Milwaukee Sales Tax Expected As Separate Legislation, Outside of Budget

Milwaukee City Hall. Photo by Jeramey Jannene.

The City of Milwaukee’s chief lobbyist expects the Republican-controlled Wisconsin State Legislature to introduce stand-alone legislation to address Milwaukee and other municipalities’ fiscal issues.

The proposal would increase long-flat shared revenue payments to cities and counties across the state and, potentially, allow a new sales tax for the City of Milwaukee and Milwaukee County. The city faces a 2025 fiscal cliff triggered by a pension funding requirement, and without intervention could need to begin laying off 25% of its workforce.

Governor Tony Evers, in his budget proposal, included a plan to boost statewide shared revenue by $575 million. He also proposed a 1% sales tax, split evenly between the city and county, in Milwaukee that would net each entity an estimated $90 million annually.

“The Republican legislative leadership has already announced the governor’s budget is dead on arrival,” said city legislative liaison director Jim Bohl on Feb. 20 to the Judiciary & Legislation Committee. “They are looking to create separate, stand-alone legislation that would provide the guidance for new enhanced revenues, what we have historically called shared revenue program as well as any sales tax.”

Dumping Evers’ budget proposal and starting fresh has happened in both of the past two cycles. But there is a growing statewide consensus that effectively freezing local property tax collections and shared revenue payments is causing fiscal issues for cities and counties.

“I think we’re going to know the answer to what potential package we may see, both in terms of shared revenue as well as if there is viability to a sales tax, sometime here in the next several weeks,” said Bohl. “It will likely be by early March that we have a sense of this.”

The city’s issues are more complicated than most other communities. Milwaukee’s budget is being squeezed due to state prohibitions on enacting new taxes, state restrictions on raising property tax revenue, long-frozen state aid levels, the expiration of a COVID-era federal grant, inflation and an anticipated increase in costs to fully fund the pension system. Adjusted for inflation, the City of Milwaukee’s budget office reports Milwaukee receives $155 million less annually in shared revenue than it did in 2000. The pension increase is estimated to cost at least $60 million annually.

Bohl told his former council colleagues that the Republicans pushing any revenue issue out of the budget is strategic. It would avoid the Wisconsin governor’s special budget veto powers. Known as a Frankenstein veto, the governor can strike specific words from the budget instead of entire provisions. It allows the governor to radically change proposals, including reversing the intent. “They are not going to use the budgetary process,” said the lobbyist. Should a new revenue structure be adopted, its resulting costs would incorporated into the budget this summer.

Mayor Cavalier Johnson and County Executive David Crowley, are leading a lobbying push to address their government’s fiscal issues. Rising costs for the county threaten to drown out its ability to fund discretionary services like parks and transit.

“He has got a cot in the capital and has made every effort to push that forward,” said Bohl of Johnson’s campaign pledge. Alderman Michael Murphy said he could see Johnson’s progress given public comments from Republican legislators about frequent visits with Johnson versus virtually unheard-of meetings with former mayor Tom Barrett. The lobbying director said his office was working to keep communication lines open between legislators, the governor’s office and the city.

But even if the city lands a sales tax it would need to hold an enabling referendum, likely in spring 2024.

“I think we should be obviously cognizant of the fact that in 2025 if you’re short $80 million you still have to make severe cuts,” said Murphy of his estimated timing for an October 2024 sales tax start.

“Without sounding like the drama queen that I sometimes am, this is probably the most important job in city government besides public safety,” said committee chair Ald. Mark Borkowski of Bohl. “The fate of city government rests in your hands. If we don’t get the money, we go bankrupt. There is not a lot of couching to do.”

Pension Reform

Ald. Robert Bauman questioned Bohl on how things were going to address the city’s biggest fiscal issue: the pension system.

“We have presented what we think are a number of reforms, and that one is front and center,” said Bohl. “Ultimately, it is one thing to generate additional revenues through an alternative source. If you are not able to turn off the spigot when you have a hole in the basin you are pouring water into, frankly, you are just going to lead to additional problems.”

He said the city has presented options including moving city management into the Wisconsin Retirement System, the statewide pension system that currently excludes the city and Milwaukee County.

The city charter and a series of legal judgments and settlements require the city to fund the system at a 100% level, far ahead of the national average. A five-year smoothing formula resets the required contribution, with estimates for a 2024 reset due to arrive this spring. As of last fall, the city’s pension system was 83.4% funded. Police officers and firefighters, who are exempt from the state’s Act 10 law, account for 80% of the system’s costs but make up only 43% of the city’s workforce.

For more on the city’s fiscal issue and potential solutions, see our 2021 piece “12 Options To Solve Milwaukee’s Fiscal Crisis.”