Tuesday, July 25, 2017

Once again, let Milwaukee raise its own money!

Milwaukee's Public Policy Forum released a report discussing how the City faces fiscal handcuffs that many other large cities in America don't have to deal with. I had a large post ready to go on the subject, but Urban Milwaukee's Bruce Murphy beat me to it today, so I'll forward you to that article, and include some of Bruce's conclusions.

Murphy notes that Milwaukee has always been heavily dependent on shared revenues from the state of Wisconsin, but isn't getting nearly as much sent to it as it would get 30-50 years ago. And that's a main source of its fiscal issues.
In those days well more than half the city’s budget came from state shared revenue. Even today, after 20 years of declining state aid, the city still gets 48 percent of its revenue from this source, compared to just 18 percent for 38 peer cities analyzed in the study. “General state aid historically has been Milwaukee’s largest revenue source,” the new study notes.

Which is why its huge decline since the mid-1990s is a fiscal earthquake. “If Milwaukee’s intergovernmental revenue… had increased at the rate of inflation from 1995 to 2015,” the study notes, “then its revenue total would have been 58% higher ($415 million versus the $264 million it actually received).” In real dollars that’s a loss of $151 million — a huge hole for a city whose current budget for basic services is $834 million.

Milwaukee has no chance to replace this lost funding with local taxes, because it is uniquely constrained, compared to peer cities. “No other state in the Midwest has a local tax structure like Wisconsin’s that relies solely on the property tax,” the study notes. “Most other cities get about a third of their revenue from a local sales or income tax or both,” but Milwaukee gets nearly 90 percent of its local revenue from the property tax and is prevented by state law from levying other taxes. More recent state laws also constrains how much the city can increase the property tax.
You can see where the squeeze play comes in. The City’s population remained stable around 600,000 for those years, which means there have been few ways for it to make up the difference in those cuts to shared revenue. This lack of tax-raising ability means that Milwaukee actually has some of the lowest local taxes per capita of any mid-size city in America, ranking 34th out of 39 such cities, according to the PPF, at $507 per person designated for the city. (you can look at the full Public Policy Forum report by clicking right here.

Now, the reason you may think that number is low is because it isn’t counting property taxes that are designated for Milwaukee Public Schools, Milwaukee County, MATC-Milwaukee, and other local government entities. Nor does it count the sales taxes that go to pay for Miller Park, the new Bucks arena, and other attractions via the Wisconsin Center District. It also does not count charges that Milwaukeeans have to pay for City services like Water and Sewer, or Snow and Ice removal.

But when you isolate it to "taxes" that you pay that only go to the City (and pay for City services like Milwaukee Police and Fire protection, or maintenance of city streets), Milwaukee actually doesn't get all that much compared to the typical city of size. Murphy also includes this chart from the PPF report, which shows how different (and limited) Milwaukee's mix of revenues is compared to 38 other mid-size cities in America. Note how much other cities get out of a city-designated sales tax, and how comparatively little they rely on state funding and property taxes.

Later in the report, the PPF compares Milwaukee to the revenue structures in 4 other mid-size cities in America, including another Midwestern City that relies heavily on the property tax- Minneapolis. But even when compared to the city 325 miles to our west down I-94, Milwaukee has its hands tied, and that Minneapolis is better able to take advantage of the dollars that are spent when people go out to see things like this.

Where the two cities diverge is in Minneapolis' collection of general and selective sales tax revenues, which give it greater revenue diversity and elasticity than Milwaukee. Yet, even here there are similarities. While Milwaukee does not have authority to issue such taxes, the Wisconsin Center District levies both liquor/restaurant and lodging taxes to help pay for convention center debt service and operations. Those are the first use of those taxes in Minneapolis, as well. [Minneapolis' ability to levy a franchise tax also provides greater revenue diversity, but because that tax is passed along to consumers, it also could be seen as a user fee.]

Because Minneapolis' general and selective sales taxes are linked (in part) to ownership of the convention center and Target Center, it cannot be precisely argued that those revenue sources provide Minneapolis with greater revenue diversity and flexibility than Milwaukee. As described above, however, that is at least partially the case, as growth in those revenue sources has indirectly helped the City withstand reductions in State aids. In addition, Minneapolis' use of an entertainment tax and downtown liquor and restaurant taxes show how selective sales taxes can target the unique attributes of a first class city to ensure that its throngs of entertainment-seeking visitors chip in for the cost of the basic city services they use.
With this in mind, PPF designed some proposals to illustrate how reforms to Milwaukee's outdated “shared revenue and property tax” model might look for Milwaukee. One example would put in local sales taxes, and take out some property taxes as a result.
This model continues Milwaukee's heavy reliance on the property tax, but lessens it somewhat by adding a 0.5% general city sales tax; and selective sales taxes on entertainment (8%) and food/beverages (2.5%, including liquor served at bars and restaurants). We apply the entertainment tax to the entire city to ensure that Miller Park is included. In contrast, the food/beverage tax is limited to the City’s downtown per the example set by Minneapolis. This limitation also reflects the substantial public investment in downtown facilities and amenities that not only should bring considerable numbers of additional patrons to Downtown Milwaukee in the coming years, but that also should allow Milwaukee's downtown to successfully compete for restaurant and bar business despite a higher sales tax.

The addition of relatively small general and selective sales taxes in this model would not replace the property tax as the City's major revenue source, but those taxes would add diversity to Milwaukee's current revenue structure. A primary argument in favor of a general Milwaukee sales tax is that as the largest city in the state, Milwaukee is Wisconsin’s business and cultural center. Every day, the city is host to people from outside its borders: commuters, business owners, convention attendees, tourists, and others. These non-residents use city services, and a sales tax would be a way for non-residents and residents alike to help pay for them. From another perspective, a sales tax would leverage the city’s economic and cultural vitality to take some pressure off property owners.….

We estimate that if this model had been in place in 2015, then a Milwaukee property owner's total combined property tax rate would have been reduced from $29.97per $1,000 of assessed value to $28.55, and City government's portion of that rate would have been reduced from $10.71 to $9.29.This would have reduced the property tax bill for the owner of a median-valued home ($114,000 assessed value) by $162, as shown in Table 16. Of course, property tax savings for residents would be offset to some extent by increased sales taxes on most consumer purchases within the city, as well as for downtown restaurant/bar purchases and ticket purchases for certain entertainment venues. Because the amount of the offset would be predicated on consumer behavior, we cannot provide an estimate of its added cost for individual residents.
Also worth noting in this model is that it assumes the state would cut shared revenues to the City by $25 million, so suburba-GOPs shouldn’t have as much reason to bitch about “our tax dollars going to THOSE PEOPLE in Milwaukee”. In addition, under this scenario the City’s finances are better off because that $25 million cut is more than being made up for by the $56 million in sales and entertainment taxes, and the property tax cut totals $31 million.

As Murphy concludes in his article, it is well past time for legislators in Madison to step up and take off the fiscal handcuffs of the state's largest city and economic engine.
Whether this reform or some other is the best approach, it’s crystal clear that something is needed because the revenue model for Milwaukee is broken and has been for many years, as three separate studies by the sober minded PPF analysts have now concluded. It’s time for the state legislature to recognize the problem and start working toward solutions, as other states have.
If we had a Legislature that cared about good policy and outcomes, it would seem like a win-win for Republican legislators to allow the City to impose new revenue streams in favor of lower property taxes and shared revenues. But that is not the case, in no small part because suburba-GOPs would rather Milwaukee decline so that they could claim moral superiority over that majority-minority city, which plays to the AM radio race-baiting and other politics of resentment that help Republicans win elections in this state.

I can dream that maybe they'll come to their senses and pull out a 999-type proposal as they wrap up the budget that lets Milwaukee have a fairer tax system, and gives it a better chance to deal with the increased needs that part of living in densely-populated big cities that attract people from out of the area. But as long as dumb suburb trash reward these legislators for ripping on THOSE PEOPLE (no matter how much it causes their own communities to stagnate), I don't see it happening.


  1. Absolutely. I completely agree that Milwaukee should be able to raise any and all taxes as high as they want, including sales taxes, wheel taxes, new sweetened beverage taxes, etc. etc. 'Freedom' means that communities should be able to tax and govern based on their elected representation, and this should hold true for Milwaukee, certainly.

  2. Jake -- WPRI came out with a counter "study" to the notion that Milwaukee gets back only 60 cents on the dollar that they send to Madison. I'd be interested in your view on it.

    1. It's Bradley BS (no surprise), and Bruce Thompson took it apart at Urban Milwaukee today.

      Basically, WPRI/Bradley tried to claim Mke is spending more on debt, when it is actually refinancing it and paying less.

  3. Here's the study -- http://www.wpri.org/WPRI/Commentary/Is-Milwaukee-a-donor-city.htm