County Working To Close Budget Gap

The ongoing pandemic is creating uncertainty for Milwaukee County officials as they prepare to craft next year’s budget.

Milwaukee has had a structural deficit for at least a decade. In 2019, county leaders were faced with a $28 million budget gap to overcome. This year county budget planners were estimating an approximately $20 million budget gap. Then the pandemic hit and the new estimate jumped to $42 million based on lost revenues and increased costs.

“Milwaukee County is on the frontlines of the response to COVID-19,” Milwaukee County Executive David Crowley said at a meeting in June where departments made their budget requests. “We provide the mental health, housing, transportation and emergency services that are essential in a crisis.”

Recently, Joe Lamers county budget director, said the budget deficit for 2021 could be as high as $60 million. “We’re dealing with a lot of challenges right now related to COVID-19,” Lamers said. “Those challenges are leading to a lot of uncertainties right now.”

For instance, CARES Act Funding will expire at the end of 2020. It’s unlikely the county’s costs related to the pandemic will end then. And “Congress is currently deliberating on this, but we don’t know where it’s gonna go,” Lamers said in late July when county departments were making budget requests. That second stimulus package still hasn’t been passed.

The county’s 2020 budget, prepared and passed at the end of 2019, is no longer balanced. A July report from the Comptroller’s office shows that the county is expected to end 2020 $19.3 million in the hole. This is better than previous projections, like one from March when the estimate for the county’s year end financial position was a $34 million deficit.

Annual budgets rely on assumptions about tax and departmental revenues, some of which evaporated when the pandemic hit. Sales tax revenue, an important piece of the budget, is projected to be $20 million lower than was budgeted for 2020. Some county departments, notably parks and the zoo, derive a significant chunk of their annual funding from revenues collected throughout the year. The parks are showing a deficit of $2.4 million and the zoo $6 million, according to a recent report from the Comptroller’s office.

However, in July, CJ Pahl of the Comptroller’s office told the County Board’s Finance Committee that expenses related to COVID-19 totaling $24 million appear eligible for reimbursement through the CARES Act and FEMA revenue. Should that work out, the county would actually finish with a surplus in 2020.

But not nearly enough to close the gap in 2021. The structural deficit, which was produced by years of stagnating revenue and growing costs, remains. Lamers said departments were given targets for reducing their tax levies that amounted to $12 million, or approximately 1 percent of the annual budget.

Even so, if the county adopted a budget based on departmental budget requests, it would need to increase the tax levy by $54.6 million, or 18 percent. That increase in tax levy arises from the need to increase the cash financing of capital projects, if the county was to budget for all the 2021 requests. “We see the cash capital financing as a particular challenge when we’re dealing with such a large gap this year,” Lamers said.

There are $168 million worth of capital project requests for 2021. According to a summary of the department requests from the Office of Performance, Strategy and Budget, these projects would require more than $82 million in bonding. That’s nearly double the county’s $46 million bonding limit.

In order to close the 2021 gap, Lamers said the county will rely on department reductions. For instance, the combined budget requests from the Parks Department and the Department of Health and Human Services both show a $5.5 million reduction in the tax levy from last year.

Along with cuts, the county will likely once again pull from its debt service reserve, Lamers said, which is the only general reserve of funds the county has at its disposal. But it also expects to see savings in health care again this year. Fewer county employees have had elective surgeries this year because of the pandemic.

As with previous years, the county is heading into a budget season clouded by unknown variables, but with one certainty: there is a large deficit to overcome.