Financial Procedure FAQ 7

Can a municipality lawfully accumulate surplus tax revenue?

The general rule in Wisconsin prohibits municipalities from accumulating unappropriated surplus tax revenues. Accordingly, unspent funds in municipal accounts, if not designated for any particular purpose, must be considered "funds on hand" under Wis. Stat. 65.90(1), and used to defray budgetary costs and reduce the tax levy for the ensuing year. Immega v. City of Elkhorn, 253 Wis. 282, 34 N.W.2d 101 (1948). However, this general rule has been qualified by subsequent court decisions.

In Fiore v. City of Madison, 264 Wis. 482, 59 N.W.2d 460 (1953), the Wisconsin Supreme Court rejected a taxpayer claim that a $600,000 appropriation by the city to a non-lapsing building reserve fund should have been considered an impermissible accumulation of tax revenues. The court concluded that the appropriation of money to the account removed the money from category of unappropriated funds that must be used under the general rule set forth in Immega. The court also said that ordinary business principles permit municipalities to retain reasonable working cash balances in the municipal treasury and every "last cent [of unallocated surplus funds] need not be devoted to reduction of taxes in aid of the budget."

In Blue Top Motel, Inc. v. City of Stevens Point, 107 Wis. 2d 392, 320 N.W.2d 172 (1982), the Wisconsin Supreme Court observed: "Taken together, Immega and Fiore establish generally that a city may retain funds to meet its needs, but may not simply carry a large surplus which has not been designated for any particular use."

In Barth v. Monroe Board of Education
, 108 Wis. 2d 511, 322 N.W.2d 694 (Ct. App. 1982), the Wisconsin court of appeals stated in dicta: "It is possible that a sinking fund dedicated to all current and future capital expenditures without relation to specific capital projects has so little public purpose that it violates the prohibition against taxing for purposes other than a public purpose." However, the court did not resolve this issue because the funds at issue in the case had been dedicated to a specific project before the lawsuit was filed.

The Wisconsin Attorney General has provided a summary position on accumulations of tax revenues. In it, the Wisconsin cases are read to mean that while municipalities may not lawfully create and accumulate unappropriated surplus funds, they may "maintain reasonable amounts necessary in the exercise of sound business principles to meet their immediate cash flow needs during the current budgetary period or to accumulate needed capital in non-lapsing funds to finance specifically identified future capital expenditures." 76 Op. Att'y Gen 77 (1987).