Federal Grant Could Help Stave Off 1,300 Layoffs

Here’s the good news: The City of Milwaukee has a strategy that could help it stave off mass layoffs for two years that would otherwise be induced by a pension funding cliff.

Here’s the bad news: The strategy involves using more than 80% of a federal grant to simply plug budget holes instead of making generational investments, and it still leaves a $30 million structural deficit over that period.

Common Council members have been informally discussing how the council could use the $197.1 million second tranche of its American Rescue Plan Act grant. Could the money go towards fixing street lights? Repairing streets? Lead abatement? Affordable housing? Job training?

Those discussions will now be a lot less lofty.

The Department of Administration presented a report Wednesday afternoon to the Finance & Personnel Committee that recommended taking $160 million off the top through the grant’s “revenue loss” provision. That would give the city $80 million in both 2023 and 2024 to plug budget holes.

“The proposal is ‘let’s reserve that amount, hopefully we have more revenue growth,'” said budget and policy manager Eric Pearson.

Mayor Cavalier Johnson has pledged to get a cot in the Wisconsin State Capitol if necessary to convince legislators to either allow new local revenue sources, restore shared revenue cuts or merge the city’s pension system with the state system. He reiterated the need during his inaugural address Wednesday morning.

But the need to forego so much of the federal grant drew a reaction.

“This is big,” said Alderman Scott Spiker.

“You want an $80 million rainy day fund?” asked Alderwoman Marina Dimitrijevic.

“It’s not a rainy day fund,” said Pearson. The money would be directly spent on city operations.

And even with the money, and estimated 2% growth in property tax growth and service fees, the city will still have an almost $15 million structural deficit in both 2023 and 2024.

The massive deficit is being driven by a confluence of factors related to the city’s pension system, restrictions in raising new revenue and a reduction in state aid.

The pension is required by law to be fully funded and a five-year smoothing formula resets next year. A reduction in estimated investment returns and growing public safety pension costs has the city needing to come up with an additional $50 million annually, on top of the approximately $70 million it is already contributing annually.

At the same time, the city has seen an effective cap on property taxes instituted by the state, a prohibition on other taxes and an inflation-adjusted reduction in state shared revenue of more than $115 million annually. Pearson said without the shared revenue cut the city would not have a large structural deficit.

“The council could say ‘we could spend it on  something else,’ then we would need to come back and decide what we want to cut,” said Ald. Michael Murphy.

Budget director Dennis Yaccarino put a number on it: 1,300 employees. “Or at least the equivalent of that,” he said. An April 2021 report suggested that up to 24% of city employees would need to be let go by 2026.

Department of Administration Director Sharon Robinson said the city is still investing more than $200 million from the $394.2 million ARPA grant into items intended to improve the city and help residents.

Johnson, as council president, led a council process that allocated the remaining $179.2 million from the first tranche towards affordable housing, lead abatement, job training and pandemic response costs.

Mayor Tom Barrett‘s “summer proposal,” adopted before the council action, included $18 million for dealing with an ambulance shortage, hiring attorneys for those about to evicted, combating reckless driving and the Earn and Learn program.

The city has another lever it could pull to stave off the layoffs for an additional year.

The council’s $179.2 million bargain included an accounting trick to add $30 million to the pension reserve fund, bringing it to $82 million. The city could choose to tap that reserve fund after exhausting the ARPA grant.

“If the captain had an extra moment and could turn out of the way, I think he would try it,” said then-council president Johnson in an October 2021 interview after the deal was approved. “And that’s exactly what I am doing here. It is my hope as well that the state will see in our conversations and what we are doing here that we are being fiscally smart and tackling issues.”