As some communities have learned directly from Department of Revenue (DOR) staff performing audits of their completed Expenditure Restraint Program (ERP) Budget Worksheet, the department is changing its interpretation of how the form must be completed. League staff first learned about this change earlier this summer when communities called to complain.  

DOR is now requiring that line 1 of the ERP Budget Worksheet, where total general fund budget expenditures is reported, must include all of a community's property tax levy even if the community has created other special funds separate from the general fund that are funded in whole or part by the levy. The department's view is that all property tax revenues are initially deposited in the general fund and then must be transferred to any other funds the community may create. The department now rejects the idea that levy dollars are directly deposited into special funds created by a community, a perspective DOR staff had previously endorsed.  

After meeting with Urban Alliance finance directors on this issue and hearing concerns from other communities around the state, we sent an email to DOR staff asking for a meeting and seeking clarification of their new approach to ERP.  In our emails and meetings with DOR staff we strongly argued against the change in their interpretation. We offered the following arguments:

• The only authority we have to guide us on this issue is Wis. Stat. sec. 79.05(5) which implicitly states that a municipality may establish funds other than the general fund to qualify for ERP as long as the funds conform to generally accepted accounting principles (GAAP) promulgated by the Government Accounting Standards Board (GASB).
    
• There is nothing in GAAP that prohibits the establishment of special revenue, capital projects, or other funds that include a direct allocation of property tax levy. This is borne out by the unqualified audit opinions issued by numerous accounting firms on dozens, if not hundreds of financial statements of cities and villages in Wisconsin issued during the time period ERP has been in existence.
   
• The property tax levy is directly allocated and budgeted into those segregated funds, not first deposited in the general fund and then transferred to the other funds. This treatment is contemplated by Wis. Stats. sec. 65.90(3)(b)5, which mandates the presentation in the published budget summary of the allocation of property tax levy to each governmental and proprietary fund.
   
• The terms used in ERP related statutes and administrative rules (e.g., general fund, expenditures, etc.) are universally understood and defined in generally accepted accounting principles.  DOR staff should not be trying to re-define or further interpret the terms.
   
• Several finance directors with long years of experience said that they had consulted with the DOR specifically about this issue in the 1990s and DOR staff in charge of ERP at that time confirmed that the practice of creating a fund conforming to GAAP and funding it with a direct deposit of levy dollars would have no impact on qualifying for ERP.
   
• The Expenditure Restraint Program is just that, a restraint on general fund expenditures, not the general property tax levy.  DOR's interpretation turns the program into a levy restraint program.

We met with DOR staff on July 22. At the meeting DOR made it clear that it would not change its new interpretation on how communities must complete the ERP budget worksheet. Other take-a-ways from the meeting include: 

--DOR is aware and acknowledges that it has offered different interpretations over the years with regard to completing the ERP budget worksheet and the treatment of special reserve funds and the general fund.

 

--DOR is now settling on one consistent approach, which is that ERP law requires that all of a community's property tax levy must be reported in line 1 of the worksheet even if the community has created other special funds separate from the general fund, which are funded in whole or part by the levy.  

--DOR believes that at least 50% of the communities participating in ERP comply with the above interpretation when completing the ERP budget worksheet, but staff is double checking all communities ERP paperwork to confirm compliance. 

 

--DOR wants to avoid, to the extent possible, disqualifying communities from receiving their ERP payments because of this new interpretation. To avoid disqualification DOR is asking communities that are for the first time reporting all of their property tax levy on line 1 of the worksheet, including amounts of the levy  deposited in special funds, to also adjust the prior year's ERP budget worksheet (i.e., the base year). (Indeed, communities that have responded to DOR's request to redo their 2016 ERP budget worksheet consistent with DOR's new interpretation have been informed that they remain eligible to receive an ERP payment in 2017 even if their adjusted worksheet shows they exceeded the budget growth threshold. )  

 

--We suggested, and DOR agreed, that the department needs to draft a guidance explaining its "new" interpretation of ERP and the reporting requirements. 

If you have questions about ERP and DOR's new interpretation, contact:

Andrea Newman Wilfong, DOR, 

(608) 266-8618; [email protected]

Valeah Foy, DOR, 

(608) 261-5360

[email protected]