The Never-Ending Budget Process

Who among us doesn't despise this time of year - the time when football has ended, spring training hasn’t started, winter has stretched on too long and spring can’t come soon enough?

Leaders in government, that's who. This is the time when governmental chief executives, from the President on down, deliver “State of” speeches, setting forth a series of new issues and priorities to develop and debate. With a new budget in place and preparation for the next one still a few months away, it’s the time when government officials can evaluate, cogitate and develop big ideas for the year ahead.

Or is it? Here in Wisconsin, after a grueling eight-month State budget debate that ended just a few months ago, the governor and legislature now face the prospect of fighting the same fights all over again in order to address a $400 million budget hole. In fact, the Associated Press reports the governor wants this hole filled before the legislature adjourns in March.

At the county and municipal level, meanwhile, budget officials already deeply concerned about how the economic downturn will impact their tax and fee collections now face the prospect of re-opening their budgets if the State decides to share its pain by cutting into local aids.

For years, the Public Policy Forum has urged local governments to plan strategically and develop long-term fixes to structural budget problems. Unfortunately, such planning takes time and resources that most governments can’t muster when top fiscal staff are consumed with never-ending annual budgeting.

What can be done about this? One obvious solution is for State and local governments to establish sufficient reserves and “rainy day funds” that will prevent unanticipated lags in revenue collections from necessitating mid-year corrections. Of course, that’s easier said than done.

Another is to establish the type of budgeting philosophy and framework that lends itself to making difficult budget decisions – even those that occur mid-year – in a thoughtful, logical and timely manner. Authors David Osborne and Peter Hutchinson, of the Government Finance Officers Association and others have been pushing an approach referred to as “Budgeting for Outcomes”, described by GFOA as follows:

The contrast between traditional budgeting and the Budgeting for Outcomes approach is stark. Rather than having the starting point be what was funded by departments in the previous budget, the starting point becomes what results the jurisdiction wants to achieve. The budget office works with results teams to identify activities and programs most likely to achieve results rather than on cutting budgets. Elected officials spend more of their time making decisions on how much revenue citizens can afford to provide and on choosing results and less time on deciding how much money to cut from the budget and where to cut. The incentives for agencies and departments change from making it difficult for the budget office to find places to cut their budgets to figuring out what activities work best to achieve results and how to provide those activities at lower cost.

The wrong approach to bridging a deficit is the across-the-board strategy, in which cuts are doled out among departments and services on an equal, percentage basis without regard for priorities, performance or consequences. Unfortunately, that’s particularly likely to happen when mid-year cuts are required, as few policymakers wish to revisit the difficult budget debates that had just concluded.

That’s where Budgeting for Outcomes comes in. If the annual or bi-annual budget is based on a strategic framework that recognizes and identifies the top priorities for the government, and that allocates resources based on anticipated results, then budget-cutting becomes more of a science than an art. It may not make the cuts any less painful, but at least it makes them logical and, ideally, apolitical.

Of course, developing such a framework requires time and resources from top budget officials, who every year must deal with mid-year budget crises, which then renders them too busy to work with elected officials to develop priorities…

What if Milwuakee went to bat for Chicago?

Here's a twist. Milwaukee lobbying for investment in Chicago. A recent Sun-Times editorial, suggests that leaders in large metro areas (like Milwaukee and Chicago) should band together and lobby the federal government for more investment to spur metro economic growth.

The editorial states that Chicago's train yards would be a good place to start:

"At the heart of the nation and on the shores of Lake Michigan, Chicago's location makes it the third largest intermodal port in the world, after Hong Kong and Singapore. Almost $1 trillion of our nation's freight moves through this region annually, and freight volumes are expected to increase 80 percent or so in the next 20 years. Yet trains often must slow to a crawl through northeastern Illinois and northwestern Indiana because technological and physical updates to tracks and rail yards are long overdue. Businesses are losing money due to delayed deliveries, and drivers are experiencing more traffic jams on local roads. The federal government's response has been to spread surface transportation funding around like peanut butter, rather than investing strategically in major national rail hubs, ports and gateways, like Chicago."

What would be the rationale for politicians in Southeastern Wisconsin to go to bat for federal investment in Chicago's train yards? Simply put - the more goods that Chicago imports, the more goods that southeastern Wisconsin can distribute.

The Milwaukee region is a natural hub for distribution and logistics. In fact, the M7 has identified "distribution" as a regional export driver - with the region currently playing host to 10,386 distribution jobs paying an average wage of $50,815. Not bad.

Our region is emerging as a distribution hub because of ample land and lower costs. Just look at yesterday's news that Illinois-based Coleman Cable, will expand into a 502,000 sq. ft. building and bring with them 75 jobs for their warehousing and distribution functions. The company states:

"...the Pleasant Prairie location will allow the company to consolidate distribution facilities and reduce costs, while simultaneously...providing first-in-class logistics, delivery and customer service."

The Coleman Cable expansion news follows the announcement by Uline Inc. that it will move its headquarters, R&D and distribution functions from Illinois to Wisconsin by 2010 - adding 1000 jobs to the Milwaukee region.

Despite our market advantages and recent "wins" in the distribution game, can we really expect our region's leaders to expend their political capital south of the Wisconsin border?

It's possible. The most recent precedent for Wisconsin going to bat for Illinois is Milwaukee's recent embrace of Chicago's 2016 Olympic bid. On the state level, Wisconsin also recently joined an effort last year to win a federally funded, state-of-the-art coal gasification plant for southern Illinois.

In the end, cooperative lobbying efforts could translate a Chicago gain into Milwaukee growth.

Milwaukee has good company in having image problems

Two weeks ago, the Public Policy Forum’s Viewpoint Luncheon stirred media attention regarding local C.E.O.s’ cautions about the Milwaukee business climate and image. This week, the Twin Cities launched a new $2.5 million marketing campaign that touches on surprisingly similar issues. Many Milwaukeeans would predict that the Twin Cities are doing better in the image department than our city, but Milwaukee’s situation may be less than unique.

A recent editorial about the new Twin Cities marketing efforts has the headline “We need to sell cities to ourselves, outsiders.” The campaign seeks to help local companies attract workers from across the country, while stanching the chilly and boring “Fargo” image that some have of the Twin Cities region.

Does this sentence sound familiar, Milwaukee? “Research for the campaign found that national perceptions of the Twin Cities don’t match reality, and that local residents are partly responsible for perpetuating stereotypes because we too often adopt a low-profile, self-deprecating approach to selling ourselves.” The same thing could be said of our Milwaukeean motif, the dreaded inferiority complex.

The Twin Cities ranks number one among U.S. cities in median household wealth, major company headquarters, patent intensity and worker productivity. And even they have an image problem. A recent survey indicated that people think the Twin Cities region is a boring, "economically deprived" area.

Milwaukee has its share of good news. The city was recently named one of the top 20 places in the U.S. to educate children. AARP picked Milwaukee as one of “Five Great Places to Live” in the U.S. Conde Nast Traveler named the Milwaukee Art Museum one of the world’s 12 icon buildings of the last two decades. In the list of Best Small & Medium Companies to Work for in the U.S., the Milwaukee region was only topped by California.

The Twin Cities' hand-wringing about image could indicate an intensified need for the efforts of Milwaukee's M7 group to keep pace as other cities step up their marketing game.

Just released: A capital and debt management tale of two governments

The following is an excerpt from the Public Policy Forum's new report on capital and debt management practices at the City of Milwaukee and Milwaukee County.

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"Infrastructure – literally in the case of roads and sewers – underlies the growth and development of cities and regions. And because infrastructure serves generations of citizens, governments generally pay for it through long-term borrowing. Meanwhile, the political process focuses on a much shorter timetable. Elections are about the issues of the day, and candidates rarely focus on long-term issues such as debt and infrastructure.

Even so, Citizens need to be confident that the people they elect to local government office will be good stewards of the public infrastructure – and will ensure the burden of paying for it is dealt with responsibly. In light of the long-term consequences of election outcomes, this paper offers a brief overview of how the city of Milwaukee and Milwaukee County have been managing their capital spending and debt obligations over the past decade.

Overall, the city of Milwaukee and Milwaukee County both comply with state statutes regarding debt levels; both adequately secure high bond ratings. They also both recognize that it is good public policy to take additional measures to control debt levels. The county has an ambitious set of debt management goals, and has also been spurred into tightening them by the fiscal crisis caused in large part by large pension obligations. Nothing as dramatic has happened to city government, but its continuing structural deficit also has necessitated debt management goals. It remains to be seen how well these policies will work in controlling the debt burden in the city and county.

Meanwhile, when it comes to the other side of the debt management coin – capital spending – the city and the county have differed over the past decade. In the case of the city, poor capital financial management has led to a higher debt burden than desired. In the case of the county, the opposite has occurred in a sense: Strict controls on debt have led to a decline in capital spending, suggesting the county has been putting off infrastructure maintenance that will end up burdening taxpayers sometime in the future."

Minnesota in recession, Wisconsin not....yet.

The Packers lost a big game last weekend. While the loss was painful, at least the Pack were in the playoffs and not sitting at home like the 2nd place Minnesota Vikings. I actually felt bad writing that last comment because you hate to kick a state when it's down. I'm referring to the news in which a Minnesota state economist declared his state to be in recession. Ouch.

Needless to say, this declaration was not fully embraced by Minnesota Gov. Tim Pawlenty who described the economist as someone who “tends to err a little bit on the pessimistic side.”

Regardless, the economist cited a significant increase in Minnesota's unemployment rate to 4.9% in December from 4.4% a month earlier and a net loss of 350 jobs over the last 12 months.

If we use the Minnesota example as a benchmark to define "recession," we can see that, for now, Wisconsin seems to have avoided the recession bug. Last week, the Wisconsin Department of Workforce Development reported an unemployment rate of 4.6% which was less than the previous month's 4.8% and less than the current national unemployment rate of 4.8%. In tandem with a lower unemployment, the state benefited from a net addition of 21,700 jobs over the last 12 months.

In short, 2007 was good to Wisconsin. A researcher in this week's Milwaukee Journal Sentinel agrees and states that "overall, Wisconsin is doing better economically than most Midwestern states."

This is not to say that Wisconsin doesn't have it's share of challenges. The article points out that Wisconsin's job mix is still predominantly low-pay (Competitive Wisconsin recently announced plans to address this issue) and that the state should expect job losses in construction and manufacturing due to the housing downturn. Additionally, state tax receipts have slowed and spending cuts may be needed.

How long will labor market data stay positive in Wisconsin? Is it just a matter of time before Wisconsin sinks into recession like our neighbor to the West? We can't be sure of what our future holds but for this very moment let's enjoy our relative economic health and a Packers season to remember.

CEOs for cities

News coverage and commentary on last week's Public Policy Forum Viewpoint Luncheon, "Global wooing," has been abundant. The event featured a lively and candid conversation on Milwaukee's global competitiveness with five prominent area CEOs (from right to left in photo): Rick Armbrust, The Oilgear Co.; Jeff Joerres, Manpower Inc.; Paul Purcell, Robert W. Baird & Co. Inc.; John Shiely, Briggs & Stratton Corp.; and Tim Sullivan, Bucyrus International Inc. On the far left is Chuck Harvey, vice president, diversity and public affairs, Johnson Controls, Inc., who moderated the discussion.

If you missed any of the coverage, here it is:

News
The Business Journal Serving Greater Milwaukee
"Leaders say area still lags in attracting talent"
Milwaukee Journal Sentinel
"Business leaders want to warm city's climate"

Commentary
Steve Jagler, executive editor of Small Business Times
"Our own worst enemy"
John Torinus, chairman of Serigraph Inc.
"Leadership is key element to building business, city"
Patrick McIlheran, Milwaukee Journal Sentinel columnist
"The price of ignoring the price"
Milwaukee Mayor Tom Barrett
"Mayor responds to criticisms from CEOs"
Milwaukee Journal Sentinel
"Editorial: On talk and action"

Letters to the Editor
Jack H. Werner
"Smart business execs don't need pandering"
Richard Armbrust, Jeff Joerres, Paul Purcell, John Shiely, Tim Sullivan
"Commitment to region is solid"

What else is there left to say? Plenty, I'm sure.

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Update: More commentary today, January 18. The conversation continues...

The Business Journal Serving Greater Milwaukee
Editorial: "Listen to leaders' calls"
Steve Jagler, executive editor of Small Business Times
"Standing up against what's wrong in Milwaukee"

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Update: Three op-ed articles in Sunday's Milwaukee Journal Sentinel Crossroads section....

Jeff Browne, "Milwaukee can compete if it's willing to change"
James J. Casey Jr., "Lesson's from the Asian Tiger"
Michael Rosen, "Milwaukee Business Leaders seem to want a return to the 19th century"

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Update: An article and a blog posted today, January 25. And the beat goes on...

The Business Journal Serving Greater Milwaukee, "M7 impact questioned"
Charlie Sykes, "Who's the enemy?"

Profitable "Photo Cop" programs leave some seeing red

Mounted cameras that identify and ticket drivers that run red lights could offer revenue and safety benefits to Wisconsin cities – but legislators should consider the sometimes-negative outcomes that have taken place in other cities before green-lighting such a program.

A bill in the Wisconsin state legislature could open the door to a program some cities have nicknamed “Photo Cop.” If passed, Wisconsin municipalities could join the over-100 other U.S. cities that use cameras mounted on stoplights at key intersections to identify cars running red lights. Presuming that the driver of the car is also the owner, violators would get tickets in the mail. Car owners do not have to pay the ticket if they can prove after the fact that someone else was driving the car. While this system has benefits, other cities like Minneapolis have seen a spiraling series of problems stemming from their “Stop on Red” program.

In Minneapolis, the 12-camera program quickly began bringing in more revenue than initially intended from the $142 tickets. Among the monitored intersections, crashes dropped 16 percent after cameras were installed, versus a five percent drop city-wide.

Embarrassing information came out in the press that 14 Minneapolis police squad cars had been identified as running red lights in non-emergency situations. Some citizens had problems too – one video record shows a blue car running a light near a stopped red car, but the red car’s driver got the ticket in his mailbox and had to institute a lengthy fight to get out of paying it. (Similar tale here.)

Then the ACLU got involved, arguing that the program violates drivers’ constitutional rights and considers them guilty until proven innocent. In the resultant court case, the judge agreed that, while there is always authority to ticket drivers for violations, there was no authority to ticket the car owners, who may or may not have been driving the car at the time of the violation. After eight months of operation, 26,000 tickets, and more than a million dollars in revenue, the Minneapolis Stop on Red program was put on hold until appeals could be decided by a higher court. The cameras were officially shut down in April after a Minnesota Supreme Court ruling.

San Diego’s similar program hit scandal resulting in 150 separate lawsuits when it was alleged that Lockheed, which received a cut of every ticket for administering the cameras, had tinkered with the traffic lights without the city’s knowledge in order to shorten the yellow light time and drive up the number of tickets. A similar 2004 class-action lawsuit in Baltimore also claimed that yellow lights were unusually short at intersections with cameras.

While many cities found accident reductions with the cameras, a number of others found that the cameras sparked a significant increase in accident rates, presumably from drivers that slam on the brakes when they notice the cameras. Washington D.C.’s program generated $32 million in fines over six years from 500,000 tickets. An inquiry found that the rate of accidents at intersections with cameras increased after the camera was installed. The increased accidents were at the same rate or worse than at the 1,520 city intersections with traffic lights but no cameras. Critics claim that, while red light programs are flush with rhetoric about safety, such programs are more concerned with generating revenue.

At this point, no organization has registered to lobby against the bill in Wisconsin, but the Department of Transportation opposes it, predicting it will drive up the agency’s expenses.
Some elements to consider about the bill in the Wisconsin legislature:

• New sources of local government revenue are increasingly needed, especially given the public's anxiety about high property taxes.


• How do we know the program will increase safety? While cameras have reduced accidents in some cities, they appear to have increased accidents in others.


• Will the program be susceptible to lawsuits similar to the ACLU concerns in Minneapolis? How can we shape a program that does not have the same vulnerabilities?


• Will citizens be adequately protected from incorrect accusations? Will the system to dispute tickets be simple and streamlined for the wrongly accused, or overly burdensome? To what extent are drivers “guilty until proven innocent”?

As legislators weigh the potential positives and negatives of red-light camera programs, one hopes that they can see through the dollar signs to create a policy that, if passed, preserves safety and justice while generating revenue.

The other Iowa story

Mike Huckabee and Barack Obama were the big story last week in Iowa.

However, the big story from the last five years in Iowa has been its resilient economy. In fact, no state in the upper Midwest is adding jobs as fast as Iowa. That's right, Iowa. While the Midwest as a whole grew its overall employment 0.2% in the first half of 2007, Iowa's employment grew 1.2%. True, Iowa is no Utah when it comes to job growth but their rate of growth is impressive next to Wisconsin's meager 0.2% advance.

According to a recent Mid-year jobs report released by the Chicago Federal Reserve Bank...

Iowa reported above a 1% growth in total employment partly due to its strong professional and financial industries. For the first half of the year, Iowa also experienced greater than 1% growth in its construction, information, education and health, and leisure and hospitality industries. Similar to Indiana, Iowa recorded a significant increase in construction jobs, even as home building slowed.

Additionally, Iowa's high-paying FIRE industry (Finance, Insurance, and Real Estate) comprises 6.7% of total employment as compared to more modest 5.9% slice for the Midwest. In fact, Iowa's "insurance advantage" is attracting investment from Wisconsin's very own CUNA Mutual - CUNA Mutual recently completed a significant corporate merger in Iowa.

In short, not only is Iowa adding jobs, but it's adding the right kind of jobs - the high paying kind.

How did Iowa turn its economic ship around? At the risk of sounding like a broken record here at the Forum, let me suggest to you that it started with a plan. That plan - Iowa 2010, The New Face of Iowa - was released in 2000 and set eight goals to grow Iowa's economy. The goals focused state support on the life sciences, information technology, advanced manufacturing and their emerging insurance cluster - all high-wage and high-tech industries. Each of the eight goals had a list of specific action items, identified leadership roles and measurable indicators to monitor goal progress.

Wisconsin has no such detailed economic development plan (not unlike the vast majority of municipalities and counties in the Badger State). Previous plans from the state, like Grow Wisconsin are really "plans" in name only as they lack a timetable, measurable progress indicators, responsible parties or even a unified budget. Without these critical elements the typical Grow Wisconsin "plan" tends to read more like a political position paper or wish-list than an actual plan. Perhaps Gov. Doyle's upcoming third installment of Grow Wisconsin will be more detailed.

To be sure, governments don't grow economies, businesses do. In Iowa, state government pointed the way with an actionable and accountable 10-year plan and business growth followed. At the start of the new year, this may be as good a model as any to implement in Wisconsin.

Update: Gov. Doyle released a new package of economic development initiatives today.

New year wishes evoke vision for Milwaukee

In the spirit of the new year, OnMilwaukee.com has issued a list of one hundred wishes for a better Milwaukee that succeeds in communicating both a love for and an educated concern for the city. The list strikes a balance between the quirky (number 78: more “pizza by the slice” shops throughout the city), and the serious, with many vital policy issues rising to the top.

Some items speak to what all good citizens desire – good schools, less crime, a local government that is without scandal, and of course, great local sports. Other points take Milwaukee to task on specific gaps, such as needs for Park East development, a tenant for Pabst City, and money for parks.

While the OnMilwaukee.com staff writers are not necessarily a representative group, it is revealing to view Milwaukee through their lens. Their vision for this city is light on the bratwurst of yesteryear and heavy on forward-looking elements such as wishing for city-wide wi-fi , commuter rail, more local female politicians, and multiple environmentally-friendly points including more bike lanes, clean bodies of water, community gardens, and an improved citywide carbon footprint.

While a wish for no tax hikes makes the list at number 19, a savvy commenter points out that many, if not most, of the other wishes would require increased revenue.

The list concludes with wish number 100: “Never again to hear the phrase ‘Milwaukee has an inferiority complex.’” As usual, time will tell whether wishes grow to become resolutions and actions. Though the Public Policy Forum cannot promise to chart the density of local “pizza by the slice” shops in 2008, we are committed to continue addressing regional policy issues to build a better Milwaukee and southeast Wisconsin region.