City Could Lose 40% of ARPA Funds to Revenue Recovery

Milwaukee’s ability to make a generational investment with its $394 million American Rescue Plan Act grant is likely to be more limited than expected.

Mayor Tom Barrett delivered the news Thursday morning to the Finance & Personnel Committee.

I believe the most responsible thing to do is to to take the $53 to $54 million right off the top for lost revenue,” said Barrett of the 2020 loss.

The city is eligible to use the funds to replace lost revenue compared to its 2019 budget.

Through 2024, the last year of the grant, the city could ultimately need to use more than $158 million for that purpose according to a report from budget director Dennis Yaccarino.

“I think that will be fairly surprising to people because that hasn’t been talked about in many forums,” said finance committee chair Alderman Michael Murphy.

Much of the money could be used to support basic city services, like the operations of the Milwaukee Fire Department, Milwaukee Police Department and Department of Public Works.

But, the lost revenue provision of the American Rescue Plan Act also presents an opportunity. Some restrictions on how the money can be spent are removed if it is first certified as lost revenue.

Barrett’s $93 million summer plan calls for $10 million to be certified as lost revenue then used on capital expenses to upgrade the city’s street lights. Such an expenditure is ineligible without the lost revenue workaround.

Barrett’s plan would also use $6.15 million to combat reckless driving through the same format, paying for infrastructure and overtime from lost revenue funds.

A total of $19.06 million of the $93 million plan would rely on lost revenue funds.

One of the restrictions on the general ARPA funds is a prohibition on using the funds for tax relief or paying pension costs. But Yaccarino said that lost revenue funds could be used to fund the city’s pension reserve fund.

But despite facing a looming obligation to contribute an additional $70 million per year starting in 2023 to fully fund the city pension system, Barrett and Yaccarino are not pursuing using all of the lost-revenue-certified funds they can to fill a reserve fund.

The two are advocating for Barrett’s summer plan, which is centered on housing, workforce development, reckless driving and a host of smaller efforts.

“Why do any of this given that pension is going to wipe out everything?” asked Ald. Scott Spiker.

Yaccarino said because the reserve fund, which the city is already slowly filling, would be wiped out in a single year.

“That will only delay the whole problem by one year perhaps, maybe two years,” said the budget director. “The real issue is the long-term issues we face with the structural issues with the imbalance in the fund.”

The city will soon need some combination of a sizable new revenue source, an increase in employee retirement contributions (particularly from the public safety unions) and benefit changes. Virtually any scenario will require support from the Wisconsin State Legislature.

But with or without the pension issue, the city’s question on how to spend $394 million now appears to be a question of how to spend $236 million.

As we detailed in a column Wednesday, the question could be answered as early as October.