2018 proposed budget shows structural imbalance has come to a head

By Ben Juarez

In our 2018 budget brief, we find that the City of Milwaukee’s unsustainable revenue structure and rising pension costs cast huge shadows over the 2018 proposed budget. A report we published earlier this year, On the Money?, found that Milwaukee relies far more on State aids than other peer cities and is the only city among its peers that relies on the property tax as its sole means of local taxation. The fact that intergovernmental revenue has been stagnant for several years — coupled with the City’s lack of diversity in its revenue portfolio — has put a strain on its capacity to cover its fixed costs, particularly when those costs grow more than expected.

Case in point: this year’s budget includes a $22 million increase in the City’s employer pension obligation, which rises from $61 million in 2017 to $83 million for 2018. To mitigate the impact of this large increase, the Mayor has proposed cuts across many departments, with police and fire bearing the brunt. The proposed budget would eliminate 33 police and 75 fire positions, and the two departments would see combined expenditure cuts totaling nearly $19 million. Despite those expenditure reductions, the proposed budget still increases the property tax levy by $9.7 million (3.7%).

In fact, the 2018 proposed budget contains two firsts:

  • The Milwaukee Police Department sees cuts for the first time since 2010 — after two years of large increases to its budget surpassing $50 million.
  • For the first time, property tax levy exceeds intergovernmental revenue (mainly State shared revenue) as the City’s largest revenue source.

Two other factors that stand out in the 2018 proposed budget are an $8.6 million decrease in the tax stabilization fund (TSF) withdrawal and a $12.7 million reduction in tax levy-supported borrowing. The former results from the fund likely not seeing enough replenishment in the coming years as health care savings dissipate.

The latter stems from the City’s policy goal to limit annual tax levy-backed General Obligation (G.O.) debt to the amount retired in a given year ($70 million, on average). Since the City has been borrowing more than it has been retiring in recent years, it is looking to control borrowing to get closer to that goal. Achieving the goal is a double-edged sword; it helps keep the City’s annual debt service obligations manageable, but needed infrastructure projects may need to be deferred as a result.

Overall, we find that the difficulties posed by the 2018 budget reflect a financial structure that needs to be fixed. While how to do so is debatable, the underlying causes are apparent and should no longer be ignored.