Tax Hike Would Give City $50 Million Per Year

The city’s dire budget situation could be at least partially relieved by the establishment of a one percent Milwaukee County sales tax.

The proposal, which needs approval from state government and a local referendum, would yield approximately $50 million annually to the City of Milwaukee from the $160 million in countywide funding it would generate.

The sales tax would be used by both the city and county to compensate for the steady reduction in state shared revenue the entities have received in recent decades. The city alone receives $105 million less from the state in inflation-adjusted dollars since 2003.

Mayor Tom Barrett told Urban Milwaukee in an interview that his priority for the potential funding is to spend that money on stabilizing the Milwaukee Police Department‘s personnel levels, purchasing a new medical emergency response vehicle for the Milwaukee Fire Department, investing in street repair and providing property tax relief.

“Mathematically the numbers don’t work,” said Barrett of the city’s current financial situation. “We have to have an additional tool to allow us to help ourselves.” Almost any new municipal taxes in Wisconsin, including income and sales taxes, require state approval. “This is not asking the state for additional funding, this is about allowing the state to give us the tools to help ourselves.”

Property tax relief is a key component of the proposal, introduced today by Milwaukee County Executive Chris Abele and the executives of each of the 19 Milwaukee County municipalities. Under the plan, 25 percent of the sales tax’s proceeds would be statutorily required to go towards property tax relief. Fifty percent of those relief funds go to the county (approximately $20 million) and the remaining 50 percent would be split among the county municipalities based on population. The city would receive approximately $12 million annually to offset its $281 million property tax levy.

“I’m hopeful that it will actually go down,” said Barrett of property tax bills. “It’s important that we are very transparent with the public so if it doesn’t happen there is an explanation for it.”

The city would also see an additional $37 million annually from the sales tax. Under the revenue sharing agreement in the proposal, the remaining 75 percent of the tax proceeds would be split evenly between the county and the municipalities. And while that pool of funding would be available to municipalities for discretionary needs, much of the proceeds coming to Milwaukee would go towards basic services the city has been forced to cut back on as its budget grew tighter.

“I want to make sure we do everything we can so that we can continue to have [police recruit] classes,” said Barrett. He said the city has been able to avoid layoffs, but that would become more difficult as police salaries rise. “To me it would be a mistake as we are literally seeing the city grow safer to start backing off that effort.” Homicides are down 17 percent year to date, and non-fatal shootings are down 21 percent. Barrett said funding would also go towards the Office of Violence Prevention.

The Milwaukee Police Department currently has an approximately $300 million budget, exceeding the city’s entire property tax levy. The MPD budget is expected to grow in coming years because of a state-regulated wage-settlement agreement that will raise salaries for officers while potentially forcing a reduction in the size of the police force.

“If I have this tool that goes into effect next year after a referendum, it will enable me to avoid some of the steps that I’m going to have to take if I don’t have the tool,” said Barrett.

The mayor made sure to praise the outside support the county-cities partnership is receiving.

“The business community has been supportive of our efforts,” said Barrett. “I think that’s very, very important. They now have an understanding of just how important it is for us to control our own destiny.” The proposal has the backing of Tim Sheehy of the Metropolitan Milwaukee Association of Commerce, businessman David Lubar, and Julia Taylor of the Greater Milwaukee Committee.

The proposal will require bipartisan support in the Wisconsin State Legislature to pass, something Barrett and Abele both say they’re working on. The effort is assisted locally by Representative Evan Goyke (D-Milwaukee) and Senator LaTonya Johnson (D-Milwaukee).

The referendum could end up on the ballot as early as April 2020, timed to coincide with the Democratic Party’s Presidential Primary as well as Common Council and Mayoral races. Barrett said if that happens, it would allow the city to use some of the funding in late 2020 for a police recruit class.

Barrett praised city employees Kimberly Montgomery, Brenda Wood, Jim Bohl and Dennis Yaccarino for their work on negotiating the deal with the county and other municipalities. The effort also has the support of Common Council President Ashanti Hamilton.

The proposal would raise the Milwaukee County sales tax rate to 6.5 percent, with an additional .5 percent on food and beverage purchases that is used to fund the Wisconsin Center District. The .1 percent sales tax for Miller Park is scheduled to end in 2020.

For more on the proposal, see coverage of the announcement by my colleague Graham Kilmer.

Rising Pension Costs

The city’s annual pension contribution is expected to more than double in four years, consuming an additional $90 million annually.

City officials avoided having to make any pension contributions from 2004 to 2009 despite the city charter requiring the system to be fully funded. But that run of luck ended as the Great Recession hammered the financial markets. Despite a strong stock market, the city is still playing catchup.

In 2019, the city will contribute approximately $70 million to the pension system. Approximately 80 percent of that will go to support public safety employees that are exempt from Act 10.

Following the shock of having to make a nearly $40 million payment in 2009, the city uses a five-year smoothing formula from an actuarial consultant. When the current term expires in 2023, consultants are warning city officials to expect to have to start paying $160 million annually.

According to the mayor’s office, the primary driver in the increase is a change in the expected performance of the system’s assets. The anticipated return has been reduced from eight percent to 7.5 percent annually.