State Sales Tax Deal Toughest on City

Milwaukee County Executive David Crowley and Assembly Speaker Robin Vos.

For nearly two years Mayor Cavalier Johnson and Milwaukee County Executive David Crowley have been lobbying the state Legislature to provide some financial help for their respective governments, which face a looming fiscal cliff that could cause massive layoffs in the near future. In recent weeks the details of the deal have been released, which would provide them more state shared revenue and the ability to levy a local sales tax (of 2% for the city) and hike the county sales tax by another 0.375%.

While both governments face pension costs that are driving the problem, that would be an affordable if difficult burden if not for a massive decline in state shared revenue, a program that has existed in Wisconsin since 1911, when it passed the nation’s first income tax with the proviso that much of the revenue would be shared with municipal and county governments.

But in the last 25 years, mostly under the Republican Legislature, that revenue has been slashed. As Tim Sheehy, Metropolitan Milwaukee Association of Commerce president, noted in a memo to its membership, state income tax collections rose from $3 billion to $9 billion since 2000, yet state shared revenue didn’t triple but was actually slashed. Shared revenue to the City of Milwaukee declined from $240 million in 2000 to $230 million in 2023. “If this payment had kept pace with inflation it would be $420 M,” Sheehy wrote, “providing an additional an additional $180 M in 2024, against its projected budget deficit of $156 M.”

That hasn’t prevented Republican Speaker Assembly Robin Vos from beating up on the city, accusing its officials of causing a problem largely driven by state decisions, including Act 10, which exempted police and fire fighters from a state law requiring employees to donate to their pension, another factor contributing to the city’s fiscal crisis.

That antipathy to the city can also be seen in the proposed deal, which adds restrictions on both the city and county, but is much tougher on the city. Why is that? Did Crowley negotiate a better deal than Johnson? Not so, says Sheehy:

“The Mayor and County Exec have worked together as well as I have seen any two elected officials work together; my reference point goes back to Mayor Henry Maier and [county executive] Bill O’Donnell. The City has bigger budget issues, and draws more fire from the Legislature, so Mayor Johnson had a bigger lift… They both have done an outstanding job negotiating based on the cards they were dealt.”

What Sheehy didn’t address is the role of the Milwaukee Police Union and Republican Rep. Bob Donovan, the former Milwaukee alderman who was long a water carrier for the police union and lost repeated attempts to be elected mayor.

The deal for Milwaukee requires both the city and county to use the money from the sales tax to pay off pension liabilities; but that will then mean an equal amount of property tax money that was used for this can instead pay for other government costs. So that’s not a burden.

The deal also requires both the city and county not to cut the number of public safety employees, meaning city police and fire fighters and county deputy sheriffs, but that’s far more burdensome for the city, where the police budget alone gobbles up nearly the entire city property tax levy. And as the city loses population, which it has been doing for years, this requirement is all the more onerous. It’s basically a full employment law for police and fire fighters, who support Republicans politician and have great clout in the Capitol.

Indeed, the deal also requires Milwaukee Public Schools to go back to having police in its schools, even though MPS is a separate government with a separate budget and tax levy, and has nothing to do with this deal. This will reduce money the hard-pressed school system has to pay for teachers, and all to provide more employment for the police union. (Republicans have argued this will make schools safer, but some research casts doubt on this.)

But perhaps the most intrusive requirement for the city would end the Milwaukee Fire and Police Commission’s operational oversight of these departments, something that has been enshrined in state law since 1911, as a way to provide some civilian review of the departments.

The police union has long chafed at this, most recently protesting the FPC’s new rule that requires the department to release the video of any critical incident to the victim’s family within 48 hours, and to the public within 15 days.

This provision would give the police chief all authority in such matters (which could only be overridden by a two-thirds vote of the Common Council) and all but completes the police union’s longterm project to turn the department into a kind of invading force, whose members no long need to live in the city nor pay city property taxes and now will be largely free from civilian control.

The deal also bars the city from using any tax or Tax Incremental Financing money to expand the streetcar. Some Milwaukee Common Council members are convinced that longtime streetcar opponent Donovan pushed for this. (He did not respond to requests for comment by Urban Milwaukee.) Perhaps, but Republicans have long hated the streetcar and might not have needed much urging.

The bill also bars advisory referendums for Milwaukee County, but all counties and municipalities would be barred from this as part of the provision to increase revenue sharing for all local governments.

The final difference between the city and county is huge: the county’s .375% increase in the sales tax won’t be tough to pass in a referendum. In 2008, Milwaukee County voters approved an advisory referendum for a 1% sales tax increase, but the state Legislature refused to approve this. Pointing to that vote, Brandon Weathersby, spokesperson for County Executive Crowley, says “the County Executive believes that if the revenue option goes to a referendum vote, educating the public on what this means for the future of the county will be key, and that in doing so it will pass.”

But the city will need to pass a 2% sales tax to get the money it needs. That’s a tough sell for city voters, on top of a .375% county sale hike. One reason the city needs a 2% hike is that the deal requires the city to lower the “discount rate” for the pension — the expected rate of return for its pension fund — to 6.5%, down from 7.5%. That would greatly increase the amount of annual contribution to the city pension that’s required.

All of which sets up a nightmare scenario for the city: it agrees to the deal which prevents any cuts to the number of police and fire fighters and then loses the sales tax referendum. That would lead quickly to bankruptcy, to city default.

Mayor Johnson and Sheehy have been pushing to eliminate the requirement for a referendum on the sales tax, while Vos has insisted it must be included. Sheehy says the MMAC “is extremely concerned about a simultaneous referendum” for a county and city sales hike, and the potential complexity of the referendum question, which could leave voters confused. Will Vos relent? We’ll see.