Policy Forum Says Milwaukee’s Future Finances Are “Precarious”

BMO Tower and Milwaukee City Hall. Photo by Jeramey Jannene.

While it appears poised to avoid significant cuts or tax and fee increases in 2025, the Wisconsin Policy Forum believes the City of Milwaukee’s future financial condition is “precarious.”

“Indeed, city officials, residents and businesses should justifiably view the proposed budget with optimism and relief. At the same time, however, they should keep in mind that the city’s structural challenges have not disappeared and may soon intensify, and that future budgets are far less likely to produce the same positive feelings as this one,” says the nonpartisan organization’s 19-page budget analysis.

For years, the annual budget analysis warned of the city’s increasingly dire financial situation. Costs, especially for services like public safety, were rising and the city’s limited mix of available revenue streams were not keeping pace.

However, the institution of a 2% city sales tax and increased shared revenue from the state dramatically changed the picture.

Mayor Cavalier Johnson and the Common Council had the benefit of crafting the 2024 budget with both pandemic-triggered federal American Rescue Act Plan Act (ARPA) funding and the new sales tax. Now they’ve lost ARPA. Federal regulations prevent the use of any remaining grant funds for filling budget holes in 2025 and beyond.

The 2025 budget cycle, according to a memo from budget director Nik Kovac, started with a $87 million structural deficit.

The report’s authors, senior research associate Ari Brown and immediate past president Rob Henken, are warning that the city’s primary method of closing the gap isn’t likely to be sustainable in the future.

While higher than expected sales tax revenues, $10 million in cuts and increased fees will close some of the gap, Johnson and Kovac intend to close more than $44 million of the gap by withdrawing from reserve funds.

The prior budget prepared the city for this, replenishing the funds while drawing down the ARPA grant. But now the city is tapping the tax stabilization fund for the maximum allowed withdrawal, $32.3 million. It will also make withdrawals from the public debt amortization fund and the transportation fund, fueled primarily by parking revenue.

The city will need future costs, including health care, to remain at budgeted levels and revenues to continue to trend upward to refill the stabilization fund.

The Wisconsin Policy Forum is issuing a warning that it doesn’t think that will be the case. In part, because of the requirements of the sales tax deal.

“Meanwhile, increases in Act 12-related costs appear inevitable as the city responds to its mandate to increase police and fire staffing levels and as ongoing labor negotiations with the Milwaukee police and fire unions are resolved,” says the report.

Another issue beyond the ability to continue to draw down reserves is the ability to fund infrastructure investments. Due to the age of the city’s roads, bridges and other infrastructure, and the growing cost to replace them, the city’s capital borrowing continues to grow. That will, the report warns, continue to create a drag on the city’s budget as it must grapple with paying off the debt.

“Unfortunately, there is no obvious solution to the city’s infrastructure challenge,” says the report. “Threading the needle between addressing critical infrastructure needs and managing the affordability of increased debt, therefore, will be one of the most difficult tests for city leaders in the years ahead.”

While a new sales tax should grow with inflation and help the city’s bottom line, it could also crash with a recession and unravel the city’s fund withdrawal strategy.

“These factors… forewarn the potential of higher annual increases in property taxes and fees than city property owners have been accustomed to in recent years,” says the report.

The report asks city officials to expedite work on a Greater Milwaukee Committee initiated report to look at ways to and a Wisconsin Policy Forum project to share services with Milwaukee County.

“Some of those options are being reviewed by city leaders, while many others undoubtedly have or will be deemed impractical or ineffective,” says the report. “But regardless of whether these or other options are considered, it is clear that future solutions to the city’s ongoing financial challenges are less likely to come from Madison, and that the need to scour city operations for savings opportunities will grow. It is equally clear that with another somewhat unexpected year of relative budgetary calm, the next several months provide an opportune time to accelerate the search for locally generated solutions.”

A public hearing on the budget is scheduled for Oct. 7 at 6:30 p.m. in the Common Council chambers, 200 E. Wells St. The council will spend the next month reviewing the budget proposal and introducing amendments before a formal vote on adoption in November.

A copy of the full report is available to read for Urban Milwaukee members.

Related Legislation: Wisconsin Policy Forum report