Municipal Finance

By Kelly Horn, Senior Fiscal Consultant
and Nick Anhut, Senior Investment Advisor

City budgets are more than spreadsheets and policy decisions — they are reflections of community priorities. When done thoughtfully, public engagement can transform budgeting from a technical exercise into a shared civic conversation. When poorly timed or designed, it can lead to frustration, mistrust, and backlash.

Understanding how and when to involve the public is essential for local governments seeking both better decisions and stronger community trust.

What do we mean by community engagement?

Public engagement is a broad term that describes how governments inform residents and invite their input on public decisions. In the context of budgeting, engagement can take many forms — from one-way communication, such as newsletters and websites, to two-way consultation and deeper participation through workshops, advisory committees, and deliberative forums. These efforts help stakeholders understand financial issues, foster involvement, and build consensus.

Why community engagement matters in budgeting

Effective public engagement delivers tangible benefits. It creates greater awareness of how local government works, improves transparency, and strengthens accountability. It also broadens representation by reaching residents who may not typically participate in public meetings.

At its best, engagement builds trust between residents and decision-makers. Just as important, it helps the public understand the factors driving budgets, regulations, and service trade offs, creating more realistic expectations and productive dialogue.

The risks of getting it wrong

Engagement is not without risk. When handled poorly, it can waste staff time, squander resources, and leave participants feeling cynical or ignored.

Research has shown that relying on a single tool — such as a Truth in Taxation hearing — as the primary form of engagement often discourages participation. Without context or meaningful opportunities for feedback, residents may feel frustrated rather than empowered. Truth in Taxation is a statutory transparency requirement, not a substitute for meaningful public engagement.

The result? Emotional but contradictory public input: calls to lower taxes, fix roads immediately, improve parks, and delay projects — all at the same time, and often after key operating and capital budget decisions have already been developed.

Engagement starts with your “why”

Before choosing engagement tools, local governments should first ask what they are trying to accomplish. Is the goal to educate the public? Increase participation? Build partnerships? Gather input to shape decisions?

These answers should shape the engagement strategy, because a one-size-fits-all approach rarely succeeds.

Principles for communicating budget impacts

Successful communication about budgets shares several common traits:

• Honesty and transparency.
• Clear background and education.
• Simple, relatable language.
• Visual explanations that illustrate impacts over time.

Budget information does not need to be oversimplified for public consumption, but it does need to be understandable.

Matching tools to the community

There is no single “best” engagement method. Effective approaches are tailored to the issue, available resources, political context, leadership support, and desired feedback.

Common engagement tools include:

• Newsletters and budget‑in‑brief publications.
• Surveys.
• Open houses and public hearings.
• Workshops and collaborative planning sessions.
• Advisory commissions and task forces.
• Participatory budgeting and, in some cases, referendums.

Each tool has strengths and limitations, and most communities benefit from using several in combination. Engagement strategies should also adapt to major facility and infrastructure investments.

Putting the tools to work

Newsletters offer broad reach but limited feedback. Surveys can capture diverse opinions when thoughtfully designed, while workshops provide deeper dialogue but require more staff support.

Boards and commissions add expertise and continuity, and participatory budgeting gives residents a direct role in decision-making but can be time-intensive.

The key is aligning the tool with the goal and clearly communicating how public input will shape the final budget.

What makes engagement more effective?

Across all engagement methods, a few best practices consistently improve outcomes:

• Promote problem-solving rather than debate.
• Respond constructively to public emotion.
• Ensure accessibility in format and timing.
• Evaluate what worked and what did not.
• Be authentic; residents can sense when engagement is performative.

Rethinking the budget timeline

Traditional budget processes often limit engagement to the end of the cycle. A more effective approach builds participation throughout the process: conducting community surveys early, using advisory commissions and workshops during budget development, creating web content, and sharing clear budget summaries before final decisions are made.

When engagement is intentional, well-timed, and honest about constraints, it strengthens both the budget and the community behind it.

The original version of this insight was published in Minnesota Cities magazine’s July-August 2026 issue.

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Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.

By Brian Johnson, Director of Investment Services

As we move through the second quarter of 2026, our team continues to reflect on how geopolitical developments can shape monetary policy here at home. If the first half of the year has reinforced anything, it is that global disruptions (particularly those tied to energy and other commodity markets) can quickly change the trajectory of economic expectations and financial markets.

At the start of the year, the federal funds futures market reflected a growing expectation that the Federal Reserve would proceed cautiously toward additional rate cuts. At that time, markets generally anticipated approximately 50-basis points (0.50%) of easing by year-end. However, in just a few short months, that expectation has shifted dramatically.

Following the Federal Open Market Committee’s (FOMC) meeting on June 16th and 17th, the target range for the Federal Funds rate has remained unchanged at 3.50%–3.75%. Markets now expect the Fed to hold rates steady in the near term, with a meaningful reassessment of the policy path going forward.

Regarding the future direction of interest rates, market expectations have shifted from anticipating rate cuts earlier in the year, to the possibility of a rate hike later in 2026. The CME’s FedWatch tool is currently pricing in a greater than 30% chance of a 25-basis point (0.25%) increase at the FOMC’s meeting next month, and nearly a 50% chance of a 25-basis point increase at their meeting on September 16.

The evolving outlook has been driven by both economic data and changes in Fed leadership and communication. Policymakers have increasingly emphasized that inflation is not moving sustainably toward the Fed’s 2.0% target.  When combined with a resilient (even strengthening) labor market that posted growth of approximately 172,000 jobs in May and an unemployment rate holding near 4.3%, it’s not surprising that recent commentary by Fed officials has demonstrated a willingness to maintain or even tighten policy if necessary.

The Consumer Price Index (CPI) rose more than 4.2% year-over-year in May, marking the highest level in over three years. Notably, this increase has been heavily influenced by energy prices, while core price measures have remained more subdued at approximately 2.9%, indicating that headline indices related to wholesale and consumer price indices are vulnerable to market and supply chain disruptions.

Recent leadership changes at the Federal Reserve have added another layer of uncertainty to the monetary policy outlook. In May, Kevin Warsh was confirmed and sworn in as the new Chair of the Federal Reserve, succeeding Jerome Powell. This transition comes at a time when broad measures of inflation have not abated, and policy direction is under increased scrutiny. Warsh is generally viewed as having a more hawkish bias relative to Powell, and early communication from both Warsh and other FOMC members suggests a shift away from an easing posture toward a more balanced, or even a tightening, policy stance as noted by market expectations for a prospective rate hike later this year.

While recent developments point toward a possible reopening of the Strait of Hormuz, supply disruptions and infrastructure damage suggest that energy and other commodity markets may remain volatile in the near term. Additionally, agreements are just pieces of paper – it’s the outcome that will dictate how markets react.  As a result, there could still be energy-driven price volatility that permeates through the financial markets.

Looking ahead, we believe that several key factors will shape the path of interest rates through the remainder of 2026, including:

• The trajectory of inflation and broad price indices, particularly whether energy-driven pressures begin to subside
• Continued labor market resilience and wage growth trends
• The pace and nature of geopolitical de-escalation in the Middle East that impacts global supply chains

Against this backdrop, we’ve started to see a shift in interest rates as the market prices in these factors. U.S. Treasury yields have moved higher in recent weeks, with the 2-year Treasury exceeding 4.00% and the 10-year Treasury exceeding 4.40% as of the writing of this article. Those shifts have resulted in a modestly upward-sloping yield curve, representing a shift from prior inversion across portions of the curve over the past few years.

In this environment, we feel that maintaining a long-term investment perspective remains critical. While short-term instruments such as money market funds and Local Government Investment Pools (LGIPs) continue to offer attractive nominal yields, they remain highly sensitive to policy shifts. With markets now contemplating a “higher-for-longer” rate environment, these instruments may exhibit increased reinvestment and income volatility over time.

We believe that an enhanced focus on cash-flow forecasting can drive a more efficient investment strategy by selectively extending duration and locking in longer-term yields at compelling rates. Even extending maturities to one- and two-year yields can provide greater income stability and predictable cash flow across budget cycles — an important consideration for many governmental investors navigating today’s uncertain rate and economic environment.

If you’re interested in discussing your current portfolio or exploring alternative investment strategies, please contact your Ehlers Investment Adviser to learn more.

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Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.

By Harry Allen, Municipal Advisor

Communities across the state are faced with the challenge of working within Wisconsin’s restrictive levy limits while sustaining service levels. Understanding your levy limit flexibility and alternative methods to generate revenues is critical for long term sustainability.

The Basics and Why They Still Matter

Since 2005, levy increases have generally been limited to the prior year’s levy adjusted by the rate of net new construction in your municipality. While simple in theory, the calculation includes numerous adjustments that can either increase or decrease your allowable levy.

As a result, accurately completing the levy limit worksheet and fully leveraging allowable adjustments remains essential.

The Structural Challenge

A central issue facing municipalities is the growing gap between revenue growth and expenditures. Since the inception of levy limits the average annual net new construction across the state has been 1.55% (Source: Wisconsin Department of Revenue Net New Construction Report) but the increase in the Consumer Price Index has averaged 2.57% (Source: U.S. Bureau of Labor Statistics Consumer Price Index for All Urban Consumers).

This mismatch continues to create structural budget pressure, making it difficult to maintain services without new strategies.

Using Adjustments Strategically

The levy limit statute exempts increases in the levy for the payment of general obligation (GO) debt from the net new construction limitation. This makes debt a powerful tool for your budget. Many municipalities have tuned to funding capital projects through the issuance of short-term GO debt which creates levy capacity for projects.

This technique, when used appropriately, enables municipalities to still fund capital projects on a cash-like basis while limiting interest cost. That said, this approach should be used cautiously if needed for ongoing operating costs.

Expanding Revenue Options

Communities are increasingly turning to alternative revenue sources to reduce reliance on the levy:

Public Fire Protection (PFP) Conversion

Communities can shift fire protection costs from the general levy to direct water utility charges. This approach frees up levy capacity by removing general fund expenditures and has the benefit of avoiding any negative levy adjustments. This move also help to improve equity by distributing costs across all utility users (tax-exempt properties pay their fair share).

A quick way to check if your community charges this through utility rates or general fund is to pull your water utility’s tariff from the Public Service Commission. If any amount of the Public Fire Protection Service is listed as a “Municipal Charge” that means the general fund is paying for a portion of these costs. This can be converted to a direct charge during a PSC Conventional Rate Case (CRC), or up to 5 years following the last CRC.

Special Charges

Innovative fee structures can move funding for services off the levy, much like a utility operates. Common fees include:

Urban forestry special charges (to cover tree maintenance, pest control, etc.)
Streetlight and traffic signal special charges
These tools have the benefit of generating additional fee revenue without causing a related decrease in the allowable levy. They also have the benefit of spreading the costs over a larger base as they can capture tax-exempt properties.

Careful controls should be maintained to ensure the fee revenues are being spent on appropriate purposes. Municipalities must also consider how to establish the fee structure with a common practice being a fixed fee by development type. Typically these fees are included in local utility bills (such as the water bill).

Wheel Tax (Vehicle Registration Fee)

A relatively simple option, the wheel tax institutes a municipal charge annually for vehicle registrations. The tax generates stable, transportation-dedicated funding in perpetuity (unless repealed by a future governing body). It is easy to implement as it only requires a municipal resolution and application to WisDOT. The administration for collecting the fee is all handled by WisDOT who makes monthly disbursements to the municipality thereby alleviating any local administrative burden.

However, officials should be mindful of its relatively limited revenue yield and potential equity concerns as it disproportionately impacts residential properties. Current wheel tax fees range from $10-$50.

Special Assessments

Special assessments allow Wisconsin municipalities to charge property owners for all or a portion of the cost of public improvements that provide a direct benefit to their property, such as streets, utilities, or other local infrastructure. These assessments are levied on properties within a defined area based on the value of the benefit received and become a lien on the property. The assessments may be collected over time or placed on the tax roll if unpaid. Municipalities often issue debt or create an interfund loan to fund the project costs now with the intent to abate the debt service/repay the interfund loan with the future special assessment revenues.

A municipality must follow a formal process to implement which includes adopting an initial resolution, preparing a report detailing project scope, costs, and proposed allocations, providing notice and holding a public hearing, and lastly, approving a final resolution to levy the assessments. The methodology used must be reasonable and equitable, with costs allocated among benefited properties in proportion to the benefit received, and property owners retain the right to appeal the assessment. These mechanisms are particularly valuable for financing growth-related projects without burdening existing taxpayers.

Impact Fees

Impact fees allow Wisconsin municipalities to charge developers for a proportionate share of the capital costs needed to support new development, including highways, as defined in Wis. Stat. § 340.01(22), and other transportation facilities, traffic control devices, facilities for collecting and treating sewage, facilities for pumping, storing, and distributing water, parks, playgrounds, and land for athletic fields, solid waste and recycling facilities, fire protection facilities, law enforcement facilities, emergency medical facilities, and libraries. If it’s not listed in the prior sentence, those costs are ineligible to be recovered through impact fees.

To implement, a community must complete a public facilities needs assessment that inventories existing infrastructure, identifies deficiencies, and estimates the cost of improvements required to serve growth, all tied to defined service level standards. A well-supported impact fee study is critical, as it documents the methodology, justifies the fees, and identifies eligible projects. Ongoing administration is equally important, including tracking collections and expenditures, ensuring funds are spent on approved projects within statutory timelines, and regularly updating the study to reflect changing costs, growth assumptions, and completed projects.

When structured and maintained properly, impact fees can provide a dedicated revenue source to help fund growth-related capital needs and reduce pressure on the property tax levy.

Managing Covered Services

Covered services are certain municipal functions defined by Wisconsin law that, when shifted from the tax levy to a user fee, require a corresponding reduction to a community’s levy limit. Eligible services include garbage collection (excluding recycling), fire protection (excluding public fire protection charge), snow plowing, street sweeping, and stormwater management, provided they were supported by the 2013 levy (for the 2014 budget). When a new or increased fee is implemented, the municipality must take a negative adjustment on its levy limit equal to the projected fee revenue, capped at the amount of levy support for that service in the 2013 levy (for the 2014 budget). While this reduction can appear to offset the benefit, the cap is key, because most service costs have increased significantly since then, allowing municipalities to generate additional net revenue through fees. Implementation requires identifying an eligible service, establishing a fee structure to replace some or all levy funding, and applying the adjustment through the levy limit worksheet.

Levy Limit Referendums

When levy capacity simply isn’t enough, municipalities may turn to a referendum under Wis. Stat. §66.0602(4). Levy limit referendums allow Wisconsin municipalities to exceed state-imposed levy limits with prior voter approval, providing a direct way to increase property tax revenues to support services or capital needs. While they can be an important tool, they require careful planning and timing, including meeting strict election deadlines and aligning the question with specific statutory requirements. Communities also need to consider how the purpose of the request may influence voter support and be able to effectively community the tax impact to constituents. Given these factors and the uncertainty of voter approval, referendums are often best evaluated alongside other revenue options to ensure service levels can be maintained if a referendum is unsuccessful.

A More Strategic Approach

Ultimately, there is no single solution to the structural challenges created by Wisconsin’s levy limits. Instead, long-term sustainability requires a thoughtful, multi-pronged approach that balances strategic use of levy limit adjustments, careful consideration of referendums, and the intentional use of alternative revenue sources. Each tool comes with its own tradeoffs, statutory requirements, and administrative considerations, so success depends on understanding how they work together within your community’s broader financial plan. By taking a proactive and informed approach, municipalities can better position themselves to maintain service levels, manage financial pressures, and adapt to changing economic conditions over time.

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Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.

By Kelly Horn, Municipal Advisor

In Minnesota, municipalities are faced with annual budgeting pressures related to rising costs of existing expenses, such as personnel and capital projects, along with funding new local initiatives and Federally and State mandated programs, such as paid family medical leave. Compounding the challenge, municipal budgets may be sensitive to reductions in existing revenue sources from the Federal or State level that are largely out of their control, such as local government aid. The message is clear, find a way to do more or the same with less, reduces services, cancel or delay projects, or identify additional funding sources. While increasing property taxes is always an option, there is often pressure from residents and elected officials to keep tax levy increases to a minimum. The funding must come from somewhere, making it important to know your options for new funding sources and ways to leverage increases in existing fees.

Existing Fees

As a matter of local policy, governments should periodically review general fee levels, such as permits or other charges for services, to ensure they remain aligned with inflation, service delivery costs, comparable local pricing, and overall fee structure and fairness. Many municipalities benefit from applying a standard annual adjustment amount to maintain predictability for budgeting and reduce the need for infrequent larger increases. Any adjustment that departs from the standard approach should be supported by a clear justification tied to fiscal conditions, cost changes, or policy objectives. Consider the budgetary pressures you are managing, identify a related fee, adjust, and be prepared to justify the change.  Without these regular adjustments, local governments support the increasing costs of services once supported by fees without even realizing it.

Franchise Fees

Minnesota Statutes, section 216B.36 grants the legal authority to local government to require utilities that provide electric or gas services that utilize streets, highways, parks, or other public property within the municipality to obtain a license, permit, right, or franchise to operate there. The municipality may impose terms and conditions through the franchise, including fees intended to raise revenue or offset increased municipal costs associated with utility operations. In practice, these so-called franchise fees are generally negotiated as a contract and then adopted by the municipality through an ordinance.

Franchise fees may be structured in several ways, including as a percentage of utility revenues, an amount tied to production or usage units, or a flat monthly fee charged per customer account. Of these approaches, flat monthly account fees are often viewed as the most transparent and tend to provide municipalities with the most predictable revenue stream.

Because section 216B.36 authorizes franchise fees as a revenue-raising measure, municipalities may generally use the proceeds for any public purpose, most commonly for streets, sidewalks, parks, sustainability initiatives, and buildings or other public facilities. Public utilities typically pass these franchise fees through to customers, where they often appear on utility bills as a separate fee line item.

Storm Water Utility

Under Minnesota Statutes, section 444.075, a municipality may establish and operate a storm water utility and, where applicable, exercise that authority consistently with an adopted watershed plan under section 103B.231 or a local water management plan under section 103B.235. A storm water utility allows a municipality to shift eligible storm water costs from the general property tax levy to an enterprise funding model supported by user fees. The charges should be structured on a just and equitable basis tied to storm water runoff or demand placed on the system. An additional upside to storm water utility fee is tax-exempt properties will now be contributing to the cost of service they are benefiting from. These fees may support both operating and capital costs of the utility.

Street Light Utility

Minnesota Statutes, chapter 429 authorizes municipalities to install, replace, extend, and maintain streetlights and street lighting systems as local improvements. This allows municipalities to shift some lighting costs from the general property tax levy to a benefit-based funding approach for properties that receive the service, which also captures tax-exempt properties. Any charges or assessments should be allocated to benefiting properties on a just and equitable basis, and a municipality may structure them to reflect differing lighting needs through methods such as a flat fee, classifications by property type, or formulas based on property type and linear street frontage. Like the storm water utility fees, these charges may support both the operating and capital costs associated with street lighting activities.

Conduit Bond Fees

Local governments are often asked to act as conduit issuers of debt or bonds for private development projects under Minnesota statutes. Repayment in these transactions relies solely on borrower or project-specific revenues and local governments maintain no obligation to repay the bonds. Because the issuer assumes administrative responsibilities and some transactional burden, local governments commonly charge the issuer an administrative fee, often expressed as a percentage of the bond amount, provided the fee remains reasonable in relation to the services performed or the tax-exempt cost savings realized by the borrower. As public revenue, the fee may be used for any lawful governmental purpose. Local governments typically treat these fees as one-time revenues and apply them to capital projects.

Putting It All Together

Taken together, these options provide municipalities with practical tools to diversify or increase revenues, reduce reliance on the property tax levy, and better align costs with the services or benefits being provided. None of these approaches should be viewed as a one-size-fits-all solution, and each requires careful review of statutory authority, local policy goals, administrative feasibility, and community impact. However, by periodically evaluating existing fees and considering targeted revenue sources such as franchise fees, storm water utilities, street light utilities, and conduit bond fees, municipalities can strengthen long-term financial flexibility while maintaining a fair and transparent approach to funding public services. If you’re interested in learning more about these options and how they may help you meet your budgetary challenges your Ehlers municipal advisor can assist!

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Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.

By Jon Cameron, Senior Municipal Advisor | Managing Director

Two pieces of legislation impacting tax incremental financing were signed into law on April 3, 2026 by Governor Evers.

2025 Wisconsin Act 173 (Effective January 1, 2028)

Affordable Housing Extension Expanded

Under current law, a municipality may extend the life of a tax incremental district (TID) by one year to fund costs benefitting affordable housing. Act 173 now permits up to a two-year extension for that purpose. All other provisions pertaining to the affordable housing extension remain unchanged. To exercise an extension, a municipality must:

• Adopt a resolution extending the TID for a specified number of months.
• State within the resolution how the municipality will use the funds to improve the housing stock.
• Provide the Department of Revenue with a copy of the resolution.
• Use at least 75% of the tax increment received from the extension to benefit affordable housing. (Affordable housing is defined as housing that costs a household no more than 30 percent of the household’s gross monthly income.)

Newly Platted Residential Development Defined

The Act also creates a definition for the previously undefined term “newly platted residential development.” Project costs related to newly platted residential development are only permitted in Mixed Use TIDs, with a further limitation restricting newly platted residential development to 35% of the TID area.

Beginning January 1, 2028, the term newly platted residential development will mean: “residential development on a parcel that has not previously been the site of permanent structures other than structures used solely for agricultural purposes.”

This definition will be helpful in making a clearer distinction between residential development on previously undeveloped land as compared to redevelopment situations. Under current law, it is unclear whether a redevelopment project that may require a new plat or a replat falls under the currently undefined term. In most cases, the shorter life of a Mixed Use TID along with the 35% area limit is incompatible with a redevelopment project. While the new definition makes it clear that residential development on a site where non-agricultural buildings existed previously is not considered newly platted, it creates a new concern in that it excludes redevelopment sites that may never been the site of structures, such as a parking lot, dump site or storage yard. Further refinement of this definition would be beneficial to avoid imposing the newly platted limitations on true redevelopment sites.

2025 Wisconsin Act 235 (Effective October 1, 2026)

Residential Tax Incremental Districts

Act 235 creates a new type of TID: Residential Tax Incremental Districts (“R-TID” hereafter). An R-TID allows for newly platted residential development without the 35% area limitation associated with Mixed Use TIDs. Intended to facilitate denser, workforce style housing, development in an R-TID must meet the following requirements:

• Development in an R-TID is limited to owner occupied single-family or duplex units.
• Lot sizes for single-family homes may not exceed 7,500 square feet, with a maximum lot width of 70 feet, and maximum 10-foot side yard setbacks.
• Lot sizes for duplexes may not exceed 12,500 square feet, with a maximum lot width of 80 feet, and maximum 10-foot side yard setbacks.
• Single story residential buildings may not exceed 1,500 square feet. Two story structures may not exceed 2,000 square feet.

Like Mixed Use TIDs, an R-TID has a maximum life of 20-years. There are also a number of significant differences:

• An R-TID is excluded from the 12% equalized value test but is subject to a separate 3% valuation test: the base value of a proposed R-TID, plus the incremental value of any existing R-TIDs, may not exceed 3% of the municipality’s total TID IN equalized valuation.
• Project Costs in an R-TID are limited to construction or improvement of infrastructure needed for the residential development, related financing costs, professional services costs, imputed administrative costs and organizational costs. A developer’s costs to acquire land, on-site work (such as grading) and construction of homes are not eligible Project Costs in a R-TID, even if paid in the form of a development incentive.
• Any costs related to stormwater management are eligible only to the extent they provide service to the entire residential development, and not to individual lots.
• No municipal borrowing is permitted: Project Costs must be financed by the developer or cash funded with tax increment. Practically speaking, an R-TID will require a “pay as you go” structure with the developer fronting the cash to install public improvements, with reimbursement from tax increment over time.
• Within the R-TID creation resolution, or by municipal ordinance, the following must be established:
  • The maximum amount of development-related fees that may be charged for the residential development in the R-TID.
  • The architectural and construction requirements that will apply to the residential development in the R-TID.
• The Project Plan may only be amended to increase Project Costs with the first 10 years of its life. After 10 years, an amendment to increase Project Costs requires a unanimous vote of the Joint Review Board.
• An R-TID may not become a donor district, nor may it receive tax increments from a donor district.
• The 20-year maximum life of an R-TID may be extended by up to 3-years.

Ehlers recently hosted a brief webinar further explaining these legislative changes, and a copy of the presentation can be downloaded here.

If you have questions on how these changes to the tax incremental financing law may benefit your community, call your Municipal Advisor or other TIF professional. It is also important to note that the Department of Revenue may issue additional guidance as to their interpretation of the statutory language.

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Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.

By Harry Allen, Senior Municipal Advisor
and Keith Dahl, Senior Municipal Advisor

Market conditions continue to prompt many developers of multifamily real estate development projects to seek public assistance so they can achieve financial feasibility. At the heart of the issue lies a delicate balance between three core financial components – construction costs, interest rates, and rental rates. Much like a three-pronged stool, these three elements determine the feasibility and profitability of a project. If one leg shifts, the others must adjust to keep the project stable. When the market cannot naturally accommodate these adjustments – and the public entity desires to see the project proceed – public financial assistance may be necessary to fill the gap.

The financial feasibility of rental real estate developments hinge on the relationship and interconnection of the core financial components. Generally, their interplay can be summarized as follows:

• Construction Costs: Heavily influence capital outlay and overall return on investment for a project. Rising construction costs place pressure on project margins which may result in increased rents, pursuing cheaper financing, reducing material quality, value engineering, or possibly increasing density.
  Interest Rates: Significantly impact the cost of financing. Higher interest rates strain debt service coverage ratios, reduce the amount that can be debt financed, and increase the amount of equity.
• Rental Rates: Direct source of revenue for any rental real estate development. Influenced by market demand, location, unit quality, amenities, and competing supply. When rental rates stagnate or increase at a lower rate than construction costs, projects may no longer generate sufficient income to pay for operating expenses, debt service, and provide an acceptable return to investors.

If one or more of these factors move in an unfavorable direction, financial feasibility is jeopardized. Developers may wait for more favorable market conditions, shift their development strategy, or seek public financial assistance to close the gap between what the private market can support and what is needed to move the project forward.

Providers of public assistance must approach these requests with both a high level of scrutiny and strategic vision. Not all projects warrant assistance or the amount of assistance requested, and resources are limited. A structured and rigorous evaluation framework can ensure that public investments are both necessary and aligned with community priorities. The main question that must be addressed is: “What is the minimum amount of assistance required to make the project financially feasible?”

This should be assessed through a transparent financial pro forma analysis. Independent, third-party reviews can validate developer assumptions and confirm if the requested assistance is necessary or excessive. The pro forma analysis typically involves a comprehensive review of several items:

1. Development Costs – Compare to market norms and historical data, as well as identify extraordinary costs that are unique to the site, the project, etc.
2. Available Funding Sources – Debt, equity, grants
3. Financial Structure – Evaluate capital stack, terms, and refinance events
4. Financial Assumptions – Rent growth, inflation, vacancy, interest rates, cap rates
5. Developer Contributions – Cash equity, guarantees, land value
6. Underwritten Rents – Relative to market comparables
7. Operating Expenses – Operating expense ratios, expenses before property taxes, management fees, and reserves, as well as reviewing property taxes, as-if constructed and stabilized
8. Phasing and Timing of Construction – Impact on costs and revenue, as well as estimation of tax increment
9. Projected Cash Flows – From operations with and without public assistance
10. Return on Investment – Assess reasonableness of returns

A recent example where Ehlers conducted a third-party financial review was for Applewood Terrace, a development in Cudahy, Wisconsin, which recently obtained its approvals to break ground later this fall. Once constructed, Applewood Terrace will feature 264 market rate residential units distributed amongst twelve garden-style apartment buildings.  Due to current market conditions and the imbalance of the core financial components caused by construction costs and interest rates, the development was not financially feasible. However, the City viewed development of this approximately 19 acres of tax-exempt land owned by the Cudahy Community Development Authority (CDA) as a priority. Originally, the developer requested a $2 million land write-down and 90% of the annually generated tax increment over 27 years.

Based on the comprehensive review, Ehlers determined the requested structure and amount of public assistance was more than necessary to make Applewood Terrace financially feasible. Following discussions with the city and developer, both parties agreed to tax increment assistance provided over 22 years, repayable from 90% of the annually generated tax increment over the first 10 years and 50% of the annually generated tax increment over the remaining 12 years. In addition, this structure eliminated the need for a land write-down and allowed the CDA to receive $2 million at closing of the land purchase.

Another example, located in Detroit Lakes, Minnesota, where Ehlers completed a comprehensive review was for Highland Lakeview, a 36-unit workforce residential apartment building. The Detroit Lakes Development Authority (Port Authority) has long sought development of this particular property.  Due to rising construction costs and impending tariffs on construction materials, there was an imbalance to the financial feasibility of the project. Therefore, the developer requested $1 million of tax increment financing assistance over nine years.

The Port Authority engaged Ehlers to confirm the amount of public assistance being requested was warranted for the project. Ultimately, through the pro forma analysis, Ehlers concluded the term of assistance was warranted, however, the amount of tax increment was overstated due to the developer overestimating the amount of property taxes and, by extension. the tax increment generated by the project. Following discussions with the Port Authority and developer, both parties agreed to tax increment assistance provided over nine years, repayable from 90% of the annually generated tax increment not to exceed $427,904 in total.

The interplay between construction costs, interest rates, and rental income is foundational to real estate development feasibility. When market conditions create imbalances, public financial assistance can play a crucial role in advancing projects that serve broader community interests. However, such assistance must be prudently underwritten, transparent, and aligned with long-term public goals. By applying a disciplined, outcome-oriented approach, public entities can support development that not only addresses financial gaps but also delivers lasting value to the community.

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Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.

By Bruce Kimmel, Senior Municipal Advisor
and Brian Reilly, CFA, Senior Municipal Advisor | Managing Director

Local governments across the nation are facing mounting financial pressures. Rising costs for delivering municipal services, increasing costs to replace aging infrastructure, and growing community expectations have increasingly strained the fiscal sustainability of many communities, leaving them to wonder “What can we do to continue balancing the budget while maintaining service levels and driving critical programs or capital projects forward?”  The answer is unique to each municipality and finding it relies on three key elements.

• Conduct long-term financial management planning
• Explore alternative funding sources
• Seek ways to reduce costs or lessen the impacts of future cost increases

Financial Management Planning

The foundation for long-term fiscal sustainability is the Financial Management Plan (FMP). An FMP is a multi‑year plan primarily developed for tax‑supported funds that integrates prior policy decisions, operating costs, capital improvement plans, existing and future debt, and anticipated changes to taxes and fees to forecast whether capital and operating expenditures are sustainable over time under various assumptions. Rather than serving as a static “snapshot in time” document, the FMP functions as a dynamic decision‑making tool that helps communities see the long‑term implications of policy choices and investment decisions before they are made. The FMP also helps:

• Transform community vision into an actionable project plan
• Identify funding sources for community priorities
• Communicate long-term goals to stakeholders
• Manage public expectations
• Communicate needs with potential funding partners

A core function of the FMP is to inform the annual budging process.  Rather than a standalone exercise, the budgeting process should incorporate a multi-year point of view and be an ongoing discussion between staff and elected officials, guided by the decision-making framework of the FMP.  When done well, the annual budgeting process becomes part of the overall FMP cycle, rather than an isolated single fiscal period exercise.

Perhaps most importantly, an FMP helps reduce reactivity. When financial and market pressures arise, communities with a clear plan are better positioned to respond objectively and strategically, understanding the probable impacts today’s decisions make on the future of their community.  Responding thoughtfully and decisively to unpredictable situations also helps inspire confidence in the ability of an organization to manage its financial affairs.

Alternative Funding Sources

While property taxes often represent the largest funding source for local governments, over- reliance on them can place undue pressure on tax levies and create fiscal vulnerability. By better diversifying municipal revenues, communities can help shift certain service and project costs away from property taxes, better match service costs to beneficiaries, and improve long‑term fiscal stability.

Some of the most common non-property tax revenue sources in Minnesota include public utility franchise fees and local option sales taxes.

Public Utility Franchise Fees

One of the most flexible funding sources is the public utility franchise fee. Under Minnesota law, cities may require private utilities operating within the public right-of-way or on public property to obtain a franchise and pay associated fees.  Generally applicable to electric and gas utilities, a franchise is most often a negotiated contract with the provider, which is subsequently adopted by the municipality as an ordinance. Franchise fee revenues may be used for any public purpose and are most often applied to streets, parks, sustainability efforts, and public facilities.

While franchise fees offer a higher degree of flexibility and the ability to generate revenue from tax‑exempt properties, they are also more regressive than property taxes and don’t have a state relief program.  Franchise fees are also less transparent for constituents because utilities most often pass them through to ratepayers as a separate fee on the customer bill.

Local Option Sales Taxes

Local Option Sales Taxes (LOST) provide another avenue for funding statutorily authorized projects. Authorized under Minnesota law, cities or counties may levy sales taxes to support up to five projects of “regional significance.” These projects are defined as a single building and the infrastructure needed to safely access it, improvements within a single park or named recreation area, or a contiguous trail.  Under LOST, sellers of applicable goods and services collect the sales tax, then remit it to the Minnesota Department of Revenue (DOR).  Those funds are then remitted back to the city or county on at least a quarterly basis.  The DOR also charges local governments an administrative fee for this service.

A key factor for municipalities to consider relative to LOST is the fairly cumbersome and uncertain authorization process.  To implement LOST in Minnesota, cities or counties must:

• Pass a local resolution detailing the tax rate (up to a maximum of __%), proposed projects and anticipated revenue
• Submit the request to the state legislature for consideration and approval
• File local approval with the Secretary of State
• Hold a local referendum to seek approval from voters
• Approve a local ordinance upon voter approval

Each of these steps contains very specific tasks and timelines for completion.

For Wisconsin communities, the calculus is a bit different under the current regime of levy limits.  The property tax levy supporting general fund operations is limited to the greater of percent net new construction or 0%, along with various pre-determined adjustments for specific events and allowable adjustments that may be temporary.

There are several options that can increase revenues or otherwise diversify those who pay for specific services:

Referendum Approval to Exceed the Allowable Levy

Local units of government can seek referendum approval to exceed their state-imposed allowable levy limit.  The ability to do so is governed by a very specific process.  Referendum-approved levy authority can be for a limited period of time, such as a year or number of years, or permanently.  Both scenarios are limited to a specific dollar amount and for stated purposes approved by voters.

We recommend starting this journey as early as possible in order to comply with law and undertake the financial planning and community outreach necessary to be successful.

Transitioning Levy-supported Services to Fee-based Structures

In order to gain stronger financial flexibility and sustainability, many jurisdictions have transitioned from levy-supported functions to fee-based services.  It’s imperative that the proper approach is taken to establishing the fee to ensure it is legally valid and equitably applied.

When levy-supported services are transitioned to fee-based, communities must determine if these are considered a “covered service” with respect to levy limitations.  These are things like garbage collection, snow plowing, storm water, street sweeping, and fire protection that is unrelated to the “production, storage, sale, delivery or furnishing of water for public fire protection purposes.”  The costs for those aspects of fire protection can be moved to water bills through a specific process prescribed by the Wisconsin Public Service Commission.

If a covered service is moved from levy-supported to fee-based, the jurisdiction must take a “negative adjustment,” or permanent deduction, to its allowable levy in the amount of funding coming from the tax levy for that service dating to the budget for the 2014 fiscal year (levy 2013 for the 2014 fiscal year).  In practical terms, the levy is reduced, but the implemented user-fee will likely generate more revenue than the amount of the levy funding the 2014 service cost, resulting in higher net revenue.  This allows the jurisdiction to meet the current cost of the service, while also spreading that cost over all those that benefit rather than only property-tax payers.  Additionally, the user-fee is not constrained by any statutorily imposed limitations, so the fee can be adjusted to keep pace with the costs of the service, going forward.  You lose levy authority, but pivot to what could be considered a more equitable distribution of the cost with stronger financial flexibility going forward.

This exercise can take the better part of a fiscal year to plan, message, execute, and implement.  The calendar should allow sufficient time to put your team in place (which will likely include one or more consultants), engage with the governing body, craft your public messaging, and allow your staff to build the necessary billing and accounting infrastructure.

Capital Financing through Borrowing

Communities can finance capital costs in various ways.  This includes deploying reserves periodically, budgeting on a pay-as-you basis through annual capital outlays and issuing debt to spread capital costs over the period of time the asset is in place and used.

Debt shouldn’t be viewed as a four-letter word.  When planned well and issued prudently, debt can help municipalities achieve their short-, medium- and long-term goals, while smoothing out tax- or ratepayer impacts for project spending.

To finance medium-term initiatives such as vehicles, computers, and specialized equipment, options may include:

• Equipment Certificates: Authorized by Minnesota law, local governments may issue debt to finance essential equipment (public safety, road maintenance, and technology) with a useful life matching the term of the certificate.
• Lease-Purchase Agreements: Municipalities can enter into these agreements with lease providers for equipment purchases whereby they can often purchase the asset at the end of the agreement term for a nominal fee.
• Interfund Loans: Municipalities or development authorities may temporarily loan money from one fund to another to finance an initiative. These loans must be authorized and well-documented, specify a maximum term and interest rate. They may also carry certain reporting requirements.  It is important to understand your jurisdiction’s liquidity profile and the wherewithal of the fund receiving the loan to repay before contemplating this option

Long-term Borrowing

Long-lived assets should be financed with debt that is amortized over the useful life of the asset.  This limits total interest cost, meets requirements related to the tax-exempt status of the debt, and builds generational equity with respect to those who pay for the asset over its life.

Communities are often faced with capital financing decisions that exceed their ability to cash fund those projects or otherwise present the dilemma of saving enough before executing on a project.  Also, the funds accumulated during the saving period may come from those who may never use/enjoy the asset while in service.

Capital financing through the issuance of debt should take a holistic view.  There are limitations on certain forms of debt under statute by way of both maximum dollar amount and/or the levy associated with paying the debt service.  Care should be exercised when considering the long-term needs of your community.

Additionally, capital planning can identify moments in time where debt can be issued with minimal or no tax or rate-payer impact as prior debt declines or falls off.  New debt can also be structured in a manner that provides future debt capacity, knowing there will be additional needs for your community.  Your municipal advisor can assist in this forward-looking exercise and speak to the considerations of various debt structures, payment impacts, and any potential ratings factors.

Every funding decision shifts costs across the community, and fairness matters. By thinking creatively, diversifying revenues, and committing to transparent, long‑range planning, local governments can better position themselves to meet future challenges while maintaining public trust.  As always, Ehlers’ Municipal Advisors and Fiscal Consultants can help you create a plan that works best for your community.

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Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.