PPF Pearls: Some deficits are structural and not caused solely by recession

There’s no question that the fiscal condition of many local governments has weakened as a result of the compounding effect of the poor economy. Private and public job reductions lower income tax revenues, diminished consumption decreases sales tax revenue, foreclosed properties and drops in home values stress property tax collection, and increased service demand stemming from higher rates of unemployment puts upward pressure on social services budgets. However, any analysis of the scope of local government fiscal problems and potential solutions must take into account the structural problems that existed prior to the recession and must not let government officials off the hook for developing long-term, structural solutions.

Take Milwaukee County, for example. A recent Journal Sentinel editorial, while effectively urging responsible action to respond to the county's projected budget deficit for this year ($15 million) and the anticipated gap in 2010 ($90 million), links those deficits largely to the recession. A keen eye to the past should reduce the temptation to make that link, however.

As laid out in a Public Policy Forum report released in March of this year, the county has an immense built-in structural deficit that has gone unaddressed for years, and that results largely from the county’s overreliance on external revenue sources and rapidly escalating fringe benefit costs, as well as short-term budget fixes that have ignored longer term problems. Yes, recession-induced factors such as lower sales tax revenue, a much larger Pension Fund payment and sizable cuts in state revenues make the problem more acute, but the county would be facing at least a $41 million shortfall heading into 2010 even with no recession, as we pointed out to supervisors in a budget report and budget testimony last fall. Immediate fixes such as furloughs may be required to address this year's deficit, but long-term thinking and tough decision-making are required to permanently put the county back on track.

A resolution recently put forward by Milwaukee County Supervisor Patricia Jursik might be a start. The resolution, similar to one of the policy options we outlined in our budget analysis, would create an independent county controller and revive efforts for strategic planning. While these steps will not immediately produce savings and efficiencies, they hold promise for establishing the type of honest, collaborative, and constructive debate that can effectuate sustainability for Milwaukee County.