As the party cranks up in the Deer District, a challenging budget season looms in Milwaukee

Last night ended up festive and celebratory in downtown Milwaukee.

The end of game reaction from the @DeerDistrict!! 🔊 pic.twitter.com/nicRRPGuEF

— Milwaukee Bucks (@Bucks) May 12, 2022

But things might be getting very serious around City Hall soon. It's around the time that local governments start to get serious about organizing their 2023 budgets. And the budget deliberations for the City of Milwaukee is going to be a big deal, not only because it'll be the first budget put together by new Mayor Cavalier Johnson, but also because of a major new expense that is slated to start in 2023 and could cause major problems.

That comes from a big jump in what Milwaukee will have to pay for pensions of city wokers. This is both due to an drop in the expected rate of return for the City's pension fund (from 8.3% to 7.5%, meaning more has to be put in to make up the difference), and a squeeze on the other side due to more retirees and lower returns in 2018 (and likely 2022). Milwaukee is especially strained because nearly 80% of the increased pension costs come from the City's police and fire departments - the two largest work groups exempted by Republicans from Act 10 rules that Republicans claimed would help local governments balance their books.

A report from then-Mayor Tom Barrett's office last September laid out how bad things could get if there are no changes to the City's fiscal abilities.

Meeting the current projections for pension funding increases within the City’s current budget requires an additional $77 million per year from 2023 to 2027, and a total of over $380 million in additional funding from 2023 through 2027. the current projections for pension funding increases within the City’s current budget requires an additional $77 million per year from 2023 to 2027, and a total of over $380 million in additional funding from 2023 through 2027. The City’s 2021 property tax levy is $299.2 million. Current State law generally limits annual levy increases to the value of new construction, which is typically 1-1.5% for Milwaukee and far less than the growth in contributions to sustain full funding of the CMERS plan under the> current actuarial forecast.

To meet the funding need without additional revenue or other sources of funding, the City would need to reduce property-tax funded budgets by the same amount starting in 2023. An estimate provided to the Common Council’s Finance & Personnel Committee in April 2021 showed a 10% annual reduction in City FTE was required in 2023 and 2024, followed by a 5% reduction in 2025. meet the funding need without additional revenue or other sources of funding, the City would need to reduce property-tax funded budgets by the same amount starting in 2023. An estimate provided to the Common Council’s Finance & Personnel Committee in April 2021 showed a 10% annual reduction in City FTE was required in 2023 and 2024, followed by a 5% reduction in 2025. In total, the City’s workforce would be reduced by 24%, or approximately 1,300 positions.

That's a lot of jobs and services, and this is going to come to a head in Milwaukee over the next 6 months as the 2023 budget is debated.

The City has been especially screwed over not just because of the pension situation, but because they aren't able to take advantage of the inflated home values and prices that are going to help other governments (and people) balance their books. Remember the note from the City that mentions "Current State law generally limits annual levy increases to the value of new construction"? That means that if property values of CURRENT properties are going up by 18% (as they did in 2022 in Milwaukee), it doesn't mean that property taxes can go up by the same 18%. It's limited to net new construction, which will be far less than that.

In addition, Milwaukee has no sales tax that it can use to pay for its bills. So while the state is getting more than a 12% increase in sales tax revenues due to both a growing economy and higher prices, Milwaukee's city government gets ZERO from that. In addition, the City locked into a shared revenue amount from the state that is more than $20 million below what it was 20 years before 2023....without mentioning inflation.

Fortunately, Democrats from DC will help Milwaukee avoid some of the toughest decisions for next year due to a sizable payment to the community through President Biden's ARPA stimulus bill. That was the indication that came out of a recent Finance Committee meeting with incoming Milwaukee Budget Director Nik Kovac.

The city was allocated $394.2 million in American Rescue Plan Act funds, the first half of which the Common Council and then-Mayor Tom Barrett decided how to spend when it landed in city coffers last year.

The second $197.1 million tranche is expected to arrive in the next month or so, prompting a second round of decisions on how to use the historic, one-time sum.

"Priority one is let's make sure this ARPA money at least delays tough decisions," Ald. Nik Kovac told a Common Council committee Wednesday.

He added: "Some people refer to that pejoratively as kicking the can down the road, and I would agree that there's a cynical way to view that. But on the other hand, I would much rather delay that than commit to it because if you delay it, you're giving yourself time and something else may happen in the interim."

That being said, there still will be tough decisions to be made, because there won't be enough in ARPA to handle all of the extra spending needs that exist. And the rising inflation of 2022 is another complication when it comes to meeting the costs.

Under a plan endorsed by the committee Wednesday, $75 million of the second tranche would be used to maintain service levels in 2023 with additional ARPA funding for services in 2024 left undetermined.

Even with that larger sum in both of the next two years, services would still be at risk because of an approximately $95 million projected deficit at the city in 2023.

Budget officials told the committee they are expecting a shortfall because of cost increases due to inflation, a need to fund services that this year were paid for with $30 million in ARPA funds, and a projected $50 million increase in the annual pension payment starting next year.

Unlike the inflated property values, the inflated costs do affect Milwaukee's budget, which is another tight (and I would argue unfair) squeeze on the state's largest city.

Governor Evers asked for voters in Milwaukee and other communities to be allowed to vote for a sales tax in his budget proposal from last year, and has asked to raise shared revenues and levy limits for all communities across Wisconsin. But Republicans in the gerrymandered Legislature shot that down, so now Milwaukee has to figure out a way to pay for its sizable pension obligation, fix its streets and provide community services while being severely limited in ways to generate the money required to do so.

We have an unsustainable system for funding many local governments across Wisconsin, and nowhere is that more true than in Milwaukee. That might make mediocre suburban Republicans gleeful, it's not helping the region or the state in any fashion. While the Deer District may be jumping tomorrow night, it isn't going to do much to pay the bills, and there isn't going to be another ARPA stimulus coming around to bail out the Big City next year.