County Sales Tax Creating Financial Stability Study Says

Milwaukee County Courthouse. Photo by Graham Kilmer.

A year ago at this time, an analysis of the Milwaukee County budget was spelling doom for the Milwaukee County Transit System (MCTS). What a difference a sales tax makes.

Last year, the Wisconsin Policy Forum (WPF), a nonpartisan research organization, looked at the budget and warned of a “frightening scenario” for the transit system when federal COVID-19 stimulus funding ran out in 2025. But in the latest budget, county officials plan to backfill the transit system’s operations with an additional $$16.4 million in property tax revenue, extending federal funding and forestalling budget cuts in transit for the next three years.

The property tax funding was available thanks to the new 0.4% sales tax approved by the Milwaukee County Board in July, which takes effect Jan. 1, 2024. The sales tax created a significant budget surplus for the first time in decades and allowed the county to invest in transit and many other areas of government service including parks, housing and the local criminal justice system, as Urban Milwaukee reported.

“The 2024 recommended budget marks the dawning of a new day for Milwaukee County,” WPF declared

The authority to implement the new sales tax was created through state law earlier this year. It can be used to pay down the county’s unfunded pension liability and to retiring pension obligation bonds. Typically the expenses would draw entirely on the county’s property tax levy. With the new stream of funding, property tax dollars are freed up.

The policy forum reports that the latest estimate for the 2024 budget surplus is $51 million. The proposed budget would use the lion’s share, $31 million, to cash finance infrastructure projects.

The county is also benefiting from additional state aid provided in the same legislation that authorized the sales tax, along with sizeable investment earnings and higher than projected sales tax collections — from its existing 0.5% sales tax.

WPF says the “whopping” $24 million property tax reduction proposed by County Executive David Crowley is “astounding.” In previous reports, the policy forum has stated that Milwaukee County taxpayers were shouldering nearly the entire burden of paying for local government services and infrastructure, which are used by nonresidents for employment and entertainment. It has recommended reforms that would use sales tax proceeds to ease the property tax burden. Now those reforms have been realized.

The sales tax revenue and reforms to the pension system are providing the county with new financial stability. “There are dozens of recommended uses of surplus dollars sprinkled throughout the budget that aim to shore up areas of perceived budgetary weakness, enhance long-term fiscal sustainability, and even invest or reinvest in new priorities and positions,” the forum reports.

While the albatross of the pension system has been removed, the county’s massive backlog of infrastructure needs and maintenance remains. “The county’s huge backlog of pending capital projects now undoubtedly constitutes its foremost fiscal challenge,” the forum said. 

There remains no formal plan to address the estimated $1 billion county infrastructure backlog.

Additionally, the county’s structural deficits will return in 2026. “The return of these gaps is based on a projection that despite the county’s more robust revenue sources, annual cost-to-continue expenditure needs will still outpace annual revenue growth, producing a lingering structural hole that will grow by an average of $12 million per year over the five-year period.”

WPF still believes the county is in a much better position to address these financial challenges. For example, the county has a significant number of vacant jobs that are contributing to an end-of-year budget surplus, through payroll and savings on employee healthcare, which are rolled into the debt service account to assist with paying down the county’s debt. But the county can also draw on the account to backfill future budget deficits or to cash-finance projects.

“County policymakers would be wise to see their good fortune as a well-deserved but short-term reprieve, and to use the next couple of relatively calm years to develop a plan for the capital backlog,” said WPF.

The overarching theme of the forum’s analysis was that the county is enjoying new financial stability that allows for once unthinkable investments. The report makes note of Crowley’s budget narrative, which begins by stating that for the county is “on the path to financial sustainability” for the first time in decades.

“That is quite a bold statement from the leader of a government that has been struggling with annual budget deficits in the $20 million to $60 million range for the past two decades,” the forum states. “But our review of the budget suggests it is not hyperbole.”

Read the full report on Urban Milwaukee.