County Faces Drastic Budget Decisions

Over the next five years Milwaukee County government will be short approximately $87 million if it wants to maintain the level of government that exists today.

For reference, based on the 2022 budget, this figure is more than two times the size of the annual budget for Milwaukee County Parks, nearly two times larger than the budget for the Milwaukee County Sheriff’s Office; it represents approximately half of the Milwaukee County Transit System budget, or approximately 60% of the annual budget for the Department of Health and Human Services (DHHS).

This five-year budget gap is based on the latest projections from the Office of the Milwaukee County Comptroller. It expects the county to face an average budget deficit of $17.4 million annually over the next five years, totaling approximately $87 million.

“So basically the county either needs to cut $17.4 million in expenditures, raise $17.4 million in revenues, or some combination of both on an annual basis,” said CJ Pahl, financial services manager in the office of the comptroller, at a March meeting of the Milwaukee County Board’s Finance Committee.

The projected budget gap for 2023 is approximately $12.6 million. This is simply the amount of additional money the county needs to find in order to operate the government exactly as it did in 2022. There are also a number of factors that could increase this deficit that have not been factored in, ranging from increased energy costs to the budget deficit in DHHS due to surging costs for youth incarceration, according to a report from the Office of Strategy, Performance and Budget (SPB).

Joe Lamers, SPB administrator, noted that this gap is actually smaller than previous budget gaps. But it is these former deficits that help create the county’s “fiscal cliff,” as it is often described by County Executive David Crowley and his administration.

The county has been cutting and selling off assets for at least a decade. The SPB report notes that between 2012 and 2022 the county has averaged an annual budget gap of approximately $30 million after policy makers spent the last decade closing $300 million worth of budget deficits. The comptroller’s report notes that despite the smaller gap projected for 2023, “the options to close the gap are getting more difficult.”

One of the most vulnerable public services in the coming years is also one that the county does not have a legal mandate from the state to provide: Transit. By 2025, the transit system will have exhausted the $191 million in federal stimulus funding it received because of the COVID-19 pandemic. At which time, it will face a projected $32.9 million budget gap due to flat revenue from the property tax (which is capped by the state) and declines in farebox revenues that began prior to the pandemic, according to the comptroller.

The comptroller’s report states, “It is imperative that the County strategically address the [transit system’s] forecasted [fiscal year] 2025 fiscal cliff over the next three years to avoid major disruptions to service.”

Already, Republican lawmakers at the state level have shown they do not intend to save, or assist the transit system in Milwaukee County. In response to the federal stimulus funding the system received, Republican lawmakers cut transit aid to Milwaukee by $32.7 million in the 2021-2023 biennial budget. Gov. Tony Evers restored some of that funding with $19.7 million in funding from the American Rescue Plan Act (ARPA).

There will be the temptation during the next two to three years to fund policy priorities and services with the county’s own allocation of ARPA funds. But the comptroller and the county’s budget office are already warning supervisors against this practice, explaining that funding ongoing programs with one-time funds will only make budget deficits bigger when those funds run out.

In its report on the five-year financial forecast, the comptroller’s office notes that federal stimulus funds were used to pay for pay increases for correctional officers at the jail and House of Correction and for the Right to Counsel program for county residents facing eviction. The comptroller is currently estimating that the county will have to use 64% of revenue from property tax increases over the next five years just to continue paying for these expenses.

The comptroller did not factor the high 2021 inflation rate into the five-year forecast as there have not been clearly defined impacts in the short-term that can be projected out, but the report warns that “the incredible inflationary growth experienced in 2021 will have an impact on the County’s financial health.”

SPB, though, is already identifying areas where inflation is starting to squeeze the county. Specifically, energy costs. The Department of Administrative Services is reporting that energy costs for steam are going up.

For the past two years, county policy makers have enjoyed a momentary reprieve from budget cuts largely thanks to the federal stimulus funding. On the county board, there are five county supervisors seeking reelection who have never faced a budget that asked them to make cuts to services across the board as supervisors have had to do in the past.

Given the sensitivity of the budget to new spending over the coming years, the 2023-2025 term of board members could be one of the most consequential in county history.