When Mayor Tom Barrett warned the Milwaukee Common Council last month that “this is going to be the most sobering budget we have worked on together,” that likely did not come as a surprise to city hall observers. After all, it was common knowledge that the city’s fierce fiscal challenges have been intensifying (even pre-COVID 19), and it is intuitive that the demands of an ongoing global pandemic and historic economic recession were bound to wreak further havoc on the city’s finances.
Yet, it may come as a surprise to many that the mayor’s accurate depiction of the gravity of the 2021 budget stems far more from the city’s deepening structural problems than from pandemic-related expenditure needs and revenue hits.
As we explained earlier this year when gauging the COVID-19 fiscal fall-out for cities, heavy municipal reliance on state aids and property taxes – while problematic in normal times – is beneficial in the immediate aftermath of a recession given the stability of those revenue sources. That explanation is borne out in the 2021 proposed budget, which shows flat funding for shared revenues and a 2.8% increase in property taxes. Meanwhile, the pandemic certainly has placed considerable extra expenditure demands on the city’s health department and created complications for other agencies, but the use of federal coronavirus relief dollars has eased that burden for now.
Instead, the severity of the 2021 budget challenge can be linked to a set of fundamental problems that have emerged over the past decade and intensified at the worst possible time. Those include a growing capital debt burden, dwindling reserves, escalating fringe benefit obligations (especially for police and fire), and a revenue structure that fails to grow with inflation and is ill-suited to meet the city’s expenditure pressures. The addition to that equation of pandemic-related reductions to several small revenue streams has made what already promised to be an exceedingly difficult budget even more grueling.
The most obvious sign of stress is the proposed reduction of 120 sworn police officers. The bulk of the savings are not re-directed to other needs, but instead are used to offset budget gaps caused by a $10 million hike in levy-supported debt and a reduced draw from the Tax Stabilization Fund. In addition, the Milwaukee Fire Department would lose an engine company and vacant positions would be eliminated across most other city departments.
Under the hood there are perhaps more alarming signs. Those include the proposed budget’s inability to add as much as originally planned to the pension reserve to prepare for a future escalation in pension payments, as well as its need to propose substantial fee hikes despite a worsening economy that is taking its toll on Milwaukee residents and businesses.
In the pages that follow, we provide additional detail on the keys to understanding the 2021 proposed budget, as well as other factors that will influence the city’s immediate and long-term fiscal prognosis. Our intent is to promote more informed discussion and debate as 2021 budget deliberations continue. Continue reading…