Why State Must Help City and County
Fiscal crisis can only be averted with more state shared revenue and local sales tax.
Downtown Milwaukee. Photo by Jeramey Jannene.
The definition of a fiscal crisis is “the inability to bridge a deficit between expenditures and tax revenue.” Both the city of Milwaukee and Milwaukee County are in fiscal crisis.
On a $1 billion budget, the city begins next year with a $156 million deficit, that – with a cost-to-continue budget – grows to $176 million by 2026.
Without significant steps being taken – these deficits will further crater both bodies’ budgets and become even more crippling.
Expenditures. In the face of fiscal challenges, both the city and county have taken tremendous steps to control costs. Staffing in the city has been reduced by 1,000 positions since 2000, including hundreds of police and fire positions. During that same period, the county has cut its full-time staffing by nearly half – reducing the number of full-time equivalent positions from 7,300 to 3,900. The County has also deferred maintenance and cut capital spending significantly. Despite these actions, it still faces an $18 million deficit in 2024.
The largest fixed cost moving forward for both bodies is pension obligations, including current costs for retirees and future costs for current employees. City pension costs in 2023 are $100M, increasing by 40 percent for 2024 and beyond. County pension costs were $60 million in 2016. By 2027, that number will double to $120 million, driving its structural deficit to $109 million.
Can these bodies reduce their expenses further? Certainly, but it won’t solve the deficit issue as these cuts would need to be made in perpetuity as revenues cannot keep up with costs. Furthermore, additional cuts would come at the risk of further endangering quality-of-life services including public safety, public transit, our parks and so much more.
Revenue. Property taxes are high and a sore spot, but they are a primary source of revenue available to both bodies. The city raised $311M in 2023. As a point of reference, the police department’s budget is $300M. At the county, 80 percent of local funding – which includes property taxes – is consumed by state mandates. By 2027, all local dollars will need to be directed to subsidize state-mandated services.
Grounded on both ends of this fiscal bridge, the crisis is real. What is the best way to address this crisis before the bridge crumbles into a river of bankruptcy?
Here are the three needed repairs supported by Metropolitan Milwaukee Association of Commerce (MMAC):
- Increase shared revenue. In 1911, Wisconsin was the first state to implement an income tax. An agreement was struck between state and local governments. State government would exclusively levy income and sales taxes, leaving local governments to collect property taxes. In exchange, the state would share a portion of income and sales taxes it collected with local municipalities. State income tax collections increased from $3B to $9B since 2000. During this same time, shared revenue payments to local government have flatlined. For the City of Milwaukee, the shared revenue declined from $240M in 2000 to $230M in 2023. If this payment had kept pace with inflation, it would be $420M – providing an additional $180M in 2024 against its projected budget deficit of $156M. The county has encountered a similar dynamic, watching its share of state shared funding flatline or decrease over that same period, while at the same time sending more to the state in tax revenue. MMAC supports the proposal from the Governor and Republican legislative leadership obligating 1 cent of the 5-cent sales tax currently levied by the state to fund an increase in state shared revenue to all local governments. This would add $25 million to the city’s budget and $7 million to the county.
- Reform City and County Pensions – The city of Milwaukee and Milwaukee County are the only local municipalities whose employees do not participate in the state pension plan. Pension liabilities for both bodies will further compromise operational budgets and, in turn, the quality of living for residents. MMAC supports a proposal to freeze the plan for new employees, with all new employees enrolled in the state plan. This will cap the cost of the existing pension plan, allowing liabilities to be contained and paid down.
- Access to a sales tax – Of 123 cities with populations of 200,000 or greater, Milwaukee is one of only 10 without a sales tax. Statewide, Wisconsin’s average sales tax is one of the lowest in the country. MMAC supports a proposal developed by Republican legislators to provide the city of Milwaukee a 2 percent and the county a .5 percent sales tax to address issues like pension obligations and public safety.
Why should a sales tax be voted on by locally elected leaders?
We hold elections with the intent of entrusting our leaders to make difficult decisions regarding convoluted issues. When considering the complexities involved between managing new sources of revenue and implementing a pension reform plan, it is in our best interest to hold them accountable for doing the work they were elected to do. Elected city leaders should be required to vote for this revenue source (in this case a sales tax) and be held accountable for its expenditure. This is not an unprecedented form of authorization.
A vote of the elected officials at the state level to put the question in the hands of elected city and county officials is the best way to represent the citizens of this region.
Tim Sheehy is President of the Metropolitan Milwaukee Association of Commerce, which represents 1,800+ member businesses with more than 300,000 employees in Milwaukee, Waukesha, Washington and Ozaukee counties and beyond.
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Can a lawyer represent both parties to a lawsuit? Of course not. But that is where the MMAC finds itself. It represents business interests in many counties (“today we represent 1,800+ member businesses … in Milwaukee, Waukesha, Washington and Ozaukee counties and beyond”) whose representatives have been attacking the city and county of Milwaukee. Now, after 20 years of assaults on “home rule,” leading to the devastating economic situation we are in, it suddenly has noticed the city has a problem caused by those legislative assaults. The solution? Do more of what those who caused the problem say.
Let’s look at one of the many attacks on the City’s ability to govern itself free of legislative intrusion. In 1924 the people of Wisconsin voted to amend the Constitution. The constitutional “home rule amendment” was designed to (1) give cities and villages to authority to determine their own local affairs and government, and (2) to limit the legislature’s interference with that power. In what can only be described as a “smash and grab” decision, Justice Gableman wrote an opinion standing those concepts on their heads.
With what the Courts of Appeals described as legislation supported by no evidence, it pointed out the legislative record proved this was a direct attack aimed only at Milwaukee. This ruling devastated Milwaukee while providing a huge boom in population to other counties. It caused an explosion of newly created rental units that were formerly owned by people who fled to the suburbs. So what was the MMAC position on this? I can find none. On an issue of crucial importance to the city, involving residency rules of the kind affirmed by the U.S. Supreme Court as Constitutional, they just sat it out?
People voting to control their own taxation is a bad idea? No, it is a great idea and a way to reign in the same kind of politicians that came up with the pension plan that after 23 years is now found to be “ill-informed?” How did it take so long to figure this out? If the MMAC wants to help Milwaukee, asking it to take on all the burden while its other counties share in the bounty is not the way to go. Telling me that politicians are to blame for the pension crisis but at the same time I should trust them to vote in my best interests makes no sense.
Whenever I encounter an organization with words like “Greater Milwaukee” or “Metropolitan Milwaukee” in its name, I assume it’s code for an organization run by people who don’t live in the city, but yet presume to have solutions for the city’s problems.
Unfortunately, ZeeManMKE is correct. The legislature controlled by a gerrymandered Republican majority, created the problems facing both the city and county. Despite the legislative assault, Milwaukee County has kept the state afloat. With the booming city economy ( much of the investment that generates the boom is the result of the streetcar and BRT) sales and income tax revenues collected from the city and county has kept the state budget balanced. The truth is Milwaukee is engine of Wisconsin’s economy. By pushing city and county into budget crises, Vos and party endanger the economic health of the entire state. There is no rational reason for the Republican’s behavior except spite fueled by racism.
Perhaps MMAC mouthpiece could ask his well-off members to pay their fair share. Sales taxes are regressive and hurt working and poor people. We know the MMAC is also in favor of tax payer subsidies to the Bucks and the Brewers- both for-profit businesses owned by billionaires. Tax the rich!
Great comments so far. I’ll also note that Tim Sheehy and the rest of the MMAC “business leaders” endorsed Scott Walker and the rest of the WisGOP wrecking crew throughout the 2010s, when they constantly de-invested in Milwaukee and prevented resources and fiscal flexibility from happening.
Now they’re saying “this system is bankrupting Milwaukee and should be fixed.” Which brings to mind the guy in the hot dog-banana costume meme from “I Think You Should Leave”.
“We’re all trying to find the guy who did this!”
Propotionate return of state sales tax is the LEAST the Republican minority can do to address the problem they created. The challenges large cities face, maintenance, services, varied populations with varied needs, do not scale as well as those small towns must face and require more funding. The party that opposes “redistribution” at the national level is only too happy to practice it at the state level, bestowing money on small communities in the name of fixing problems better solved through policy changes.
#FairDealMilwaukee
Excellent comments here all around! Kudos. It is nice to see so many see through the facade that the MMAC wants to help Milwaukee. It did not sit out of the home rule case. It let others do its dirty work. The appalling decision by the Wisconsin Supreme Court, unlike the Court of Appeals that carefully applied the legal tests to the City code based on the 1924 Constitutional Amendment, was an “I say it is so” decision. Of the majority of 5 in that case, 3 are now gone. I think the city should create a new residency rule. Let them appeal. After August 1st the Court will have four justices that are not homers for the Walker team. Who cares what they think? They played dirty to get that junk decision.
Yesterday we saw that Vos made threats against the UW system and it caved like a snowman on a hot day. There was not even a vote with a record – just threats. Does anyone think he will not stop doing that? We can find a way without his lousy deals and the backing of the MMAC.
Perhaps state-shared revenue could be based on population? The more people, the more aid.
There is also the problem of waiting. If I make repairs, the property is maintained. If I have to defer repairs, then more damage and increased overall cost.
I don’t understand why Milwaukee police, firefighters, etc. aren’t in the state system. Milwaukee Public School Employees are in the state system.
What is democracy? Local leaders, that I vote for, shouldn’t they have control? Why should those in Madison I didn’t vote for decide what is good for my family?