Bruce Murphy
Murphy’s Law

Milwaukee Subsidizes The State

The city gets only 66 cents in state spending for every dollar in state taxes paid.

By - Feb 14th, 2017 01:20 pm
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Milwaukee Center from City Hall. Photo taken September 23rd, 2012 by Erik Ljung.

Milwaukee Center from City Hall. Photo taken September 23rd, 2012 by Erik Ljung.

In the 2012 recall election, Gov. Scott Walker bluntly signaled that a vote for his opponent, Milwaukee Mayor Tom Barrett, could make this state as bad as the city. “We don’t want Wisconsin to become like Milwaukee,” he warned.

Walker was well aware that Milwaukee was seen in a negative light across much of the state, as a place of poverty and crime or for some people as a simply a city with many minority residents. To get elected, Walker cynically capitalized on that negative image, while reinforcing it because, after all, he had served as Milwaukee County Executive. Who would know better how bad Milwaukee was?

In fact, even as Walker was libeling the state’s biggest city, the reality is the opposite was true: it was Walker’s state that was the relative loser, that was leeching off the city. By 2012, the data shows, the city’s economy had become so successful that Milwaukee got back just 88 cents in total state aid for every dollar in total taxes it paid to the state.

That includes every category of state dollars flowing to Milwaukee, from state aid to Milwaukee Public Schools to shared revenue to cities, transportation aid and other smaller categories, and also includes every form of taxes flowing from Milwaukee to the state, including sales taxes and personal and corporate income taxes paid by city residents and businesses. All this information is tracked by the state Department of Revenue (DOR) and it shows Milwaukee is a net contributor to the state.

“It’s stunning,” says Barrett, whose staff used the DOR data to create this picture of Milwaukee. What it shows is that the city, in fiscal terms, has become a huge success.

That was not true as recently as 2009, when the city was getting more total state aid than taxes it sent to Madison: Milwaukee was getting $1.07 from the state for every dollar in taxes it paid. But by 2011 the city was a net contributor to the state and that net outflow has increased every year until by 2015 the city was paying nearly $1.4 billion in total taxes to the state and getting back just over $912 million in state aid. That’s a return of just 66 cents from the state for every dollar in taxes paid. If that trend continues, and all signs suggest it will, that figure will drop further in 2016 and even further in 2017.

Milwaukee has become a Net Revenue Producer

By 2015 the city paid nearly $1.4 billion in taxes to state and got back just over $912 million in state aid.

What’s happening? Simple: state aid is plummeting, while Milwaukee’s economy is growing, spinning off ever higher sales and income taxes.

The state has been reducing shared revenue to the city for many years, going back to the mid-1990s, as I have reported, and that has continued under Walker. Meanwhile, Walker and the Republican legislature have also watered down the equalization formula in state school aid that had long awarded proportionately more money to districts with more poor students, with the result that Milwaukee gets an ever smaller portion of the state educational pie.

Meanwhile, the city has been booming economically since the Great Recession, enjoying tremendous real estate development, seeing its many local businesses recover and grow revenue, and becoming a magnet for companies moving from the suburbs to the city.

What’s all the more remarkable about the city’s success is that it has come despite the fact that it has so many poor people. Of the 50 biggest cities in America, only San Antonio has a higher proportion — 73 percent — of its low-income metro-area people living within the city; Milwaukee ranks just behind, with 72 percent of low-income metro residents living in the city.

“We are expected to take care of most of the region’s low-income people,” Barrett notes. “Yet even with that we are seeing increases in the taxes and revenue we are paying to the state.”

This could be a good news story except the city is prevented from benefitting from its own success, because under state law it cannot levy its own sales tax or income tax. “The revenue sources that are growing the most from our economy, the income and sales taxes, we are shut out from,” Barrett laments.

Most cities in America have the ability to levy a sales or income or gas tax. Not cities in Wisconsin. That law goes back to 1911, when Wisconsin created the first state income tax in America. The legislature also wrote a law preventing cities from levying an income tax — to prevent some cities from gaining an advantage over others. Instead, the legislature committed to returning a significant portion of the state income tax revenue to cities through state shared aid.

But the legislature began retreating on that century-old grand bargain in the 1990s. Result: In 1995, 53 percent of Milwaukee’s general purpose budget was paid for by shared revenue, but that dropped to just 39 percent by 2012. Today, it’s down to 36 percent.

“State shared aid once paid for our entire police and fire department budget,” Barrett notes. Now it doesn’t even pay for the entire police budget.

Yes, the city’s property tax base has grown, but that’s where the poverty becomes an issue. “We lost $5 billion in real estate value from the Great Recession and we still haven’t gotten back where we were before the recession,” Barrett notes. “There are parts of the city that haven’t approached coming back to pre-recession levels.” Which limits property tax growth.

This has resulted in a paradox: a financially successful city with an increasingly robust economy has such a constrained budget it can’t pay for as many police officers as its leaders would like and must pinch pennies on major social issues like replacing lead laterals that can cause health problems.

Barrett says the city needs to get this story out to others in the state. “There are people who love to draw a picture of what a leech on the state Milwaukee is,” he says. “We’re trying to change the conversation so people realize Milwaukee is not a drain on this state.”

Quite the contrary. Milwaukee is the home of more Fortune 500 headquarters than most mid-sized cities and is a huge generator of wealth for the region. Tim Sheehy, President of the Metropolitan Milwaukee Association of Commerce, estimates that Milwaukee county “is a net exporter of personal income — to the tune of $6.7 billion — to surrounding county residents to buy homes, pay property taxes, school costs. Milwaukee County has both the greatest poverty and the greatest production of wealth.”

“The story we need to tell to the legislature, and the citizens of the region,” Sheehy says, “is this: While we elect and collect revenue locally, this economy functions regionally. We are all in this together.”

But is that how Gov. Walker sees the situation? Or Republican legislative leaders? I shared the information about Milwaukee’s net contribution with Walker’s communication’s director Tom Evenson, with Assembly Speaker Robin Vos, and Senate Majority Leader Scott Fitzgerald and asked for a comment. None responded.

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46 thoughts on “Murphy’s Law: Milwaukee Subsidizes The State”

  1. Beer Baron says:

    I’m convinced Milwaukee County secession from the state is the best and only option left. Let the moochers out in the rest of the state go and stop living off our hard work!

  2. Joe says:

    I’ve love to know what percentage of this is driven by reductions in state aid to Milwaukee versus Milwaukee’s own economic output. I realize it’s a combination of both.

    Perhaps every time Republicans pass a bill cutting our state aid they should pass a tax break for Milwaukee alongside it, to keep from stealing our money.

  3. Wisconsin Conservative Digest says:

    This is correct, but outstate thinks it is the opposite. They look upon Milwaukee as a haven for drugs, criminals, riots, human trafficking, inept govt., corruption, Milwaukee county, MMSD is nuts, heroin epidemic, high taxes, lousy roads.
    Kids cannot read in MPS which is a “national Disgrace”.

  4. tomw says:

    Has Mr. Sheehy communicated his thoughts to the WMC? They seem to be the ones funding the outstate politicians who control the legislature. Perhaps what also needs to be considered is how important Milwaukee is to the economies of the agricultural and tourism industries of the state. It’s not about secession but about cooperation and rebutting the “fake news” put forth by the Governor and others regarding Milwaukee. Commuting north each morning, I see all those cars heading south from Ozaukee County on I-43 to what I assume is employment in Milwaukee and/or Milwaukee County. The tragedy of current political discourse is our failure to understand how inter-connected we all are and how inter-dependent we are. Somehow we need break down that wall. Thank you, Bruce, for one more great article pulling one more brick from it.

  5. Sam says:

    Reduction in shared revenue should be priority number one of every municipality in the state. Where is the lobbying by the League of Wisconsin Municipalities? Why doesn’t every mayor in the state march on Madison? Why aren’t they screaming at their legislators?

  6. Thomas Spellman says:

    Hummmm Including State Aid to MPS?? If not then what about the County and all taxes??

  7. Jake formerly of the LP says:

    Also worth noting, this 2017-19 state budget gives away around $180 million in property tax “relief” and about $200 million more in an income tax cut that’ll give the average person $3 a paycheck, but there is nothing added for shared revenues, which means taxes and fees will likely rise by at least that much, service cuts thrown in.

    Doesn’t seem worth it to me. Also seems like Milwaukee should be freed up to raise their own revenues, especially given that Milwaukee County is the Number 1 attractor of tourism dollars in the state.

  8. Joseph Klein says:

    If we could get the eastern half of Racine and Kenosha Counties, we could put together a decent state.

  9. Wisconsin Conservative Digest says:

    Ignorant. Prop taxes are controlled. Joseph, Jake, why display your ignorance?

  10. Jason says:

    Bruce, are you suggesting all those state tax cuts for corporations and individuals under Scott Walker since 2011 led to more revenue for the state coffers in Madison. How so? How does cutting taxes lead to economic growth and more tax revenue. Also, what about the 794 free way expansion, I-43 and the new Bucks arena, surely your not saying upstate Wisconsin has not contributed to funding Wall street, hedge fund guys from New York. Also, have you factored in incarceration rates from the top 10 zip codes in Milwaukee. Who pays for all those incarcerated for heinous offenses? Not Milwaukee alone.

  11. David says:

    Talk radio has been dividing us for years. Divide and conquer. Their business model needs a villain…. and it’s Milwaukee.

  12. Kent Mueller says:

    Just as I thought. Very similar to the way that most blue states not only pay for themselves and send more to the federal budget than they take out, while most red states do the opposite. The largest city in state after state is always THE largest economic engine, even seemingly abandoned Detroit (Michigan would be Iowa without it). Suburbs should take heed, their existence and fate are directly tied to the city they’re attached to and our health is your health.
    Expanding on Joe Klein’s idea, if you drive Highway 31/131 between Milwaukee and Chicago or just look at a night view of the US, you’ll see how closely the Milwaukee and Chicago metro areas are joined. They both have the same out-state problem and together would make a highly populous state, in fact one of the largest economic engines on the planet.

  13. Vincent Hanna says:

    Jason did he say anything of those things? Are you disagreeing with his main point? Do you have anything worthwhile to contribute?

  14. fightingbobfan says:

    The WDC and other ignorant right wingers can drop that crap about how badly governed Milwaukee is. It’s time he starts railing about our dull boy governor. Wisconsin made a big mistake electing Walker over Barrett. Barrett is doing a much better job of doing his job.

  15. tim haering says:

    Bruce, this is just Tammy and Hillary’s “Millionaires’ Tax”. To paraphrase the Oracle of OMaha, government needs to take a little more out of the hides of cities like MIlwaukee. It’s for the greater good. Aren’t you in favor of the greater good?

  16. Joe says:

    WCD (4):
    outstate thinks it is the opposite
    Who cares what people outstate think? They’re wrong.

    Kids cannot read in MPS which is a “national Disgrace”.
    Perhaps if the state stopped stealing 34% of our money we could invest it in our public schools.

  17. Patricia Jursik says:

    The real loser in this besides the City of Milwaukee is County governance, this body pays for our Parks, Cultures including the zoo, mental health care, Courts, Jails, county roads, election and various services such as Deed recording, etc. These services are used regionally, but paid only by Milw. Co. property tax payers. The Parks and Cultures are at a crisis in terms of deferred maintenance. In a survey, these same institutions serve more out of county residents than in-county. (Zoo as high as 70%) Yet we see leaders like Tim Sheehy argue for only a County sales tax, not a regional one. A Metra Governance structure like MMSD or SEWRPC would be an example of regional governance formation.
    l
    As a County Supervisor, I used to get calls from cities outside Milw. Co. which always baffled me; Several times I called the person to ask why they bothered to lobby a Milw Co. elected official when they lived in Ozaukee County for example. A very typical reply: I worked and retired from Milwaukee and I am still interested in what happens there; So they are interested, but don’t pay. Therein lies the gist of this problem. Until we get fair redistricting, this problem will continue.

  18. Dan says:

    Where can this data be viewed? Are there cities/counties that are receiving more than they contribute?

  19. Barbara says:

    Of course we do. I grew up near Chicago, in Northwest Indiana. I remember a time when the Chicago-NWI area was considering forming a separate state from Illinois and Indiana for the same reason. Maybe it’s time to take another look at that idea and include southeast WI.

  20. AG says:

    This is great news, and something I have suspected for some time, and preached about to those who disparaged Milwaukee for sucking resources from the rest of the state.

    One note though, for perspective, wouldn’t we want EVERY municipality to be a net contributor to the state like this? There are costs to run the state that don’t get sent back to any particular community. We should ideally have all municipalities contributing to those costs by sending more to the state than they receive.

  21. Jake formerly of the LP says:

    NO DUMB DOHNAL, NO!

    Walker’s property tax “relief” uses state tax dollars to offset money that usually comes from property taxes- with a lot of those state tax dollars voming from Milwaukee, but the tax break goes to richer homeowners in the burbs.

    In addition, the state limits what local communities and schools can raise through property taxes, regardless of whether the people want to raise taxes to pay for services.

    If you don’t get this shell game concept, your senile self needs to shut up until you do

  22. Wisconsin Conservative Digest says:

    Money has nothing to do with MPS.
    You could double the money and it would be worse.
    Zuckerberg gave Newark 100 million to make their schools best int he world. They spent it all and nothing happened.
    Since 1970 spending for schools has gone up ten fold, for far fewer students and yet scores go down.
    It is incompetence leaders and managers in Milwaukee. Some areas in this state are just as poor as Milwaukee but they do not have the crime and education problems.
    Dems look at govt as they golden eggs to keep power and jobs. kids be hanged.
    Fact is tha the white, liberal, male racist that control Milwaukee wants to keep the Inner city people in “their Place’ as long as they vote them into power.
    We all know the answer to crime and bad schools, but the Left cannot run anything.

  23. Duane Snyder says:

    A rather eye opening article by Mr Thompson, and it is much appreciated. Wish there was more reporting like this.

  24. WashCoRepub says:

    I completely agree that cities should be able to raise taxes and fees as they see fit. If Milwaukee wants a higher income tax, higher wheel tax, separate tax for entertainment/parks, I don’t understand why they shouldn’t be able to do that. That’s representative government.

  25. Bruce Thompson says:

    Dan,

    You can see the annual reports for 2007 to 2015 at the Dept. of Revenue web site: https://www.revenue.wi.gov/Pages/Report/s.aspx#state_aids

  26. Wisconsin Conservative Digest says:

    People out state are a lot poorer, property valuation per student, for the schools and the whole govts.

  27. Virginia says:

    “A rather eye opening article by Mr Thompson, and it is much appreciated. Wish there was more reporting like this.”

    Duane, it seems you got UM’s Bruces crossed. This one was by Bruce Murphy.

    This seems like another case of short-term thinking by Walker et al, and of gradually killing the goose (Milwaukee) that is laying Wisconsin’s golden egg.

  28. Jason says:

    Why is Milwaukee County locking up all our black men and who is paying for it? Census figures show 12.8 % of Milwaukee black men are in prison. How much of it is paid for by Tom Barrett and Company and why does Chief Flynn and District Attorney Chisolm keep filling up state prisons. I hope those cheapskate Menomonee Indians are paying their fair share.

  29. Jake says:

    At least 5.4 billion is leached out from Milwaukee yearly by the WOW counties. Conservative Digest and his ilk are nothing more than seditious leaches.

  30. Casey says:

    I’ve been saying this and posting the links for this iN comments for years! Good to see this has finally been reported.

  31. Mike Jay says:

    State aid as a percentage of revenue for 2015 appears to be less than 56% for all units . . . Which means Milwaukee at 66% receives a good bit more than average.

  32. Joe says:

    Mike Jay (32), not sure where you’re getting that information. If you read the chart below, in the column “state aid as a % of state revenues,” there are plenty of municipalities getting well over 100% and even 200% in aid.

    https://www.revenue.wi.gov/DORReports/15StateTaxesandAidsByMuniCo.pdf

  33. Tim says:

    Mike Jay, where are you getting your data? If you mean that a unit’s revenue composure is 56% from the state of WI on average versus 66% of the revenue is from the state in Milwaukee, that doesn’t tell the story you think it does.

    Your say that Milwaukee “receives a good bit more than average” but if the percentage is only higher since the rest of the pie is so much smaller, that means Milwaukee is still much worse off that the “average” community.

    Then, if we look at the actual expenditures in the city of Milwaukee, with them being soooo far below average, it’s easy to see that Milwaukee doesn’t have a spending problem, it doesn’t have the resources even other hemmed in urban cousins in neighboring states do.

    I couldn’t find the more recent analysis of Milwaukee spending, here’s an older one… it hasn’t changed much:

    http://city.milwaukee.gov/ImageLibrary/User/pmensa/ExpendRpt07Final.pdf

  34. Gary Nelson says:

    I did a study on New York State in the late 1970’s. It was about transport funding, but the results were that all the metro areas were net donors to the rest of State. This is a prevalent pattern. The only surprise to me was that Milwaukee was so bad off for a while that it was ever a recipient. The longer run would show the general pattern.

  35. Jason says:

    It costs $32,000 a year to incarcerate one African American male and if 13% of the city of Milwaukee’s adult back male population is locked up. How is the city of Milwaukee paying it’s fair share or more to the state of Wisconsin. So, if there are 100, 000 adult black males in Milwaukee and 13, 000 are locked up. Right there the state of Wisconsin is paying $416 million dollars to house black men, maybe Barrett and Chief Flynn can stop locking up black society at the comparable size of the city of Glendale.

  36. AG says:

    I think what Mike Jay is saying is that Milwaukee receives a higher percentage of tax revenue returned to the city than the average municipality… which is true. I’m just happy Milwaukee is back to the point of providing more than it’s needed to receive, becoming a net positive for the state, rather than a drain.

    However, that’s an overly simplistic view of things… plus let’s also look at the surrounding suburbs that are far below the state average of 56%. Also, while Milwaukee is at 66%, all but the lowest performing suburbs receive a much lower percentage returned (arguably, one would say “rightfully so”). For example, Waukesha County municipalities generally run in the mid 20’s.

  37. Joe says:

    Milwaukee receives a higher percentage of tax revenue returned to the city than the average municipality… which is true

    No, it’s not.

  38. Wisconsin Conservative Digest says:

    Milwaukee is not in the disastrous state, it is, cause of money it is bad mgt, top ten worst run city, in country.
    Instead of fixing the obvious problems like crime, MPS, bad roads, heroin etc They buy worthless trolleys, to now where, not helping people, get to work and a Bucks 500 million dollar Arena for 50 or so dates per year.
    it is not accident that Scott runs his areas ten times better than Barrett.
    Thank God never got elected to governor nor we would have the whole mess state wide instead of the drug infested Milwaukee, full of crime and kids, that cannot read or get jobs.
    Th Dems and the Left are apologists, for destroying the kids families lives. They cannot even sit in their front rooms or porches in the city.

  39. Vincent Hanna says:

    So glad you support major criminal justice reform Jason. Milwaukee does pay its fair share for this, in more ways than one.

  40. Tim says:

    AG, read my comment again. You’re looking at a percentage as proof of X, assuming it’s because the numerator is high. I’m saying the percentage is not proof of X, because the denominator is low . You have said nothing that Mike Jay didn’t already say, my comment points out that it’s not well-informed.

    (560/1000) vs (66/100)

    WCD posts the same crap for everything… bad logic, worse spelling & no facts. If you’re a regular here, you already knew that though.

  41. AG says:

    Joe, from what I see, the mean state aid as a percentage of state revenue for all municipalities is 55.72 and 51.08 for cities specifically. Do you see something different?

  42. Wisconsin Conservative Digest says:

    Spelling fine, typing terrible,.
    Get over 1000 emails per da,y hard to do more than texting.
    Fact is the most areas of the state have much smaller property valuations per student, and/or voter, so the big fat cities like Milwaukee and Tosa, West Allis gets zapped. Rural poverty is worse than inner city poverty except rural, no crime.

  43. Casey says:

    And where so those in the burbs work and play?

    Yes they contribute more per capita than Milwaukee but remember if Milwaukee wasn’t here neither would her suburbs.

  44. Wisconsin Conservative Digest says:

    Wrong, Tosa, West Allis could easily stand alone and have 100,000 plus.

  45. Vincent Hanna says:

    No crime in rural areas? That is what we call an alternative fact WCD. You are living in an alternate reality in your Tosa bubble.

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