How Did County Finance $1.2 Billon Annual Budget?

Milwaukee County Courthouse. Photo by Sulfur at English Wikipedia [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

The $1.2 billion budget was balanced without making significant cuts to any county services. It was buoyed above a $20 million structural budget deficit thanks to better-than-expected sales tax revenues, healthcare cost savings, reserve funds and federal COVID-19 grant funds.

But where does the money for the rest of the $1.2 billion come from? Some might be surprised to learn that most of it doesn’t come from the county property tax levy. Nor from the county sales tax. The majority of the money used to run county government comes from federal and state funding, and revenues directly generated by county fees, including the wheel tax.

Property Tax

The county is budgeted to levy approximately $309 million in property taxes in 2022.  This funding makes up approximately 25% of the revenue in the budget.

Milwaukee County residents and businesses will pay approximately $1.8 billion in property taxes in 2022 to several governmental entities, including local public schools, the City of Milwaukee (only city residents) and Milwaukee Area Technical College. The majority of property taxes in the county, approximately 67%, goes to local school districts and municipalities. The county’s portion will only account for 16% of all property taxes levied in 2022, according to the county’s budget narrative.

State Shared Revenue

The shared revenue program is what the state uses to provide unrestricted aid — funding untethered to a specific purpose — to counties and municipalities.

Shared revenue payments to Milwaukee County have been frozen for at least a decade. Meanwhile, the amount of income and sales taxes the state collects within the county have steadily increased. This discrepancy is what led the county to pursue a policy change in state funding. This effort has been called “A Fair Deal for Milwaukee County” by elected officials.

Shared revenue makes up approximately 2.1% of the county budget in 2022. It did receive a slight increase this year, approximately $62,300.

Since 2016, the state has deducted approximately $4 million annually from the county’s shared revenue allocation to pay for the Milwaukee Bucks arena, and will continue to do so until 2036. While there is nothing concrete the county receives in return for investing $80 million over 20 years into the Bucks arena, it is conceivable that the surrounding Deer District could generate additional sales and property tax revenues.

Sales Tax Revenue

Sales tax revenue has become an increasingly important part of the county budget.

For one thing, this revenue source was a critical piece of balancing the 2022 budget. An increase in sales tax revenue projections of more than $13 million helped close the $20 million budget deficit projected for the year. The county has for years collected a half percent sales tax added on to the state sales tax of 5%, which is projected to raise $90.6 million for the county’s 2022 budget.

Inflation played a role in the better-than-expected sales tax revenue in this budget. But the comptroller’s office warned that most of the county’s revenue sources “don’t necessarily” grow with inflation, as sales tax does. A period of sustained inflation would likely “exacerbate the annual structural deficit.”

State and Federal Revenues

State and federal revenues come in the form of annual state funding, like state transit aids, or one-time funding through federal grants, like the significant funding the county has received from federal COVID-19 stimulus bills.

In 2022, these revenues make up approximately 33.4% of the total county budget. The county saw a 123% increase in federal revenues, largely composed of COVID-19 grants being used to cover budget gaps for Milwaukee Mitchell International Airport and the Milwaukee County Transit System (MCTS), as well as bus replacements.

Direct Revenue

Direct revenue is funding taken in by the county through fees and bond proceeds and county amenities like beer gardens and golf courses. It is the single largest source of revenue to the county in the 2022 budget, making up approximately 30% of the entire budget.

An example of direct revenue is the Vehicle Registration Fee (VRF), commonly referred to as the wheel tax. The county’s VRF, implemented in 2017, is currently $30. Revenue from the VRF can only be used on transportation related costs. In 2022, it is projected to raise $17.3 million, with some $16 million funding MCTS and $1 million going to the Milwaukee County Department of Transportation (MCDOT).

Milwaukee is not alone in its struggle to generate revenues that allow it to keep pace with annual inflationary costs. All across the state, counties and municipalities have turned to this revenue source, one of the only ones that doesn’t require the approval of the Legislature. Driving this need for new revenue is a real-dollar decline in state transportation aids, which have essentially remained frozen at 2009 levels.

In 2009, according to analysis by the Milwaukee County Comptroller, there were only three cities, including Milwaukee, and one county with a VRF. Today, there are 43 counties and municipalities that have instituted a VRF.

Departments Jeopardized by Structural Deficit

The county has been making cuts to services, the county workforce and the physical footprint of county government for the past decade to close the gap between stagnant revenue and annual inflationary increases in operating costs.

Much of the services the county provides are mandated by the state. These include many of the functions with the Department of Health and Human Services as well as the Milwaukee County Sheriff’s Office. The county is facing what Crowley regularly refers to as a “fiscal cliff” by 2027. If no new revenues are realized, the county is looking at a budget where expenditures so outstrip revenue that there is no local funding for non-mandated services like transit or parks.

A look at these department’s revenues in the 2022 budget shows how they have been given a lifeline in the form of COVID-19 stimulus funding; and how they already have nowhere left to cut in their budgets.

Transit System Revenue

The transit system historically relies on a mix of state and federal revenues, along with direct revenues generated through bus fares, to operate the system and pay for major capital projects.

But the transit system, like the county as a whole, has been experiencing declining revenue for years. The system, it appears, is caught in a vicious cycle, where revenue shortfalls cause cuts in service, which in turn cause declining ridership, which cause further revenue shortfalls. Ridership declined sharply during the pandemic, and has yet to return to pre-pandemic levels.

The transit budget was saved from cuts in 2022 by Federal revenues allocated through the COVID-19 pandemic stimulus bills. In total, the transit system was provided approximately $191 million in federal funds through bills enacted in 2020 and 2021.

In response to this allocation, the Legislature cut more than $32 million in state transit aid to the county. This forced MCTS to use more of its stimulus funding to fill this gap in it’s operational budget than it had planned, along with an additional $19.7 million from the state.

The majority of the 2022 budget for MCTS is state and federal revenue, which account for approximately 68% of the $164 million budget. Only $7.4 million in property taxes and $16 million from the wheel tax funds the system. Thus, the transit system budget is almost entirely subject to the capricious Republican-controlled Legislature, federal grants and ridership. If the county loses the ability to contribute tax levy or wheel tax revenue to transit, additional funding will not be easy to come by.

Parks Revenue

Parks, like transit, is not a service the county is mandated to provide by the state. Also like the transit system, county parks have been suffering from declining or stagnant annual revenues.

The parks department currently has a massive backlog of deferred capital projects, and no funding solution in sight. On the operations side, it has increasingly relied on user fees charged at parks amenities like golf courses and direct revenues for funding.

In 2022, more than 50% of the $40.2 million budget was made up of direct revenue. The rest of the budget is almost entirely funded through property taxes.

Golf has become a critical source of revenue for the parks budget, with more than 200,000 rounds of golf played in the system annually. In 2020, an unseasonably warm fall led to an increase in golf fees that helped the department close a budget gap. The rest of the gap was bridged with COVID-19 stimulus funding.

If Milwaukee County goes over the fiscal cliff in 2027, and there is no property tax money left for parks, the department will be cut by half.