Making Ends Meet

By Rob Henken

In August 2009, the Public Policy Forum published Between a Rock and a Hard Place, a detailed examination of the City of Milwaukee’s finances. The report was released just weeks after Mayor Barrett had proclaimed the City’s upcoming 2010 budget “by far the most difficult” he had faced in his nearly 25 years of public service.

Today, we release an updated version of that analysis, entitled Making Ends Meet. The slightly more optimistic title reflects the substantial progress the City has made in digging its way out of its recession-driven budget mess. Yet, we also hope it will convey the notion that while City leaders are finding a way to get by from year to year, their long-term struggles are far from over.

The key to the City’s recent financial improvement — marked by three successive years of relatively calm budgets — has been its successful effort to dramatically reduce health care costs. In fact, health care savings have been so immense that they have almost singlehandedly allowed the City to meet its enhanced pension obligations, maintain police staffing levels, and retain healthy reserves.

Unfortunately, as we explain in detail in the report, those savings soon will be exhausted, meaning that City leaders will need to find other ways to stay ahead of mounting financial challenges. Those include aging infrastructure (as detailed in A Fork in the Road? released last week), onerous pension contributions, and significant cost pressures associated with public safety needs.

If the City could count on increased annual revenues from an improving state and local economy, then the situation would be manageable. But that’s the crux of the problem. Even if the State does enjoy increased sales and income tax revenues, it’s not likely to pass those along to municipal governments; in fact, the State’s shared revenue program has been essentially frozen for years.

And, even if Milwaukee property values again rise at pre-recession levels (which they may be poised to do, as we point out in our recent analysis of property taxes and values in the region), the City is unlikely to reap the benefits because of levy restrictions imposed by the State.

We suggest that it’s time for a thoughtful discussion about how we fund local government in Wisconsin. If the state is unable or unwilling to provide inflationary increases in shared revenues, then it should at least consider giving municipalities greater wherewithal to diversify their own revenue portfolios, particularly with options that are not property-related.

A range of alternative revenue options could be considered, including several that would generate revenue from commuters and/or visitors to reflect their use of City services. Those options — which could be designed also to reduce property taxes — will be the subject of future Forum research.

We all should take comfort in Milwaukee’s general fiscal condition, particularly when compared to Midwestern neighbors like Chicago or Detroit. Yet, we also need to recognize that the City’s financial condition will be precarious without a change to its basic financial structure.