Monday, December 4, 2023

Madison has more people, more spending needs...and limited funds to pay for it.

Property tax bill came in the mail to our Madison home today. And the news was...not great. Up 6.7%, about twice the rate of inflation, albeit much less than the 16% that our assessment went up by. I understand that some of this is the price we pay for living in the fastest-growing part of the state in both jobs and population, and I certainly not complaining about the price tag in itself.

But I am going to complain about a local financing system that leaves my city in the following fiscal situation, as illustrated by this graphic that accompanied my bill.

You can see that nearly 3/4 of this year's bills in Madison are being paid for through property taxes and money that was previously in the City's bank account. You also see more than 3/4 of the City's expenses go to public safety, streets and transportation, and to pay off debt. There isn't a lot left around to pay for social services, and there aren't many ways to pay for them beyond property taxes.

I'll note that the property tax would be an even larger share of a smaller pie, except for the fact that Madison is one of 4 places in Wisconsin that has the highest wheel taxes in the state, at $40 a vehicle. This pays for $6.8 million in street repairs and transit costs, but unlike property taxes, having a higher value car does not translate into a higher wheel tax.

And while you'd think that Madtown's finances would be better off because they're seeing more people and more building here, the Wisconsin Policy Forum notes that Madison city government is looking at budget crunches in the coming years.
Madison also benefits from relatively strong construction activity. In general, state law limits city property taxes used for operations to the rate of net new construction in the city. This year, the city’s new construction rate grew to 2.2%, representing a slight dip from last year but still easily outpacing the state average of 1.7%. Tax rates do not rise on existing property owners to cover the growth in this portion of the overall levy since the increase is covered by the new development in the city.

Yet even in Madison, new construction greatly lags inflation. The Consumer Price Index rose by 8% in 2022 and is on track to rise roughly 4.5% in 2023 (it's now looking closer to 3.5%, but you get the idea). The gap between the rate of inflation and gains from construction makes it difficult for Madison to sustain existing service levels. Absent significant fee increases or spending cuts, it may ultimately require officials to consider putting a property tax referendum to voters to exceed the state levy limits.
Despite those limitations, Madison still has a robust budget for next year. But as news articles have noted, it’s going to get a lot tougher very soon.
All told, 2024's operating budget stands at about $405 million and the capital budget at $273 million. In budget talks, the council added around $600,000 to the operating budget and $6.6 million to the capital budget.

But few answers have emerged on how to handle a budget crisis the city is all but guaranteed in the years ahead. Because of state imposed limits in how much the city can raise in taxes, budget deficits could reach $75 million by 2029 if current services are maintained. One-time federal pandemic-era stimulus funds also are going away.
And the solutions put together by current Mayor Satya Rhodes-Conway and the City Council led former Mayor Paul Soglin to criticize his successor for spending down reserves that could prevent more severe cuts and needs in the near future.
Soglin said Rhodes-Conway’s use of the city’s “rainy day fund,” as well as a cash premium it gets from lenders in exchange for higher interest rates, the city’s vehicle-registration fee, and recycling and urban forestry special charges, largely tap out the city’s major options for raising revenue.

Rhodes-Conway’s proposed budget relies on $9.2 million from the rainy day fund, still leaving it above the recommended 15% of the operating budget; $6.6 million from the cash premium; $7.1 million from the urban forestry special charge, begun in 2015 under Soglin; $6.8 million from the registration fee, begun in 2020 under Rhodes-Conway; and $3.4 million from the recycling special charge, implemented in 2022 under Rhodes-Conway.

Since 2001, all but seven city budgets have tapped the rainy day fund, with sums ranging from $400,000 in 2017 to $8 million in 2021. In 2013, Soglin passed an ordinance that essentially says the cash premium must be used for capital projects, but the council approved an amendment that allows the city to use it in the way Rhodes-Conway is proposing with a two-thirds vote of council members.
It's not just the City that's got budget concerns. Nearly half of our property tax bill is designated for Madison schools, and there are significant difficulties for that district to make its ends meet, and more issues looming for the future. That's even after the passage of a referendum to raise property taxes a few years ago.
The Madison School Board authorized $591 million in spending in the district’s 2023-24 budget Monday evening, the final time the district can call on referendum dollars and COVID-19 pandemic relief funds to help balance its budget book.

Already facing a $15 million deficit, both of these temporary funding sources will expire in 2024. Federal pandemic relief funds account for more than $40 million of the budget this cycle, and the 2020 referendum gave the district an extra $33 million to work with over four years, according to budget documents......

The district received more money from the state than expected, around $37.9 million in general aid.

“We actually ended up receiving more aid than we were anticipating when the board was looking at the budget in June,” Bob Soldner, the assistant superintendent for financial services, told the Wisconsin State Journal last week. “What was provided is still less aid compared to last year, but more aid in the context of budgeting.”

Student enrollment, one of the biggest variables in the district’s budget each year, also held relatively steady despite initial projections. According to data from the state Department of Public Instruction, 25,224 students were enrolled in the Madison School District as of mid-September, a loss of only two students since last year.
I do find it odd that the burdens are getting higher in a time when Madison continues to be the dominant driver of economic and population growth in the state. Newly released figures from the Wisconsin Department of Administration gave estimates of population changes in the state for all cities, villages, towns and counties between 2020 and Jan. 1, 2023, and Dane County and the City of Madison had by far the most growth in the state.

Counties estimated to have gained more than 3,000 residents since the 2020 Census are Brown (+ 4,493), Calumet (+ 3,278), Dane (+ 28,552), Eau Claire (+ 3,097), St. Croix (+ 3,811) and Waukesha (+ 4,560).

• Change rates of + 1.5% or more were estimated in the counties of Brown (+ 1.67%), Calumet (+ 6.25%), Dane (+ 5.08%), Door (+ 1.54%), Eau Claire (+ 2.93%), Outagamie (+ 1.55%), Portage (+ 1.72%) and St. Croix (+ 4.07%)....

Among the state’s most populous cities, the City of Madison was estimated to have the fastest proportional change (+4.40%) and the largest numeric change (+12,099).
Not only does Dane County have the most growth of any county in Wisconsin, it accounted for almost 1/2 of the entire growth in the state over the last 3 years.

However, the Wisconsin Policy Forum notes that this growth does not translate into more resources from the state for the City of Madison. In fact, Madison's city government is down at the bottom for state aids. And they didn't get nearly as much of a boost in state aids as other places did under the changes in shared revenues that were signed into law earlier this year.
Act 12, however, provided more modest assistance to other large cities in Wisconsin, particularly those such as Madison that have relatively high property values and as a result have historically received little in county and municipal aid. The budget currently includes a $3.1 million boost in municipal aid from the state in 2024. This influx would amount to a 62.2% increase over the $5 million in aid expected for 2023. Yet the bump still amounts to less than 0.8% of Madison’s general fund budget for 2024 and annual inflationary increases on the roughly $8.1 million in total municipal aid to the city in future years will likely be less than $300,000.

Madison will garner the least municipal aid per resident from Act 12 out of all of the 1,848 municipalities in the state, receiving $11 per capita in 2024 compared to the statewide average of $35 per resident, according to a Forum analysis of Legislative Fiscal Bureau data. As Figure 11 shows, that will bring Madison to a total of $29 in municipal aid per resident, which is the second-lowest amount of any Wisconsin municipality, or 1,847 out of 1,848 cities, villages, and towns and only a few pennies ahead of the community in last place – the village of Merton in Waukesha County.

Madison is well below the statewide average in aid for all municipalities of $142 per resident. If the city were receiving the average amount of aid per capita, it would receive an additional $29.3 million each year from the state. That gap comes despite the fact that as a large city, Madison must provide lighting, sewers, sidewalks, water lines, libraries, law enforcement, and other services that are not offered by hundreds of small communities that are receiving more in state aid per capita.

The Legislature and Governor gave relief to the City of Milwaukee and Milwaukee County with the shared revenue changes from earlier this year, which are now bearing fruit with their local budgets for 2024. I don't see why the state's second-largest city and county, who has been responsible for a large amount of the state's population and job growth, shouldn't get the same flexibilities. Especially since local property tapayers have to pay nearly 2/3 of the costs for services associated with the many tax-free buildings associated with the UW and all the state agencies that have offices in the Madison area.
In theory, Madison could force UW-Madison and state government to take on even more of the services that they provide on their own today (UW-Madison has its own Police and utilities, but the City deals with costs associated with having state agencies and the university use their infrastructure). Not sure that would be the best way to go about things, especially as the City benefits from having so many UW and state jobs in their town that allow people to set down roots in this great place. But if they continue to only collect 38 cents on the dollar for the services that UW-Madison and state agencies impose onto the City, maybe that's a way to balance the books in the coming years?

But Act 12 also gives us a hint at a better way. As Dan Shafer noted in the Milwaukee Record, Milwaukee had "its best budget season in decades" after it was allowed to install its own sales taxes.
...The shared revenue reform and local control sales tax bill—Act 12—that was passed by the state legislature and signed by the governor and subsequently approved by the Common Council and County Board positioned our entities of local government here in Milwaukee for a brighter future. The existential threat was dealt with.

That made this budget season unlike any the City and County had experienced in a long, long time. For so long—too long—these debates were marked by cuts to the services so many residents rely upon, and about looming fiscal cliffs that jeopardized the very future of Milwaukee. But no more. These budgets increase services.

As Urban Milwaukee reported, Mayor Cavalier Johnson’s budget “included no notable cuts for the first time in more than a decade.” As the Milwaukee Journal Sentinel reported, County Executive David Crowley’s budget “turns the page from cuts into investments”—and even lowers property taxes. It’s hard to overstate just how much of a sea change this is for Milwaukee.
Hmm, maybe we shoud be able to do the same thing here in Wisconsin's 2nd largest community and tourist destination, so the City of Madison can get a cut out of all those dollars spent at beer gardens on Badger Satudays?

Yeah, I think we should.

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