked more about this The intention for the executive budget would be, rather than to fully shift the funding model to debt funding for CEA, we would use the debt only as a gap closure measure for the operating budget. So I believe that's a more prudent approach for us to take, rather than just to say, all right, we're going to dump everything onto debt. Instead, we would use that only where we need to. And that would also be after using accrued cash in the CEA fund to pay for vehicles to mitigate the impact on property taxpayers as we go into fiscal 27. So just a couple of nuances as we've done more analysis and refined our suggested approach, that would be the concept rather than saying, all right, we could take the full amount and move it over to debt. That would amount to kind of slug loading the debt service levy. And we have Brad with us too to talk about what these different scenarios could mean. But I just wanted to give you that. context as we start the conversation, because I'm right there with everybody who doesn't like this idea. I don't like it either. But given the alternatives of potentially draconian cuts to city services, I feel like it's the least bad option that's in front of us if we do need to close a gap. So I'll leave my comments there and invite and if Director Messerschmitt has anything to add before we get into your questions.

Chair, if I may. Alder Croat is trying to reach us, but he seems incapable to do it at this point. Okay, that would make sense. He said, I tried, but nothing worked.

So did I hear you, Director Messerschmitt, say that you were working to help Alder Croat join us?

Thank you, Alder.

I apologize. I've got a quick question if I don't. So first point is on the spreadsheet, which was very helpful, was there a particular increase assumption that was used in here, like a cost of living raise, or what we usually do, 3%?

That's the modeled increase, yes.

I'm looking at my colleagues, but I've already gotten a question from a constituent just from the newsletter. And the first question is, and I think we talked about this when we first opened this, what sort of term would we be thinking about on these short-term general obligations?

We would be looking at doing a six-month type note, so very short term. Basically, we would depending on how much that stop gap that we'd have to fill, would determine how much we would put or move towards the levy. So really it's not something that we're looking to amortize out or beyond the life of any of the equipment. That would not make any fiscal sense to do that.

And this final one, and I will let my colleagues get in, I promise, but I can't forget this. And my next question might be to our partner. Would we be looking at any difference in the cost of funds on these shorter term kind of obligations? I know we get a really, really good rate on our general obligation bonds. But I know in consumer life, a shorter term generally costs you a little bit more for the funding. What's up, Brad? You're still on.

Yeah, I can take that. OK, thank you. there would not be an increase in the city's borrowing costs by adding the short-term component. And in fact, a very important consideration of this overall strategy is what is the potential impact on the city's bond rate? And we prepared analysis and I'm very confident that adding some short-term borrowing will not have a negative impact on the city's AA1 rating. And of course, that's important because that's the cost of your overall capital program. and we don't want to do anything to jeopardize that rating. So it's anticipated that the funding, if this is approved, the funding for, say, a six-month amortization would really be a component of the larger financing. And that helps in a couple of ways. That keeps the overall issuance cost as low as possible, and it also creates efficiencies for the finance department because it's really one larger financing component supporting your capital program, and then the short-term operating costs that are funds that have been covered with operating costs through CEA.

Okay, thank you. All right, I'm going to go to my colleagues up here. Alder Hart's on.

Thank you, Chair. I'm an accountant, but none of this makes any sense to me. That's probably meaning I'm not a great accountant, but I think it might also mean I'm not sure how a six-month short-term pond is going to pay for cea equipment for x amount of time period of time how i you mentioned before mayor that there was something about um depreciation wouldn't be recorded or something to that effect i don't remember exactly what that was i wrote it down because i was like well then how are we doing this yeah this is very um confusing to me as a standard business accountant

Yeah, well, let's back up then and talk about the CEA model as it currently exists. I think that might be a helpful place to start, and then we can get back to the detail about the bonds. So right now, this is a broad description of the CEA funding mechanism. It's much more convoluted, but the high level is that The CEA model, first of all, was developed at a time before state-imposed levy limits existed. And so what would happen, there was a time once when municipal councils would establish their budgets, and then they would set the levy based on what was approved in the budget. And so in any given year, a community would levy for what was budgeted. When levy limits were imposed, that changed. When the CEA model was first developed, the idea was that when we buy a new piece of equipment, so we'll say a vehicle, you buy a new vehicle, then the department that is responsible for that vehicle purchase is charged back by the central equipment agency at a rate that basically allows for savings to be built up for the replacement value of that vehicle at the end of its useful life and what that meant was that it wasn't a crisis when you had to buy a new vehicle there are a lot of communities that don't have a model like this that don't still don't plan out their vehicle purchases and so uh then it's like well we're at the point where the public works, work truck, there's no floor left, and we really need to replace it, and we don't know how we're going to do that. Appleton's not in that position, and in part because of the model that was developed with CEA. So it wasn't a crisis when a new vehicle needed to be purchased. It was planned for. And that model worked really nicely, again, at a time when the community set its own levy and said this is what we need to levy to pay for the increase in costs for all of our services and our equipment and That shifted with the imposition of levy limits And so now what happens is our levy limit is set based on our net new construction Something I talk about every year with the budget What that means is, regardless of what the increases in true costs are for operating, our levy is set for us, essentially. The limit is set for us. In this coming year, it's set at 1.28%. Now, CPI is running north of 3%. So just like costs, period, are going up. So this model that was developed at a time when communities could set their own levy limit or set their own levy worked really nicely. The problem is now we are still using that funding model, and we can't increase our levy to cover those costs. But we're still billing back to departments to pay for that depreciation on the vehicles. Basically what that does is it takes that operating levy that's limited to increase of 1.28%, whatever in that new construction is. It's taking whatever that portion is, and then it's putting it in an account where it sits. And it sits until that vehicle needs replacement, and then those funds are deployed. But what it's doing is it's locking up that operating budget money. And we can't use it for operations. We're basically setting it aside for capital purchases. So the idea here is we have a challenge on the operating budget side of the ledger. That's where our issue is. And we're tying up cash right now to pay for the vehicle depreciation. So by moving that over to debt, or a portion of this over to debt, we release those funds. We're not charging back. to the departments for depreciation that makes those funds available for use for salary infringes, insurance, salt, fuel, all those other expenses that we have. So at a high level, that is what we're trying to do. We're trying to free up operating budget, because that's where we are constrained right now in our municipal budget. We're trying to free up those funds and use liquidity to do that. So that's that piece. So let's talk about the bond and how that fits in. So again, I'll start at a high level, and then we can get as deep into the weeds as you want. But at a very high level, what we're doing is we're saying, OK, when the $52,000 pickup truck comes due for replacement, and we've already pushed it out to 14 years, when we project the useful life as 10, which we already do, We say okay. It's time to replace that that truck What we do then is we borrow for the replacement cost we borrow that $51,000 for the replacement of that truck and then that short-term bond is paid paid off through debt levy so debt service levy and the vehicles paid and That vehicle then stays in the CEA's replacement schedule. It continues to be maintained. Departments are still going to be charged back for service for the consumables on that vehicle. But we're not going to be setting aside money to replace it, because when that truck comes due for replacement 10 years later, 15 years later, we will do the same thing again. We will borrow for that vehicle. The bond will get paid off, and the vehicle will be paid off. so we're not tying up that money sitting in accounts. So that's a high-level explanation, and I don't know, Brad or Director Messerschmitt, if you wanna add anything to that, or correct anything, but that's the essence of what we're talking about.

May I follow up?

Yes, please. Thank you. I have one too, I'm trying to remember. Thank you. So there is a value of whatever has been accrued in CEA up to this point, that's first dibs, and then subsequent to that is debt financing?

Yes, the idea would be that we would draw down the funds that have accrued. One of the things that we need to do, and this is one of the pieces of policy work that needs to happen between now and implementation, we need to establish a floor for that fund so that we continue to maintain a cash fund Because there are unexpected expenses that come up in CEA. There are sort of off-cycle needs that happen. And we don't want to be in a position where we don't have the resources to take care of those issues. So the idea would be that we don't draw that fund down completely, that we leave money in that account. By policy, we establish a floor for that account so that we're maintaining a reserve fund for CEA moving forward. However, there are substantial resources in that fund that should be able to offset a significant portion of purchases for 2027 if we were to elect to use that cash.

But we are, in essence, then losing essentially like a one-for-one replacement value, which was the original methodology behind the CEA.

we are not holding cash to replace the vehicle. That's right. OK.

It is clear. So apparently I'm not a terrible accountant.

No, you just don't like the idea.

Still don't like it. I know.

I know. I know.

So just in either any of the three of you, so just for folks who are listening, and I know we discuss this at budget time every year, Can you speak to the very interesting model that the state has given us in terms of where we're controlled by levy limits and where we are not? I would love to. I knew you would, sir.

I would love to. Yeah, so levy limits really came in two major stages. But I'll skip the first. So the most meaningful is where we sit now, which is that the state has imposed a levy limit for all communities that is indexed to the rate of net new construction. And so net new construction is the how much new construction you've had on a dollar basis in that year over your total equalized value. And so that's how we end up with these very small percentage increases, even in years where we have amazing net new construction. We'll do well north of $100 million of new construction, sometimes hundreds of millions. and end up with these small percentages because it's taken over our total equalized value, which is north of $8 billion for the city of Appleton. Now, that is for essentially our operating levy, so again, broad generalization of what we're talking about, there's really two levies. You get one tax bill. We levy taxes. We don't delineate on the tax bill. But within that, there are really a couple of levies. And one is our operating levy, and that is subject to the levy limits. And then there's debt service levy. And debt service levy is not subject to levy limits. And this, on the surface, doesn't make any sense. Because if we were truly creating policy that was fiscally responsible, we would not leave debt service levy unlimited. But here's the problem, and this is why it actually makes sense, is because when we When we sell debt, when we sell bonds, we're backing that with the full faith and credit of the city of Appleton. And we are guaranteeing that we will meet the obligations of those bonds. So no one would buy municipal bonds if it was subject to some levy limit. Oh, sorry. Yeah, we sold the bonds. We can't service them because we've bumped up against our levy limits. But what this has done over time is, and Appleton is not unique in this by any stretch of the imagination. In fact, we're in a lot better shape than a lot of places when it comes to our debt. What happens is communities are looking for any opportunity that they can to capitalize. That is to move expenses from the operating budget over to the debt side of the ledger. This is fiscally insane. but it is the environment that we're operating in because of these state laws. So over time, and you can look at our own budgets and our own analysis, one of my favorite illustrations of this is the funding mix for our street projects. So if you look at charts from 20 years ago, 75% or more of those projects were paid for out of the operating capital budget. That is cash. There was an inversion of that funding model, and now it's flipped. So 75% of it or more is debt funded. And that's true across all sorts of categories in the budget. That's what's happening is, and this is another maneuver to do the same thing, which is to relieve the operating budget by moving expenses over to capital. So that's the phenomenon that's taking place and what we're talking about here.

Alder Hartson. Thank you, Chair. May I address the Mayor, please? When you and I spoke about this at a one-on-one, we talked about having skin in the game.

Yes.

Can you give me further clarification of how we're going to assure that departmental skin in the game?

So there's a couple of mechanisms for that accountability, we'll call it. And the first of which is that We're not proposing changing the chargebacks that go to departments for vehicle service, so maintenance, and then consumables. So fuel, tires, wipers, that kind of stuff, those ongoing operating expenses related to vehicles, those are gonna continue, that would continue to follow the same model. So if a department was to take on the liability of another vehicle, they would be subject to those expenses. And I can tell you, based on our budgets, That's not inconsequential on these budgets. And so that alone is significant for departments. That's a major consideration. The other is that in addition to existing CEA policy and the CEA review committee, as noted in the memo, our suggestion would be that we bring forward any new addition of a CEA asset that is something that isn't current, we don't currently own, that we don't operate, but we want to add. WE WOULD ALSO HAVE A STEP OF BRINGING THAT FORWARD TO THE MUNICIPAL SERVICES COMMITTEE. THE POLICY THAT I WOULD LIKEN THIS TO OR PRACTICE IS THAT OF TO CHANGES, THE TABLE OF ORGANIZATION CHANGES. AND IF YOU'VE SEEN THAT PROCESS THROUGH H.R.I.T. COMMITTEE, THERE'S AN EXTENSIVE PROCESS OF REVIEW AND THEN COMMITTEE DISCUSSION BEFORE THERE'S ANY ADDITION MADE TO THE TABLE OF ORGANIZATION. Our recommendation would be to follow a similar approach for vehicles because there is a scenario if we don't have those mechanisms in place, although unlikely, there could be a scenario if you didn't have those controls where a department says, well, it doesn't cost us anything to add another vehicle. Let's add another vehicle. But there are a couple of layers of accountability. First is the ongoing operating expenses of those vehicles, which the departments are going to be responsible for. But then also the oversight from CEA review committee and municipal services, as well as the full council.

Thank you. Could I? Yes, go ahead. Slightly different subject. Are we, as a council, then giving carte blanche when we say we would like to change the way that this funding is managed? Or is there some way in which the council still has some oversight as far as the CEA balance that's still sitting there and how the debt is applied? Once this vote occurs, I'm presuming it passes and passes in council as well, is that just do what you got to do, administrative directors? Or is there... a point at which council will have some review on what is happening, where are the numbers, where do we stand on the floor that you talked about in the CEA account, et cetera. I'm just concerned that this is a, yep, go ahead, and then we never see it again, and then we end up with some unforeseen thing that we had not even thought about.

No, thank you for bringing that up. No, there are going to be multiple steps of approval for the council. POLICY REVISIONS ARE GOING TO COME FORWARD, INCLUDING THE ESTABLISHMENT OF A FLOOR FOR THIS FUND. SO THAT'S SOMETHING THAT THE COUNCIL IS GOING TO NEED TO DISCUSS. NOT TO MENTION THE BUDGET ITSELF. SO WHAT THIS ALL THIS APPROVAL SAYS TONIGHT IS ESSENTIALLY IS THAT, YES, WE ARE OPEN TO THIS SHIFT IN FUNDING MODEL. THAT WILL THEN help us as we continue to work our way through the executive budget, understanding that this is meant to be a gap closure mechanism and not something that is just going to sort of open the floodgates. So if let's say there's a scenario where, yes, we could move $4 million of expense out of CEA the way we currently fund it and debt fund it, and then we end up having a gap of $2.5 million, oh, now we have $1.5 million that we can go and add with. No, that's not what we're talking about. So you will not see that in the executive budget that we bring forward, even if you approve this tonight. What you'll see is if this is approved tonight, what you'll see is that we will include this in the executive budget as needed. This isn't even to say this is absolutely what's going to happen. This is just to say, yes, if we need to. What I don't want, and the reason we're bringing it forward this way, is I don't want a scenario where we build an executive budget and present it to you the first week of October, and it includes this shift in funding model to some degree. And then the council says, where is this coming from? This isn't acceptable. And now we have... We have four weeks to cut from our budget, and likely it's going to impact personnel if we're in that scenario. We have four weeks to do that so that we can get a budget adopted in mid-November. That's the scenario we're trying to avoid here. But no, this is not a matter of just go forth and spend. This is about saying, yes, if this is really a safety net that we need to deploy, then let's Let's do that to the extent that we need to.

Thank you. We asked for that. So that is this. What we're seeing today is what we asked for when this whole option was presented to us. What I am most concerned about is making sure that we are as conservative as possible in any of this activity, just because it would be very easy to say, now we've got a million and a half to play with. What shall we do? Right. That would be inappropriate for all of us operationally.

We agree. Director Young.

I just wanted to add that annually we do bring forward to CEA committee in spring the list of equipment that comes forward for approval, and that all is a factor in our budget as we set that with the dollar amounts that we know of at the time. And then also to the procedure process, we in our current CEA policy procedures do already have a process outlined where departments do have to request of CEA additional equipment or even equipment that is above and beyond the needs of a current piece of equipment. If they're upgrading or need to make a change to it, what we will need to do is incorporate in that policy just the extra step of that additional approval. So in practice, it's already That way, we just need to update to memorialize an additional layer of approval, which we have no problem.

And no offense to you or the CEA subcommittee, et cetera, but that's not always watched. There's a lot of folks who are just, OK, CEA will manage that. It's all good. I want it to be as robust and vibrant as possible so that we're all, as council members, very well involved and understand the implications of the decisions.

Absolutely, and we're fully supportive of that.

Thank you. Thank you, Chair.

I would just add also that this shift in funding wouldn't change our practices when it comes to keeping track of and planning for vehicle replacement. So it's not going to be a situation of like, well, we don't have to pay attention anymore because we're not charging back, so we'll deal with it later. No, the vehicles are going to continue to be monitored and maintained, and the replacement schedule will be maintained because we have to plan for our replacements well in advance so that we're working this into our overall financing in a strategic way. I just want to address that, too, because that may be a concern that comes up. But we have no intention of changing the way that we currently maintain our fleet, which I would say is among the best in Wisconsin municipalities. We have a very strong fleet management program here, and this wouldn't change that. Another question, Alderhart. Thank you, Chair.

Just a statement to that same effect. I want it to be very clear to our constituency that this is not a way to find a new little slush fund so that we were not, that we as a city are not being very careful with all of the actual funds that are received as far as tax levy dollars. That is, we just cannot shirk that duty.

No, absolutely not. And you know, to that point, the intention here is not to create positive variance. The point here is to release operating budget funds for current operating budget purposes. So it's not a mechanism to add.

So I've got another, and maybe I'm harping on this too much, but mechanically then, what is the, we're talking about it being not really the short-term being separate issue, but what does this make our bond issue look like? How are we separating these short-term borrowing from our normal 20-year bonds that we issue, just mechanically?

So when we go to issue, oh, sorry, Brad. When we go to sell the debt, we have it structured so that we can call those coupons in, call that debt back in at an earlier term than what we would normally have prescribed that debt. So sometimes people are looking for a quick rate of return. That's something that they will look for and buy those coupons.

So we would issue a normal bond, but it would be callable quite early. And people who are looking for a quit, that would be marketable to them.

Correct.

For somebody who's not looking for a 20-year bond.

Correct. And the max that we do on GO debt is 10 years right now.

Okay.

Okay.

Any other questions? Anything else from the administration? All right. I think we're ready to vote. All in favor, please signify by saying aye. Aye. Aye. That passes 4-0-ish. Exactly. Well put, Chair. I've lost my agenda. I'm sorry. All right. Are there any questions, comments on either of the information items on our agenda, the final payment for the cardinal construction contract or the final payment for the sanitary interceptor sewer? No?

All right, that takes us to item eight. Move to adjourn.

Second. All right, we have a motion and a second. All in favor? Aye. We are adjourned.