For nearly two years, the city of Milwaukee has operated under unprecedented circumstances as it weathered the fiscal impacts of a pandemic while pivoting significant resources toward protecting the physical and economic health of its residents. Fortunately, hundreds of millions of federal aid dollars have arrived to support those efforts. Yet, despite that assistance, the 2022 proposed budget makes evident that the deep structural problems plaguing the city’s finances have worsened and remain the undercurrent of budget deliberations.
For the past several years, our budget briefs have described the factors behind the city’s worsening financial outlook, a finding corroborated by national ratings agencies through recent credit rating downgrades. The 2022 proposed budget shows further erosion as diminishing reserves limit capacity for withdrawals and locally-generated revenues and state aids remain stagnant. These dwindling resources leave the city with little recourse to meet inflationary cost growth and a massive increase in the employer pension payment that will be required beginning in 2023.
While these concerns have been growing for some time, the city has lacked the financial capacity to alter the trajectory. Indeed, city officials warn of a possible 25% reduction in staffing levels to meet the pension obligation when all available budget tactics have been exhausted.
Incredibly, the crisis has been averted for up to three years through the arrival of $394.2 million from the federal American Rescue Plan Act (ARPA). Yet, the need for some use of those funds to fill immediate budget holes may limit the opportunity to use them instead to make long-lasting progress on structural problems and investment priorities.
The proposed budget sets aside $34.6 million of the ARPA funds in 2022 and suggests using $50 million in each of the following two years to avoid significant staffing and service reductions in the largest city departments. These monies will sustain approximately 190 positions across the Milwaukee Fire Department and Milwaukee Police Department in 2022, while also shielding the Department of Public Works from staffing cuts. Significant amounts of ARPA monies also are proposed for one-time expenditures on major city priorities over the next few years, including $84 million to expand the Milwaukee Health Department’s lead program and $81.4 million to finance affordable housing projects.
As we will describe in more detail in this report, the use of more than a third of the ARPA award for immediate operating budget challenges is justifiable on a number of fronts, but it would ultimately cause the city’s fiscal structural imbalance to grow. The common council now faces the difficult task of discerning the best way to spend an unprecedented amount of federal money in the context of immediate challenges posed in the 2022 budget, a citizenry and business sector still reeling from the impacts of the pandemic, and an urgent need to prepare for a potentially devastating pension problem in the not-too-distant future.
In the pages that follow, we provide greater detail on ARPA and other budgetary factors that will influence the city’s immediate and long-term fiscal outlook. We also offer a glimpse into the health department and attempts to address some of its longstanding service-level issues. Our intent is to promote informed discussion and debate as 2022 budget deliberations continue. Continue reading…