State Taking Over County Pension System

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

As of January 1, the Milwaukee County pension system will begin to be absorbed by the State of Wisconsin, with all new hires becoming  part of the state pension system. It’s a historic change addressing one of the nation’s most troubled government pension systems, and most of the credit for this goes to Milwaukee County Executive David Crowley.

One of his first jobs in politics was as an aide to then-County Supervisor Nikiya Harris Dodd more than a decade ago, when Crowley was a political greenhorn in his mid-twenties. That’s when he first learned about the pension problem.

“That was an issue that was constantly talked about at the county,” he recalls. “We all knew it was a huge problem.”

Lucrative sweeteners passed by county officials in 2000 and 2001 made many employees wealthy, with some collecting lump-sum payments of more than $1 million. The pension scandal won national coverage for the size of its giveaways and the massive long-term costs for taxpayers, later estimated at $1.35 billion by Urban Milwaukee. And once those benefits were awarded, they became “property rights” for employees that the county couldn’t take away, the courts ruled. Which left the county saddled with such an expensive system it was unable to pay for parks, buses, buildings and basic services, as Urban Milwaukee reported.

Such was the situation that Crowley faced, who as a two-term Democratic representative in the Wisconsin Assembly won the open race for county executive in April 2020.

“We knew there was no way we could make any investments in county services if we didn’t solve the pension problem,” he says. “We had an upside down system where more people were collecting pensions than paying into it. A lot of that was because they had to keep cutting employees because of the cost of the pension.” The most recent actuarial report shows there are 2.58 retirees for every current employee paying into the system.

Crowley knew the only solution to the problem was in Madison and would work for more than two years lobbying Republican leaders who controlled the Legislature for a two-pronged proposal: an increase in the county sales tax to help pay for pension costs and state takeover of the county pension system. After Cavalier Johnson took over as Milwaukee’s mayor in December 2021, he joined the cause with a similar goal: to get a new city sales tax and have the state eventually take over the city’s pension system, which also had a long-term deficit that was unsustainable.

While most of the attention was on the sales tax requests, the proposed change in the pension systems was arguably even more of a radical change. The county and city pension systems were both started back in 1937 and are older than the state pension system, which began in 1943.

But over time the state system grew and grew, adding a retirement fund for municipal employees in the state outside Milwaukee, and beginning to absorb various retirement funds, including many local funds for police and fire fighters and state funds for teachers and for conservation wardens.

It took until 1967 until all the government pension funds in Wisconsin, except the two in Milwaukee, were combined into one huge entity, the Wisconsin Retirement System (WRS). Its pension fund now ranks as the 25th largest in the world and the ninth largest in the U.S. Only the much bigger states of California, New York, Texas and Florida have larger funds.

It is also considered one of the best run government pension systems in the country, whereas the county has become known as one of the worst in the nation and the city made management mistakes over the past 30 years, resulting in an underfunded system.

Over the decades county insiders passed all kinds of rules for the pension system, which made it much more difficult to understand, much less reform. “There are over 400 different classifications of people who work at Milwaukee County, that has made it difficult,” Crowley says.

The system is so complicated that mistakes in payments are common, as Urban Milwaukee has reported. A county report released in 2007 found there were $11 million in underpayments that went back to 2002. The county also discovered there were some $26 million in overpayments. In 2017, an audit by Baker-Tilly found the pension system was “riddled with errors.”

A 2018 county task force on the pension recommended an exploration of the state taking over the county pension system, and Supervisor Sheldon Wasserman pushed the idea. But state pension officials were wary of the idea. “They wanted nothing to do with us,” he told Urban Milwaukee. “‘We don’t want you guys,’ one of them told me, ‘it’s too much of a risk’”

But the negotiations between Crowley and Johnson and Republican legislators eventually hit on a solution: have the state take over the pensions for all future employees for the city and county. They would come in under the state system, rules and benefits, so WRS officials wouldn’t have to deal with all the complications of the county’s (and to a lesser extent the city’s) systems.

That might seem the obvious solution, except that it still left both governments with a massive problem of a current system they couldn’t pay for. That’s where the increase in county sales tax and creation of a new city sales tax came in: it enabled both governments to pay for the pension for current retirees and current employees who will later retire, while awaiting total state takeover of their system.

It’s worth noting that a major cause of the shortage in funding for both the county and city was the huge decline in state revenue sharing going back decades. But city and county officials had been pointing this out for years to no avail with Republican legislators.

Crowley and Johnson offered a different pitch: “We weren’t just talking about new funding but talking about how we were going to reform the pension system,” the county executive says.

The linkage of the two grabbed the attention of lawmakers because both the county and city are creatures of the state, which made their pension systems a ticking time bomb for the Legislature.

“Because we are an extension of the state and because of the amount of money involved, it had to be fixed so it didn’t become such a problem that the state had to step in and take it over,” Crowley notes.

There was also the fact that Crowley and Johnson were trying to solve a problem they’d inherited, for which they were blameless.

And so a deal was struck that the was later approved in separate actions by the Legislature, City of Milwaukee and Milwaukee County.

For the county, the deal prevented the looming possibility of fiscal insolvency and a state takeover. It also means the eventual end of the county’s 87-year-old pension.

In the years to come the deal will very likely be seen as the most important thing Crowley ever accomplished as county executive.

“This is really important,” he says of the deal. “The sales tax allows us to increase our payments to the pension and the county’s $100 million deficit is dropping down to $30 million. It gives us the flexibility to invest in our parks, our transit system and public safety. It hasn’t solved all of our problems, but we’re in a much better position.”

The county board must still pass amending legislation to start enrolling new county employees into the state pension system as of January 1, but the board already approved the deal with the state, so approval is certain to come.

For now there are no savings for the county’s pension system. It will still need staff to maintain a system for 12,400 members and over $1.7 billion in assets. Some 3,480 members are current employees and the rest, more than 8,900, are retirees. “And we are going to make sure to save that system for so many people who worked years to get a pension,” Crowley notes.

Given that some of those future retirees are now as young as 30, it could take another 70 years to entirely phase out the 87-year-old county system. Such is the continuing impact of the decades-old county pension scandal.