How Milwaukee’s Financial Crisis Arose

Downtown Milwaukee File photo by Jeramey Jannene.

Last Thursday, Gov. Tony Evers delivered a radio address celebrating the passage of AB 245, a bill that would increase revenue going to local communities in Wisconsin.

With shared revenue being held stagnant for years, local governments in every corner of our state have been forced to make impossible decisions about what essential services to fund.

In retrospect, the model of shared funding for municipalities and counties had a design flaw when it was first introduced in the early years of the 20th century. By not adjusting for inflation over the last 30 years or so, it assured that local governments ability to pay for increasing costs would become harder and harder with the passage of time.

The situation has gotten even worse in the last decade. An analysis by the Legislative Reference Bureau explains that “under current law, each county and municipality annually receives county and municipal aid payments. With certain exceptions, each county and municipality receives a county and municipal aid payment equal to the amount of the payment the county or municipality received in 2012.”

The lack of an adjustment for inflation means that the buying power of these payments goes down each year. For instance, the buying power of $100 today would be equivalent to $75 in 2012 dollars. An analysis of the City of Milwaukee’s fiscal condition from the Wisconsin Policy Forum lists four challenges behind the problem:

1. Milwaukee’s unsustainable revenue mix with a heavy dependence on shrinking state aid and disappearing federal pandemic payments,
2. Shrinking resources for core functions,
3. Diminishing reserves, and
4. Escalating long-term liabilities.

Theoretically, the bill signed by the governor on June 23, to become 2023 Act 12, has the heft needed to put Milwaukee on a sound financial footing. Calculations from the Wisconsin Department of Administration estimate that the city sales tax revenue could be around $193.6 million. This puts it in the neighborhood of the current shared revenue payments to the city of $217 million.

Likewise, the additional county sales tax of .04% could generate increased tax revenue of $73.6 million according to DOA calculations. This compares to $47 million in shared revenue.

Unfortunately, Act 12 comes with considerable baggage left over from its ride through the state Legislature. Presumably Evers found that without this baggage the bill was dead. In this bill, one can find no trace of the former conservative/Republican argument that decisions should be made at the most local available level. Thus, Milwaukee’s streetcar is mugged by right-wing political correctness against rail-based transportation. The line of thinking goes this way: “I don’t like trains. Therefore, no one should like trains.”

Other parts of AB 425 reflect the same hostility to local decision making. For instance, it is unclear why placing a limit on partnerships with nonprofit cultural and entertainment groups is a desirable strategy.

Most egregious are the collection of requirements unique to the City of Milwaukee. These have the effecting of maximizing employment among members of the police and fire unions, and rewarding the two unions for their support of Republican candidates. These include:

• Requiring that the city must maintain the level of law enforcement and fire department staffing at least at the current level.
• Requiring that 25 school resource police officers be present at Milwaukee Public Schools during school hours.
• Transferring authority for the control and management of the police and fire departments from the Fire and Police Commission to the chief of each department, thereby weakening most civilian control.

Among the requirements and limitations that apply to Milwaukee County are:

• The total amount of spending for cultural or entertainment matters or involving partnerships with nonprofit groups is limited to not more than 5 percent of the total county budget. As with similar requirement for the City of Milwaukee, I cannot think of any reason why such a limit is desirable.
• Net new program spending or position authorizations may occur only upon a two-thirds vote of all of the members of the county board.

Ideally AB 425 would have been a clean bill that allowed the Common Council and Country Board to consider whether or not to impose sales taxes, without the additional burdens imposed by the Legislature. Unfortunately, that did not happen.

In fact, just the opposite happened. The law has been passed. The damage to home rule in Wisconsin occurred with its passage. Milwaukee city and county are stuck with these provisions, regardless of whether or not their respective boards decide to implement the sales taxes authorized by AB 425.