Crowley Calls Sales Tax Hike A ‘Lifeline’

County Executive David Crowley 2023 State of the County. File photo by Graham Kilmer.

The Milwaukee County Board will begin deliberating over whether or not to approve an increase in the countywide sales tax. While the financial details, and their implications, are complex, the pitch from County Executive David Crowley‘s administration can be boiled down to this: The sales tax is a “lifeline” for the county.

That description comes from a report put together by the county executive’s office and county’s Office of Strategy, Budget and Performance. The big picture, the report states, is that, “without adoption of the sales tax, the County projects a structural deficit of over $100 million within five years. A deficit of that size would be tantamount to requiring departments to cut 40% of their budgets – including personnel – that would wipe out most, if not all, of the non mandated services provided by Milwaukee County like parks, transit, and more.”

County supervisors have been tasked with casting the deciding vote on whether or not to increase the county’s sales tax by an additional 0.4%, bringing it to 0.9% total. It’s estimated that the sales tax increase will provide the county an additional $82.1 million in 2024.

The ability to raise the tax was only recently granted by state legislation that also reshaped local government funding in general, but county leaders have been advocating for a sales tax increase for years.

The county has long struggled against a structural budget deficit created by an asymmetry where the county has less money every year than it actually costs to maintain the government. For over a decade, the county has been making cuts to its budget and government services to close this gap. The latest fiscal projections show that the county is on track to have a budget deficit of more than $109 million before the decade is up.

Under the state law authorizing the increase, Wisconsin Act 12, this funding must go toward paying down the county’s hefty unfunded pension obligation. But this an expense that was previously paid for with property tax revenue, so county officials expect that a sales tax would actually free-up approximately $40 million or more in property tax funding.

Sales Tax, Shared Revenue, Structural Deficit

Even with a sales tax increase, the county’s structural deficit will not disappear permanently. It will return in 2026, when the county will face a gap of approximately $13 million. It’s estimated it will grow from there to approximately $36.1 million by 2028.

The difference, though, is the scale of the deficit. Without the sales tax, that $36.1 million grows to approximately $109 million, according to county projections. “The impact of addressing a structural deficit of that size, after a more than decade of funding reductions, would be catastrophic to county operations, dramatically reducing or eliminating critical services. Specifically, not adopting the sales tax would lead to an approximately 40% cut across all departments, including a potential cut of roughly 1,300 positions countywide by 2028,” Crowley and the county’s budget director, Joe Lamers, stated in a joint memo to the board.

A fiscal report from the Office of the Milwaukee County Comptroller and the county’s budget office noted that for nearly a decade, the county has been faced with annual deficits that ranged from $12.8 million to $21.9 million.

As part of the state legislation that provided the new sales tax authority, the county also saw changes to its shared revenue payments. The county will see a $7.6 million increase to its shared revenue payment in 2024, regardless of whether the board approves a sales tax increase. This, however, will not come close to addressing the county’s financial trouble even in the short term.

One contributing factor to the county’s structural deficit is that state aid in the form of shared revenue has been frozen for more than a decade. Beginning in 2024, shared revenue payments will be tied to annual increases in the state’s sales tax revenue, pegged at approximately 3% annually.

How Would Sales Tax Work?

The board approves a 0.4% increase in the county sales tax, it likely would not take effect until Jan. 1, 2024.

Once enacted, it cannot legally take effect for 120 days and collections can only begin on four days out of the year: Jan. 1, April 1, July 1 and Oct. 1.

The county must adopt the new sales tax before Sept. 1 to begin collections Jan. 1 — allowing it to assume sales tax revenue for the entire 2024 budget. The Milwaukee County Board is planning to hold a vote on the sales tax question on July 27.

There are 60 exemptions for the sales tax increase spelled out in the enabling legislation. These include basic-needs items like food, prescription drugs, energy (both automobile fuel and electricity), municipal water and medical equipment.

Once levied, the sales tax increase will be in effect until the county pays off its unfunded pension liabilities or 30 years, whichever comes first.

The sales tax is strictly for paying down these pension liabilities, but it will free up property tax revenue for other use. The fiscal report headed for the county board estimates this could range from approximately $39 million to $49 million. The difference between the figures depends on an approximately $10 million tax levy contribution the county will likely need to make to the county’s Behavioral Health Services budget.

In order to implement the sales tax, the county board is also required to approve all new county employees joining the state’s pension system, called Wisconsin Retirement System. This is a policy that was supported by a county pension task force in 2017. It would mean slow-walking the closure of the county’s own pension system.

Will Board Approve Sales Tax?

Most supervisors have not expressed outright whether they will vote for or against a sales tax increase since it became clear it would be left to them to decide.

The legislation giving them the ability to increase it came with a number of policy riders that change county governance. One that specifically impacts the board requires two-thirds of the board, or 12 supervisors, to pass any new program spending or to increase the number of county employees.

A sales tax is considered regressive, because it falls more more heavily as a percent of income on low-income residents than high-income residents. For this reason, some supervisors have trepidations about enacting an increase, while others outright oppose it.

Crowley and Lamers note in their memo that “compromise was necessary to achieve these critical fiscal measures” given the fact that the Legislature is controlled by Republicans and Gov. Tony Evers is a Democrat. 

“We recognize that increased taxes of any kind place a unique hardship on the poorest and most at-risk members of our community,” the administration notes in another memo to the board. “If the sales tax is adopted, the County pledges to use the opportunities provided by these additional revenues to lessen the impact on our poorest working families and to shore up and grow services that increase the quality of life in Milwaukee County for all.”

Read both administration memos to the board, and the joint comptroller-budget office fiscal report on Urban Milwaukee.