County Faces Financial Disaster

In April, Milwaukee County Executive David Crowley made the long trip up to Rhinelander, Wisconsin to speak before the state Legislature’s Joint Committee on Finance.

The committee held four public meetings last month to hear from residents around the state on the 2021-2023 biennial budget. Crowley had to go all the way to Rhinelander to testify because the committee didn’t hold one in Milwaukee County, where approximately one fifth of the state’s population lives.

Crowley’s message was simple: funding for local governments like Milwaukee County is unsustainable, and has been for a while now. Crowley’s predecessor Chris Abele also tried to push this message at the state level. But Crowley has an opportunity Abele didn’t. Governor Tony Evers included in his biennial budget proposal a provision that would grant counties and municipalities the authority to increase their local sales tax by .5% should a majority of voters approve it in a referendum.

Milwaukee County has an annual structural deficit of $20 to $30 million. In February, the county’s budget office estimated the deficit for 2022 at $20.3 million. The county is squeezed by state-mandated programs it must maintain while current revenues coupled with stagnant state aids don’t even allow the county to keep up with the pace of inflation. Meanwhile, it is barred by state law from raising more money through taxes. 

Unlike the federal government, the county cannot simply run a deficit at the end of a fiscal year. It is statutorily required to balance its budget. So each year for at least a decade the county has made cuts.

The county has reduced its footprint by approximately 3 million square feet, eliminated approximately 1,000 jobs and put off millions of dollars worth of repairs and maintenance to county owned assets. An analysis by the Wisconsin Policy Forum estimated that the Milwaukee County Parks system will have nearly half a billion dollars worth of deferred maintenance by 2023.

The county has also made changes to employee healthcare and the county pension system that have helped it deal with ongoing deficits. But healthcare costs can change from year to year, and despite reforms to the county’s pension system, it still accounts for 30% of the county’s annual tax levy.

County officials have begun talking about the year 2027, specifically, because it represents a financial cliff. If the county does not generate new sources of revenue by that year, it will have no local funding for local services. This means 100% of its revenue will go towards state mandated services.

This would affect many important county services like transit, parks, senior services and public safety, Crowley told the finance committee. “Solving this crisis by only cutting services and closing buildings is not possible, nor is it sustainable,” he said.

Based upon the county’s current structural deficit, between now and 2027, the county faces a cumulative budget gap of between $100 million and $150 million, Joe Lamers, Director of the Office of Performance, Strategy and Budget told Urban Milwaukee. The latter number is nearly equivalent to the entire budget for the Milwaukee County Transit System (MCTS) in 2021.

This creates difficult questions for county policy makers about what it continues to fund. Lamers explained that a continuing budget deficit of this magnitude would mean, “We’ll have a struggle to provide the services at the level that is mandated by the state.”

Crowley has joined other municipal leaders to call on the Republican-controlled Legislature to support the governor’s proposal for a local option sales tax. They are also calling for a 2% annual increase in state shared revenue so that state aids keep pace with inflation.

The likelihood that the Legislature approves changes to the shared revenue formula that would provide the county with new revenue equivalent to the sales tax increase is unlikely, Alec Knutson, government affairs director for the county, told Urban Milwaukee. The local sales tax is the most realistic and also the most helpful in the short term, but it’s still not a long term solution.

The county estimates that increasing the local sales tax by half a percent would generate approximately $80 million in new revenue in the first year, Lamers said. “That $80 million improvement, while major, doesn’t permanently resolve the structural gap,” he said.

The sales tax alone won’t be enough to make local revenue grow 2.5% or greater, annually, Lamers said, which is roughly what is needed to keep pace with inflation.

The county relies heavily on the property tax for its local revenue, like the rest of the state. Property taxes in Wisconsin are among the highest in the country. And the increases to property tax are already capped by state statute. Increasing the sales tax would give the county another tool to close the structural deficit, and it could provide property tax relief to county residents.

State aids have been flat for years, which means the county has to make cuts to local services to pay for those mandated by the state. This has led some county departments to become heavily reliant on the revenues they generate themselves.

It’s regularly said by county officials that the parks system, perhaps the county’s most visible public resource, essentially operates like a private business. The fees it collects through services like beer gardens and golf courses can make or break its annual budget.

In 2020, for most of the year, parks was preparing for a significant budget deficit because of fees lost during the pandemic. Then, late in the year, an unseasonably warm fall extended the golf season for many county residents and the department finished with a surplus. 

Despite the happy ending, this is not a sustainable way to run a public service. There is a limit to how much departments can raise these fees, Lamers said, before they start to lose money by driving away users.

Knutson said the state’s legislative leaders have communicated that they don’t support the governor’s proposals. And while he and other county officials are advocating for the sales tax and increased shared revenue, he said they would gladly consider any ideas the Legislature has for funding local government. “We’re open to solutions,” he said.

Every year, Lamers said, the county is looking at healthcare costs, what level of salaries the county can fund, what sort of financing is available for the growing list of capital projects and every year the county is asking departments to reduce their funding from the tax levy.

“What we’re trying to do,” Lamers said, “is get to a place where we’re starting a budget year thinking about where we can make investments rather than how we can make cuts.”