During local elections, it’s common to hear concerns about “village debt” and to equate it with impacts on property taxes. I have often heard people say that our government should be run like a business or that municipal budgeting should be compared to personal finances. Treating budgeting and financing, including debt management, as the same as government, business, and personal planning is a mistake and can lead to poor future planning decisions. Our Village Trustees must lead and act with an understanding of the differences and realities of government financing and debt, and be able to explain why they differ. Municipal debt is not the same as personal or business debt. If we treat them as identical, we end up drawing the wrong conclusions.
Households and businesses often plan around relatively short horizons, years or decades tied to income, retirement, or market cycles. When a household takes on debt, there’s a ticking clock. An adult has a working career that eventually ends. Debt must be paid off or significantly reduced before retirement, or you risk serious financial trouble.
A municipality is fundamentally different. A village does not retire. Governments manage infrastructure and services that last 30 to a 100 years. Roads, water systems, libraries, and public safety facilities are designed to serve multiple generations. Financing them strictly from current revenue can actually be unfair to future users who benefit but didn’t help pay. It has ongoing authority to levy taxes and collect fees. Because it exists indefinitely, it can responsibly spread the cost of long-lived infrastructure over decades. In public finance, this is called intergenerational equity: people who benefit from an asset over time help pay for it. If Cottage Grove builds a road that will last 30 years, it makes sense for residents over that period to share in paying for it, not just today’s homeowners, but tomorrow’s new property owners.
Businesses use loans and business credit cards to supplement cash flow and fund payroll, inventory, and other short-term expenses. In personal finance, loans are taken out to purchase homes, automobiles, and educational expenses. Credit cards are used for home goods and services. In business and personal financial management, if a loan or debt is not paid off, the risk is that the asset will default and lead to bankruptcy.
Municipalities have guardrails that significantly reduce the risk of loan defaults. Wisconsin municipalities operate under a state law that caps General Obligation (GO) debt at 5% of equalized property value.[1] This creates a hard statutory ceiling. Debt levels are publicly reported and audited annually. These guardrails are built into state law — something households and businesses lack.
According to the Village of Cottage Grove’s 2024 audited financial statements:[2] the equalized property value is $1,358,209,100, setting the legal GO debt limit at $67,910,455. The Village’s outstanding debt is $31,936,707, which is 47%. These figures place Cottage Grove in the middle range of comparable growth-oriented Dane County communities based on Wisconsin Department of Revenue municipal debt reports.[3]
Municipal debt typically finances long-lived capital assets such as roads and street reconstruction, water and sewer infrastructure, stormwater systems, fire stations and equipment, public safety vehicles, as well as parks and community facilities. These assets often have useful lives of 20 to 50 years. Borrowing spreads costs over the period in which residents benefit. However, municipal debt can not be used to fund services and operations.
Instead of focusing solely on the total dollar amount, public finance professionals evaluate debt as a percentage of equalized value, the percentage of the statutory debt limit used, debt service as a share of the operating budget, fund balance reserves, credit ratings, and alignment with long-term capital planning. The Wisconsin Legislative Fiscal Bureau notes that municipal finance comparisons require context, as accounting categories and funding mechanisms differ across communities [4]. This is a lot for the Village Trustees and Administrative staff to consider as they plan for our community’s long-term future.
Municipal debt becomes concerning when it approaches the 5% statutory cap, debt service crowds out essential services, funds are borrowed for operating expenses instead of capital assets, reserves are depleted, or credit ratings decline. Simply having debt, however, is not, by itself, evidence of fiscal mismanagement or a financial crisis.
Municipal debt is far more comparable to a long-term mortgage on infrastructure than to a credit card balance. Based on audited 2024 data, Cottage Grove is currently utilizing about half of its allowable GO debt capacity under Wisconsin law. The meaningful discussion for residents is not whether debt exists, but whether borrowing is strategic, sustainable, and aligned with long-term community goals. Debt is a tool. The question is whether we are using it wisely to build a strong future for Cottage Grove.
Personal credit ratings, like a FICO score, are automated scores based on an individual’s borrowing and repayment behavior, such as payment history, credit utilization, length of credit history, and recent applications. Municipal credit ratings are forward-looking opinions about a local government’s ability and willingness to repay public debt, based on factors like the strength of the tax base, financial reserves, budget performance, debt burden, management practices, and legal revenue-raising authority [5]. Our Village has an S&P Global Ratings credit rating of AA on its general obligation borrowing, which is considered high-grade and reflects a strong capacity to meet financial commitments; in practical terms, that “AA” level is viewed as a solid, favorable rating that typically supports lower borrowing costs and signals sound financial management compared with lower-rated municipalities. This rating demonstrates our Village is not in a debt crisis. Long-term debt can be used to spread the cost of growth out over years to account for new developments and businesses.
Public finance tries to answer a key question: Who benefits, and who should pay? Sometimes the right answer is current taxpayers, sometimes it’s future users through debt, sometimes it’s new development through fees or a combination thereof. When those distinctions are ignored, communities often end up with two common problems:
- Deferred maintenance and infrastructure gaps, or
- Short-term tax decisions that create higher long-term costs.
Government debt has been a historic tool used since the need to fund the American Revolution. Alexander Hamilton saw government debt as a powerful tool rather than a fatal weakness, as long as it was managed responsibly. In his view, public credit could help a young nation stabilize its finances, build trust at home and abroad, and create the conditions for economic growth. He argued that honoring debts in full and on time would establish the United States’ reputation, making it easier to borrow in emergencies and attracting private investment. At the same time, he did not endorse unlimited borrowing; he emphasized regular revenue (especially through taxes and tariffs) and careful administration so that debt strengthened the nation’s capacity rather than undermining it.
During the upcoming April 7th election, please consider how the Village Trustee candidates’ understanding of how to use municipal debt responsibility to plan the future of our Village.
— Stefan Wahe, Village Resident
Sources
Please note that I used ChatGPT to assist in researching this topic and identifying reputable sources for information. I verified that the references were accurate and the writing is my own work.
[1] Wisconsin Statutes §67.03 – Municipal Borrowing; 5% debt limit based on equalized value.
[2] Village of Cottage Grove, Wisconsin. 2024 Annual Financial Statements (Audited), Management Discussion & Analysis and Debt Note Disclosures.
[3] Wisconsin Department of Revenue. 2024 Municipal Debt Margin Report (Statewide Data).
[4] Wisconsin Legislative Fiscal Bureau. Informational Paper on Municipal and County Finance, 2025 Edition.[5] S&P Global, Understanding Credit Ratings