Museum, Forensic Center Will Cost County $161 Million

A new report by the Milwaukee County Comptroller shows plans for the new Milwaukee Public Museum and the new Forensic Science Center will cost county taxpayers $161 million.

This latest calculation is based on the likely effect rising interest rates will have on the approximately $108 million in debt the county will take on to support the two projects; which includes $45 million for the new Public Museum and $62.9 million for the Forensic Science Center project. The comptroller’s office estimates that higher interest rates means borrowing $108 million will end up costing the county $161 million over the 15 year life of the bonds.

The debt for the Forensic Science Center is included in the 2023 budget recommendation from County Executive David Crowley, and comes after the county board, in the spring, approved the issue of $45 million in debt without spelling out how the county would pay it back. “As a result, it is our assumption that such debt issuance would be over and above the existing bond cap for 2023,” the comptroller’s office states in their latest report. Crowley’s budget proposal, as Urban Milwaukee previously reported, calls for excluding debt for the Forensic Center from the county’s annual debt limit.

The county bonding cap was adopted in 2003 and was a policy that came in the wake of  the infamous pension plan, which greatly increased pension costs for the county. In its most recent report on the county budget, the Wisconsin Policy Forum explains that the pension scandal created a hole in the budget used to fund day-to-day operation of the government. In order to manage this new budget gap, the county refinanced and delayed payment on hundreds of millions in debt, freeing up cash in the short term. But in order to not let the county’s debt get out of control, policymakers instituted a cap on the amount of debt the county could take on.

Under that cap, the county is limited to taking on approximately $45.8 million in new debt for 2023. But what’s before policy makers now would lead to the county side-stepping the debt limit and instead borrowing an additional $107.9 million to pay off the Public Museum and Forensic Center projects. In a review of the 2023 proposed, budget, the comptroller’s office stated, “The Forensic Science Center project may be the largest single decision facing policymakers in the 2023 Recommended Budget.”

When it comes to generating new revenue, counties and municipalities in Wisconsin largely have their hands tied by state law. But there in one way they can generate new tax collections almost indefinitely — they can issue debt. Local governments can raise property taxes beyond the limits imposed by state law if they are using that money to pay back debt for infrastructure projects. But taking this approach would be unrealistic and politically unfeasible: the county already lacks the financial capacity to maintain government operations as they exist, close an annual structural deficit (approximately $12 million in 2023) and make the payments on the debt for these projects without raising property taxes.

The comptroller expects the county to issue municipal bonds for these two new projects in 2024, with the first debt repayments coming due in 2025. In their report, they state the estimated impact to the tax levy will be $161.3 million over 15 years. The amount of payment will not be the same in all years, but the average annual payment on the debt is estimated at $10.7 million.

The impact to individual property tax bills on an annual basis for this debt ranges from an estimated $18.51 per year for a $150,000 home to $43.20 for a $350,000 home.

The ultimate price of this debt for county taxpayers is contingent on a number of things, including interest rates and the county’s bond rating. The county’s bond rating is where second-order effects become speculative, but very possible.

On Oct. 7, Moody’s Investor Service graded a recent $13 million issuance of bonds (debt) by the county at Aa2 — a solid, investment grade rating. The reason for the county’s rating, which is like a government credit score, Moody’s explains, is because the county has a “modest debt burden” and it pays of its debts “rapidly.”

“The stable outlook reflects our expectation that strong budgetary management and the county’s large, diverse tax base will continue to support a stable financial profile,” Moody’s said.

Pamela Bryant, capital finance manager in the comptroller’s office, recently told the county board’s finance committee that the county’s strength has been its debt management — which includes policies like the debt limit.

This is in contrast to the City of Milwaukee, which has a credit rating of A3, which is only four steps above a junk-bond rating. The city currently has $1.3 billion in outstanding debt and, Moody’s said in September, “The outlook is negative.”

Milwaukee County currently has $465 million in outstanding debt. The new debt proposed for the two projects represents an increase of approximately 23% to the county’s overall debt burden.

In their October report, Moody’s stated that a “materially increased debt burden” could lead to a downgrading of the county’s credit rating. A lower rating could mean it becomes more expensive for the county to borrow. And while legally speaking, the county can continue to raise property taxes to pay back debt, as the Wisconsin Policy Forum noted in its recent report, this can’t be done without consequences elsewhere in the budget.

The good government think tank explains that if county debt continues to escalate by several million dollars annually, “county leaders may not be as willing to raise the operating levy for service and staffing needs.” In other words, the county would have to cut services to pay back its debt.

That appears to be where the county is heading as it takes on this new debt, and it remains to be seen if officials are thus forced to cut services even more than previously estimated, or they instead choose to let the county’s credit rating decline, as it has for the city.