Passing the test, but making the grade?

When the Public Policy Forum decided to dive deeply into the finances of the Milwaukee Public Schools (MPS) six months ago, we did so with considerable trepidation. Having tracked MPS' finances on a general level for the past several years, we were well aware of the district's huge retiree health care liability, the fiscal threat posed by declining enrollment, and the impacts of the latest state budget. Despite the good news we were hearing from MPS officials about the impacts of soon-to-be-implemented fringe benefit changes, we were concerned about precisely what we would find when we lifted the hood and dug into the mechanics of MPS' finances.

Today, after completing our comprehensive assessment of MPS' fiscal condition, we are relieved to say that the school district’s short-term fiscal outlook is not as ominous as we had feared. In fact, the district’s most recent five-year forecast projects a 2017 deficit of about $41 million, which is actually more optimistic than similar forecasts prepared by the City of Milwaukee and Milwaukee County. We also find, however, that the volatile and uncontrollable fiscal environment in which the district must operate creates an “untenable fiscal structure” that continues to raise serious questions about MPS' longer-term future.

Our 84-page report - entitled Passing the Test, But Making the Grade? and released this morning – uses the same fiscal monitoring methodology used previously for reports on Milwaukee County, the City of Milwaukee, MATC, and MMSD. It examines fiscal trends, compares MPS to state and national peers, and analyzes the causes and scope of the district’s fiscal challenges.

A major undercurrent of the report is MPS' lack of control over its own financial destiny. The district is far more dependent than other local governments on state funding, and much more susceptible to fiscal upheaval from policy and program decisions made in Madison and elsewhere. Those decisions not only can involve state appropriations and revenue limits, but also regulatory changes to charter school or private school choice programs that can sharply affect MPS enrollment. MPS' finances also can be hit hard by the chartering decisions of outside entities, and by demographic trends impacting the city.

Other key findings from the Forum's new report on MPS' financial condition:

• While the near-term future is looking better, deep structural issues remain. MPS' health care changes planned for the 2013-14 school year – assuming the continued legality of Wisconsin Act 10 – will save almost $35 million annually and reduce its retiree health care liability by $1.4 billion. The longer-term future looks far more challenging, however, as the district’s revenue streams are likely to be constrained well into the future; its retiree health care liability will remain daunting; and its ability to further reduce personnel costs will be limited by its need to attract and retain quality teachers and administrators to compete with voucher, charter and suburban schools.
• MPS’ high expenditure levels must be placed in context. While prohibitive fringe benefit costs have been an issue, MPS’ high levels of per-pupil spending are driven much more by its receipt of large amounts of state and federal categorical aids. Those funds are used largely to support economically disadvantaged and special needs students, who comprise the vast majority of MPS’ student population. When categorical funds are excluded, the district’s per-pupil spending is only slightly above the state average.
• MPS’ greatest challenge is its lack of fiscal options. After its initial rounds of benefits changes, MPS will have few alternatives left to counter the effects of flat state funding and declining enrollments. The district does not have program revenue, as do other local governments, and it is unlikely to be able to grow the property tax at the same rate as in the past. Meanwhile, enrollment competition exerts pressure on MPS to maintain its teacher compensation structure and capital footprint, and potential programmatic cutbacks run the risk of reducing program quality and engendering further enrollment and revenue loss.

The report credits MPS leaders for pursuing a balanced approach to stabilize the district’s finances that includes not only substantial fringe benefits changes, but also a new facilities master plan and renewed dedication to operational efficiencies. Overall, however, it is difficult to gauge whether successful implementation of those strategies will be enough to solve the district’s fiscal challenges.

For example, the report's fiscal modeling shows that if the 2013-14 benefit changes are implemented, if the district can achieve marginal annual growth in combined equalization aids and property tax levy under future state revenue limits and appropriations, and if MPS can achieve a limited reduction in salary expenditures, then balanced budgets are readily achievable in the next five years. Under another plausible scenario, however, in which the benefits changes made possible by Act 10 do not fully take effect, major revenue streams remain flat, and salary expenditures decrease by a lesser amount, a dire fiscal picture emerges.

The report concludes by stating that “perhaps the most troublesome question raised by the fiscal assessment is whether any entity could be expected to effectively manage a fiscal predicament as challenging as that faced by MPS in an environment that is plagued with such uncertainty."

That finding leads us to urge local and state leaders to reach agreement – once and for all – on the role MPS will play in the city’s education framework, and to define and secure the resources required to effectively fulfill that role.

The full report can be accessed here.

City budget manages new fiscal reality, at least for the time being

The main focus of the Public Policy Forum’s annual review of the Mayor’s proposed City of Milwaukee budget – released this morning – is the immense challenge posed by a $59 million pension fund payment in 2013, which marks the beginning of an unprecedented series of pension payments that will impact city budgets for the foreseeable future.  We find that thanks to the foresight exhibited in previous budgets, the impacts in 2013 are manageable.  In fact, the Mayor has proposed a budget that deftly accommodates the remarkable increase in pension payments without fully depleting pension reserves or slashing critical services.

The impact of these new pension payments should not be taken lightly, however.  Pension costs will consume 32% of the city’s property tax levy in 2013, as compared with 15% in 2009. In the next few years, that percentage is likely to continue to grow, as the city’s pension reserves are tapped out and expenditures are cut elsewhere. 

Our 2013 city budget brief also reviews a set of strategic principles proposed by the mayor and his budget team to guide the city through its new budgetary realities.  Those principles emphasize finding new, cost-effective ways of conducting business, with savings reinvested in priority areas while also supporting the sizeable pension payments.  While this concept – labeled “resizing, restructuring and reinvesting” – is both innovative and appropriate, implementing the plan will not be easy.  Indeed, the budget suggests that $65 to $75 million of structural improvements will be needed in the next four years, along with a reduction of 400 to 600 positions.

The 2013 proposed budget also accommodates heightened pension costs with elevated municipal service charges.  The fee increases proposed for 2013 raise the dependency of general fund spending on this revenue source to 19.5%, as compared to 15.9% in 2009.  In fact, in 2013, charges for services become a larger source of support for general departmental spending than the property tax levy, a development that is likely to remain in place for the foreseeable future. 

We conclude by warning that while the 2013 proposed budget largely maintains existing service levels and keeps position reductions at a minimum, it is highly questionable whether enough efficiency can be identified in departmental operations in future years to continue those achievements.  The answer to that question will depend, in part, on the approach the city takes to the revenue side of the equation, as well as how shared revenue fares in future state budgets. 

Our analysis of the 2013 City of Milwaukee proposed budget can be accessed here, and our media release here.

Consolidating dispatch operations in Milwaukee County's South Shore

Would an independent consolidated dispatch center better serve the communities of Cudahy, St. Francis, and South Milwaukee?  Our latest report finds that consolidating dispatch could produce substantial operating and equipment savings, as well as operational improvements, which include the ability to better coordinate responses to major incidents. It also indicates, however, that those potential advantages must be weighed against the current benefits for each city of solely controlling its dispatch operations and maintaining those operations at its own police headquarters.

Because dispatch personnel at the three police departments do far more than traditional dispatch activities, with additional duties ranging from parking administration, to background checks for liquor license review, to collecting bail on warrants, the report includes models that take into account the need for each government to cover those non-dispatch tasks.  

Key findings from the analysis include the following:

• By consolidating their dispatch operations into an independent consolidated dispatch center, the three cities could reduce current collective annual operating expenditures by approximately $132,000 to $256,000, and produce equipment savings within the next five years of approximately $400,000 to $600,000.

• If one of the three cities were to perform dispatch services under contract with the other two, or if the three cities contracted with a neighboring jurisdiction for dispatch services, then substantial additional savings could be generated. While the report focuses primarily on creation of an independent consolidated dispatch center, it suggests that contracting for dispatch services could be even more cost efficient because the three cities would not have to lease or purchase space, hire a dispatch center manager, and contract for back office support.

• Potential cost savings must be weighed against loss of local control and the potential loss of 24-hour staffing at each city’s police headquarters. The report notes that the lack of on-site dispatchers may preclude 24-hour staffing at police stations, which some may argue would produce a decline in the level of police protection offered in each community.

• If the three cities do not decide to pursue consolidation of their dispatch operations, then they may wish to at least review whether the administrative tasks assigned to dispatchers might be more appropriately assigned to clerical staff.

In the end, the question of whether to pursue an independent consolidated dispatch center – or to jointly contract for this service with a different jurisdiction – must be considered within the context of each city’s short-term and long-term financial circumstances and public safety needs.  An additional consideration is whether the cities may wish to pursue additional public safety consolidation, which may further dictate the logic of consolidating dispatch services. (Our analysis of the possibilities for shared or consolidated fire and emergency medical services in the South Shore will be released early in 2013.)

The report was funded by the three cities and the Greater Milwaukee Committee, with whom the Forum has partnered to facilitate an Intergovernmental Cooperation Council workgroup that is discussing shared services among Milwaukee County’s 19 municipal governments. In May, the Forum released a report on possible consolidated fire services in the five other southern Milwaukee County municipalities.

A closer look at non-instructional expenditures in suburban school districts

The Forum released a new report this morning that examines out-of-classroom expenditures in Milwaukee County's suburban school districts. The examination was prompted by the increased pressure faced by most districts to identify operational cost savings while also maintaining or enhancing academic performance. Given the apparent conflict between the two imperatives, non-instructional areas of spending are likely to receive increased focus for possible cost-saving opportunities, including possible service sharing with other districts or local governments.

The report focuses on the dollars spent on non-instructional support services, including administrative, "back office" functions (e.g. payroll, accounting, information technology); administration of ongoing operations and school buildings; non-instructional pupil services, such as social work and guidance; and instructional staff services, such as curriculum development and staff training.

Among our key findings:

• Milwaukee County suburban school districts tend to spend more on support services per pupil than their peers from across the state. This finding is particularly perceptible for the smaller and wealthier school districts in the county.
• Fourteen of the 17 Milwaukee County suburban districts are at or above their peer medians in support services expenditures when measured as a percentage of total expenditures. Consequently, support services expenditures constitute a greater proportion of these districts’ budgets and require a greater share of district revenues.
• There is considerable variation within Milwaukee County in support services expenditures per pupil, ranging from $3,220 at Oak Creek-Franklin to $7,035 at Nicolet, and from 29% of total expenditures at Cudahy to 39% at Nicolet and Fox Point-Bayside. Nicolet and its small feeder districts, among the wealthiest districts in terms of property values, generally have the highest expenditure totals per pupil, while the largest districts (Oak Creek-Franklin, West Allis, and Wauwatosa) are among the lowest.
• Many Milwaukee County suburban districts are cooperating with neighboring school districts in providing administrative and other services. Nevertheless, the report identifies three areas of shared services saving opportunities that may hold promise for additional cost savings: cooperative health insurance purchasing, back-office operations, and regional networking.

The report finds that consolidation of back office operations is perhaps the most intriguing of the three options examined, particularly for the Nicolet district and its three feeder districts, all of which are small in size, with high costs, and a tradition of inter-district cooperation. Residents in small- and medium-sized districts in the southern part of the county also might find this attractive given their traditional concerns about cost, and the fact that district borders cross several other municipal taxing jurisdictions, allowing costs to be spread among a larger tax base.

We hope the suburban school districts will consult the expenditure data included in this report as they consider internal fiscal and program evaluations and contemplate budget strategies. We fully expect each district to do so, of course, in the context of its own fiscal and educational circumstances, which may include a preference for a level of services that costs more, but that they determine best meets student needs.

A full copy of the report can be accessed here, and our media release here.

Managing local government health care costs: The ambiguous incentives of federal health care reform

Recent local government and school district budget deliberations have honed in on deep and often contentious modifications to health care benefits. Many have asked how far local governments will go in reducing benefits now that they have been given greater flexibility to pare down employee health care costs without having to collectively bargain with most unions. These questions likely will continue and become more dynamic with the phasing in of the federal health care reform law.

In 2014, federal law will require all individuals to have health insurance, with new government-subsidized health care exchanges offering an alternative option for small businesses and individuals who are not eligible for Medicare, Medicaid or affordable employer coverage. States can allow large employers to participate in these exchanges in 2017.

How large employers, both public and private, will react to the federal health care reform law is a big unknown. Besides taking advantage of lower cost plans provided through exchanges, some speculate that employers may also consider dropping coverage altogether.

The wild card is a “play or pay” penalty imposed on large employers for not providing affordable employee health care coverage. Large public and private employers who fail to do so will be subject to a $2,000 annual penalty beginning in 2014 for each of their employees, provided that any of their employees have a household income low enough to qualify for a federal subsidy to help pay for coverage within an exchange. Employers offering coverage that pays less than 60% of expenses would face similar penalties, but only for those employees eligible for the federal subsidy. This applies to even seasonal employees that work full-time hours in any given month, a population that currently does not get health coverage in most local governments.

With many local governments paying annual premiums of $20,000 or more for family plans, and picking up more than 80% of plan costs, a $2,000 penalty would be a bargain. Consequently, some argue that many local governments will drop or significantly reduce employer-based coverage.

A recent Urban Institute report challenges this perspective, arguing that for any large employer such a shift would wrongly ignore market realities and the dynamics of worker preferences. While the Institute's report notes that exchanges could better suit some lower-income individuals because of the subsidies for which they are eligible, employers still need to maintain an edge over competitors to retain and attract highly skilled and higher paid employees. Those individuals would not receive subsidies and their share of the exchange plan costs would be approximately 30%, as compared to the typical 15% in employer-based plans.

The report also argues that market competition will force employers who decide to drop health insurance to fully cover the lost benefit with increased wages. On top of that, the employer would still face the $2,000 penalty for each worker.

Do these considerations hold true for local government employers in particular? One factor that has been downplayed is that local governments and their competitors will likely be pressured to contemplate significant changes to employee compensation. Consequently, the market pressure to maintain health care benefits in order to remain competitive may be diminished as all employers continue to recalibrate compensation. Nevertheless, a key question is how local governments will balance the reality of restricted resources and the need to preserve critical public services with their equally compelling need to attract and retain quality workers.

Priority-setting at the Milwaukee County Courthouse

In the Public Policy Forum's annual review of the Milwaukee County Recommended Budget - released this morning - we commend the administration’s efforts to establish clear priorities and make difficult decisions, but emphasize there is “still much work to be done” to address the county’s structural imbalance.

Clearly, this is a budget that does not shy away from difficult spending cuts, ranging from elimination of support for the Emergency Medical Services (EMS) program and local arts groups, to substantial reductions in the Office of the Sheriff, to another sweeping call for health care savings from county workers. We caution that while the programmatic impacts and consequences of those decisions must be carefully deliberated, the county executive and his budget staff deserve credit for recognizing the need to cut somewhere.

Despite several positive strides in the budget to address the county’s structural problems, the report notes that significant challenges remain. It points out that the use of reprogrammed federal funds to avert substantial bus service reductions is a two-year solution at best, and that the county’s continued reliance on annual wage freezes and health care cuts as primary budget-balancing tools may not be sustainable.

In addition, the report cites the county’s glaring lack of reserves – an issue exacerbated by a recommendation to diminish its contingency fund – as giving pause to any notion that it has fully reconciled its fiscal shortcomings, or that 2012 will be the first year in recent memory devoid of the need to debate mid-year corrective actions to avoid running a deficit.

The report concludes by noting that debate is needed regarding the priorities and strategies selected in the recommended budget, as well as the “appropriate mix of revenue enhancements and spending cuts.” It says it is imperative, however, for the county board to follow the budget’s example of making difficult decisions and avoiding short-term gimmicks.

The full report can be accessed here. The Forum released a similar review of the 2012 City of Milwaukee budget on Friday.

Milwaukee County's alarming budget prognosis

For those who hoped the changes to collective bargaining or the arrival of a new county executive might finally solve Milwaukee County's longstanding fiscal problems, we are sorry to disappoint. The Public Policy Forum's 2012 Milwaukee County Budget Preview report - released this morning - shows the county's budget prognosis actually has worsened since last year, leaving it with "few remaining strategies outside of deep service cuts and/or sharp revenue increases."

This is our first report analyzing Milwaukee County's finances since the adoption of the state budget repair bill and 2011-13 state budget. Our analysis confirms that the county realizes substantial savings from the budget repair bill's labor provisions, likely exceeding $24 million in 2012. Unfortunately, about $17 million of those savings already were built into the county’s base budget in 2010 and 2011. Thus, while the net savings of $7 million for 2012 are significant, they do not come close to offsetting the nearly $29 million in state aid reductions contained in the latest state budget.

Additional key findings and observations from the report:

• Our modeling of several approaches for bridging an estimated $38 million 2012 gap shows potentially stark impacts for county employees, services, programs, and/or taxpayers. Those include deep cuts in mass transit and community-based mental health and disabilities services; severe reductions in parks and cultural amenities and exhibits; and additional reductions in health care benefits that could greatly exceed those imposed on other public sector workers in Wisconsin.


• Because the county may have a one-time opportunity to boost its property tax levy by nearly $10 million in 2012, there is a limited timeframe to include significantly enhanced local revenues as part of the county's deficit-reduction strategy. The only other local broad-based tax or fee available to the county is the vehicle registration fee, which could be used to generate additional revenue for transit or other transportation needs, but which has generated considerable political opposition.


• A five-year fiscal outlook prepared by the county before adoption of the 2011-13 state budget showed a noticeable improvement over the five-year forecast from a year ago. Once the impacts of state aid reductions from the state budget were plugged into the model, however, the county’s five-year outlook became even worse than that forecasted in 2010, despite the budget repair bill’s provisions giving the county unilateral control over many labor and benefit costs.

The report concludes by noting that because the county now has greater certainty and flexibility with regard to its employee compensation framework, its ability to engage in strategic planning has been greatly enhanced. While that won't make the tough decisions any easier, it does allow county officials to reliably size up their fiscal situation and, ideally, finally reach consensus on a realistic scope of county services going forward.

The full report can be accessed here, and our media release here.

The tools in Milwaukee's revenue toolbox

As the Public Policy Forum’s 2010-2011 Norman N. Gill Civic Engagement Fellow, I have completed my year-long project that analyzed how local governments raise revenue. The report, The tools in Milwaukee's revenue toolbox, stems from a 2009 Forum report that assessed the fiscal health of the City of Milwaukee. That report found that the city is over-reliant on state shared revenue as its main revenue source, and handcuffed by rising fringe benefit costs for city employees and growing expenditure pressures associated with police and fire services (which account for more than one half of all city operating expenditures).

Under the recently adopted state budget repair bill, the city has been granted cost-saving “tools” that will allow it to impose greater fringe benefit cost-sharing for non-public safety city employees. Yet, some city officials and policymakers are unsure if these tools, because they exempt public safety employees and are coupled with a cut in state shared revenue, will be enough to alter the city’s fiscal predicament. Consequently, my project explores the other side of the debate – the revenue toolbox. It asks what alternative revenue structures exist in other cities, and whether they are suitable for Milwaukee.

To answer these questions, we researched 15 cities that are comparable to Milwaukee, analyzed each city’s budget, and compared how each city generates revenue. Our key finding was that Milwaukee relies heavily on intergovernmental revenue (i.e. state shared revenue) to fund its budget (46% of general budget revenue), while the comparison cities raise the bulk of their revenues via the use of broad-based sales, property, and/or income taxes. In fact, no other city relies on intergovernmental revenue for even a third of its budget, and the vast majority has a dependence of less than 10%. Meanwhile, Milwaukee’s use of broad-based taxation for only 20% of its general budget pales in comparison to the other cities, the vast majority of whom use broad-based taxes for more than half of their general budgets.

Given these findings, we next examined the sales, income and property tax and their potential application in Milwaukee if city leaders were authorized to use them to reduce reliance on state shared revenue. Some of the insights we gleaned are as follows:

• Because Wisconsin has a relatively low sales tax compared to other states, implementing a city sales tax of .01% to 1% would not put Milwaukee out of line with comparable cities nationally, and could benefit the city by requiring non-residents to contribute toward the cost of city services. Milwaukee does not have the ideal sales tax base, however, because of the comparably low amount of retail sales that take place in the city, and because of Milwaukee’s high poverty rate.


• A city tax on individual income would allow for the possibility of shielding the poor from tax liability through specific tax rates for different income groups, or the ability to utilize deductions and credits. Also, such a tax potentially could be applied to non-residents who work in the city as well as residents, thus providing a mechanism to collect revenue from non-residents who use city services. On the other hand, even without a local income tax, residents in Milwaukee already have a relatively high state income tax burden, and adding an additional layer of income taxation could be harmful to the attraction of residents and businesses.


• Using a property tax to fund a greater proportion of the city budget could allow for a more predictable revenue stream because local governments would have some ability to change the tax rate to meet expenditure needs or to accommodate a decline in property values. Yet, because Milwaukee has comparably low assessed property values, funding a larger portion of the general budget with property taxes would require Milwaukee to add substantially to its already high property tax rates.


• An option in which city leaders were allowed to pursue a better balance of revenue sources by implementing a 1.0% city sales tax would allow for a sizeable decrease in property tax rates and reduced reliance on state shared revenue.

In the end, the report demonstrates that there are no easy answers to the City of Milwaukee’s revenue dilemma. In the event that the cost-saving tools contained in the budget repair bill are not enough to address Milwaukee’s longstanding fiscal problems, however, it also shows that it may be helpful to consider a balanced revenue structure that is more comparable to the other cities we studied.

Special thanks to the Gill family for their generous support of this project through the Norman N. Gill Fellowship, and the Public Policy Forum for their assistance and guidance throughout the year.

Time to consider a countywide comptroller in Milwaukee?

The announcement earlier this week by longtime City of Milwaukee Comptroller Wally Morics that he will not run for re-election in 2012 creates a vacancy in one of our region's most important, but least understood, elected public offices.

The comptroller essentially functions as the chief financial officer for city government, exercising fiscal control, per the city Web site, "over the activities of approximately 40 city departments and agencies." Perhaps most important, the comptroller's office sets the tone for fiscal responsibility and accountability in city government. It does so by establishing accounting policies and procedures for all city departments; overseeing the city's debt portfolio (which exceeds $750 million); administering all federal and state grants; reviewing all proposed development projects involving city economic development tools; conducting audits of internal city functions; and certifying all revenue figures used in the annual city budget.

In an August 2009 report, the Public Policy Forum found that despite serious fiscal challenges, the city "by most any standard...is financially well run." In many respects, that is attributable to a chief financial officer position that not only is specifically charged with ensuring that the city's finances are responsibly, accurately, and transparently managed, but also one that, because of its independently elected status, can do so without fear of recrimination from other city leaders.

The Forum also has opined, in several of its recent reports on the finances of Milwaukee County government, that the absence of a similarly charged independent controller's office in that government has contributed to its financial difficulties. Consequently, in light of Mr. Morics' impending retirement, is it worth considering whether the elected city comptroller should be transformed into an elected countywide position that would fulfill the same fiscal oversight functions for both city and county government?

Admittedly, questions of home rule, statutory and logistical issues, and turf concerns would make such a proposition difficult to implement, particularly in time for the April 2012 election cycle. But among the potential benefits of such a move - in addition to giving the county the type of independent fiscal oversight it has long needed - would be the following:

• Combining certain city and county accounting and internal audit functions within one office could promote greater quality and efficiency, and perhaps save money by allowing for staff reductions and/or merged financial management and payroll systems.


• An independent office overseeing the financial affairs of both governments would be able to provide greater perspective on regional infrastructure needs and priorities, and how they should be funded. This is counter to the existing state of affairs, in which each government issues long-term debt for capital projects without knowledge or concern about the other's borrowing decisions.


• This could be a significant initial step toward far greater city-county cooperation, as having common fiscal policies and procedures and a unified set of accountants could make it much easier to consolidate other services down the road. The professionals working in a consolidated comptroller's office also could be a source for new ideas on how to consolidate other "back office" functions, such as information technology, human resources, health care administration, procurement, etc.


• A joint city-county comptroller's office might even be able to provide accounting, audit, payroll or financial management services to other Milwaukee County municipalities at a price that would save money for the municipalities.

Again, while this idea would require substantial additional research and deliberation, doing so would be consistent with the shared services and consolidation discussions that are occurring with increasing frequency among the new county executive and local municipal leaders. If ever there were a time when such an idea should be considered, it would appear to be now.

MMSD's fiscal condition: downstream accomplishments, upstream challenges

This morning, the Public Policy Forum released a comprehensive asessment of the Milwaukee Metropolitan Sewerage District (MMSD). This is the fourth in a series of reports analyzing the financial condition of major Milwaukee area local governments. It finds that while MMSD has experienced few of the financial difficulties experienced by others, it faces difficult long-term issues nonetheless.

The report uses the same fiscal monitoring methodology employed previously for reports on Milwaukee County, the City of Milwaukee, and MATC. It examines fiscal trends, compares MMSD with other wastewater treatment agencies nationally, and analyzes emerging fiscal challenges.

The good news is that MMSD’s decision in the late 1990s to outsource most of its operations has greatly reduced operating budget pressures and risk, while its capital program has benefited from careful planning and prudent debt management practices. In fact, as measured by commonly used fiscal indicators, MMSD enjoys sound fiscal health and appears well-positioned for the future.

A closer look, however, also reveals that the cost to maintain the existing sewer system and achieve MMSD’s water quality goals could amount to many billions of dollars, and that the district may struggle to identify the means to fund both basic infrastructure repairs and watershed planning strategies.

Key findings from the report include:

• MMSD’s well-funded reserve accounts and long-term operations contract with Veolia Water, as well as its user-based revenue structure, provide a level of operating budget stability not enjoyed by most local governments.


• The net value of MMSD’s capital assets is nearly $3.5 billion, which means the district’s residents have invested more in MMSD’s property, plant and capital equipment than in the facilities of Milwaukee County, the City of Milwaukee and MATC combined.


• National data show MMSD's sewage and treatment capacity offers greater protection from sewage overflows than most other districts and provides higher-quality effluent discharges. MMSD also ranks high in comparisons on operating efficiency.


• After decades of aggressive capital spending, MMSD’s capital projects will decline significantly under the district’s six-year capital financing plan in order to stabilize a rise in debt service expenditures. Project funding may be further affected by state budget actions. Those developments may hamper MMSD’s efforts to work with local municipalities to reduce stormwater runoff and infiltration and inflow from laterals on private property.

The report explains that completion of the Deep Tunnel and its extensions allows MMSD to shift its focus to broader priorities, including provision of technical support and financial assistance to repair deteriorating private sewer laterals, and provision of funding for “green” projects aimed at reducing stormwater runoff, which is now the major source of regional water pollution.

Increased policy flexibility also may bring increased conflict, however, particularly over the question of who should pay. For example, there are more than 3,000 miles of private property laterals within the district, and the district’s efforts to partner with municipalities to improve infrastructure on private property raise new questions about the financial responsibility of both local governments and individual homeowners for repair costs.

The full report - which was made possible through grant funding by the Northwestern Mutual Foundation - can be accessed here. A media release is available here.

Diminishing returns to public sector employment

Most local governments in Wisconsin have certainly given their employee compensation packages a closer look over the last few weeks as the budget repair bill receives judicial consideration in Madison. The eventual implementation of what now has passed as Wisconsin Act 10 may soon be approaching, and elements within it are certain to help governments in some respects, but may tie their hands in others.

One knot that has yet to be fully assessed is the effective decline in salary growth for public sector employees resulting from new compensation guidelines. Limited salary growth paired with elevating fringe benefit costs will eat into take home pay. Though this diminished growth may be a fiscal necessity, locking it into perpetuity raises some difficult questions.

Under the budget repair bill, total base wages for all public employees would be prohibited from growing annually beyond the increase of inflation (measured by the national average CPI-U), unless approved by referendum. This measure of inflation has averaged a rate of 2.5% over the last 10 years.

While an annual salary increase of 2.5% does not appear unreasonable, it is important to recognize that most public sector workers also will be asked to pay more for their pension and health care costs year after year. Those costs, incidentally, have grown far faster than the CPI-U. The inability of salary growth to keep pace with the rise of fringe benefit costs may cause public employees to experience successive years of increasingly stagnant compensation.

A quick look at fringe benefit growth historically reveals the potential for diminishing growth in public sector pay. The table below shows five years of pension contributions and health care premiums for general employees working for the State of Wisconsin.

This information shows that the growth in annual pension contributions has been relatively flat, as the contribution to the Wisconsin Retirement System (WRS) has averaged a 1.9% increase annually from 2007 to 2011. This would signify that annual salary increases allowed under the new law could be sufficient to offset the growth in the employee share of pension costs. However, it has been suggested that pension contributions to WRS may need to increase significantly in the future to reflect more realistic interest rate assumptions and other factors. If that development does occur, employees could see pension costs grow more rapidly than inflation, resulting in take-home salary growth that does not keep pace with inflation.

Health care costs pose an even bigger problem for public sector employees, as premiums have steadily climbed far faster than inflation. Premiums for the state’s Tier I family plans, for example, have grown at an average of 8.3% from 2007 to 2011. Because it appears unlikely that health care inflation will be reduced to a level equivalent to general inflation, public employee salary increases are unlikely to keep pace with growing health care contributions.

While a compelling case can be made for the need to require public sector employees to contribute significantly more to their health care and pensions costs, and while many private sector workers face similar salary and benefit pressures, public sector administrators face several important long-term questions.

For example, what tools will administrators have at their disposal to attract and retain valued employees if pension and health care cost increases negatively impact earnings potential? Will the repeal of most collective bargaining rights allow administrators new liberties in shifting salary dollars to ensure they can recruit for priority positions, whether it be through altering salary schedules, adjusting position classifications, or offering bonuses? And if so, what would such a shift mean for the rest of the employees, given that total salary expenditure increases are restricted? In light of the many retirements projected in response to Wisconsin Act 10, state and local government administrators may be seeking answers in the very near future.

UPDATE: It has been correctly pointed out that the inflationary limit on public sector pay increases applies to public sector workers who are subject to collective bargaining agreements only. However, the compensation changes of non-represented employees often mirror those granted to represented employees.

Proposed new transportation policy mirrors national debate

A key transportation provision in the governor's proposed budget that may have huge implications for mass transit also reflects a larger ideological debate that's raging in the nation's capital.

The provision stipulates that effective in 2013, state operating assistance for local transit systems no longer will be provided from the state's transportation fund, but instead will come from General Purpose Revenue (GPR). According to the Budget in Brief, the move is designed to "strengthen the relationship between user fee revenues and investments in transportation infrastructure." In other words, motor vehicle-related taxes and fees should be used exclusively for highways and roads, leaving other transportation modes to seek assistance from the general fund.

Wisconsin's transportation fund collects about $1.7 billion annually from transportation-related fees and taxes to help fund the state's transportation infrastructure. In the 2009-10 fiscal year, about $970 million of the fund's revenues came from the state's 30.9 cent per gallon gasoline tax, while another $610 million was derived from vehicle registration fees. The remaining $120 million came from other transportation-related fees.

In 2009, the fund provided $112 million in assistance to local transit systems, including $65 million to the Milwaukee County Transit System (accounting for more than 40% of its operating budget). The proposed budget would cut local transit assistance by 10% in 2012, then make the shift to GPR funding in 2013, freeing up an extra $116 million for highway needs.

The long-term impact of the proposed budget provision on local transit systems could be substantial. Rather than having to compete with the relatively small universe of transportation-related programs that currently receive support from the transportation fund, transit would have to compete with the much larger array of programs that vie for GPR. Considering the state's overall budget challenges, it is possible that local transit assistance could suffer dearly under such a scenario.

In the end, whether the provision is appropriate public policy may depend on one's definition of a user fee. And, interestingly, that's a debate that is now playing out on a national stage.

In Washington, the federal Highway Trust Fund (HTF) essentially has run out of cash. With the 18.4 cent per gallon federal gas tax frozen since 1993, and substantial gains in vehicle fuel efficiency, the ability of the gas tax to keep up with the country's infrastructure needs has been exhausted. In fact, more than one bipartisan blue ribbon commission has urged prompt action to rectify the situation.

Because both congressional Republicans and the Obama administration have said a federal gas tax increase is off the table for now, attention has now turned to how HTF dollars are being spent.

In an August 2010 report entitled "Restoring Trust in the Highway Trust Fund," two researchers from the Reason Foundation argue that the diversion of 2.86 cents per gallon of the federal gas tax for mass transit operating assistance - first initiated in 1982 - is an inappropriate use of a motor vehicle-related user fee and has weakened public support for the gas tax. Consequently, they recommend "shifting non-highway programs either to general revenues or to the states" and using HTF funds only to rebuild and modernize the Interstate system.

A few months later, two researchers from the U.S. Public Interest Research Group issued a rebuttal entitled "Do Roads Pay for Themselves?" The paper argues, among other things, that the federal gasoline tax is not a true user fee, as the amount an individual driver pays in gasoline taxes has no relationship to the frequency with which he or she uses interstate highways. The authors also contend that the notion that highways pay for themselves via user fees is a "myth" used by highway advocates "to secure access to scarce government revenue for their desired public policy ends—distorting transportation decision-making."

The debate on this issue will heat up soon, as Transportation Secretary Ray Lahood recently predicted Congress would have a new federal transportation bill on the president's desk by August. Given the change in policy in the new Wisconsin state budget, might this be another instance in which a debate in Madison will drive groundbreaking debates occurring on a national level?

Mixing it up: Exploring hybrid pension systems

The economic downturn has thrown even the most fiscally prudent governments for a loop. Dollars are stretching thin and new approaches to employee compensation are spreading across the nation. In light of the effects of the economic downturn, and as a measure to prevent similar fiscal vulnerability in the future, governments are particularly honing in on the manner in which they provide pension benefits. Everything from employee contributions, to retirement ages, to benefit levels are being reconsidered.

One concept receiving new attention is the use of hybrid pension systems. Hybrid pension systems are not new, but a lack of regulatory guidelines and several legal ambiguities suspended interest. In the last few months, greater clarification of federal guidelines for establishing hybrid plans has taken place. This may be what is needed to reinvigorate the hybrid conversation. Just this week, California’s Little Hoover Commission has suggested such a shift for California’s pension system.

Unlike private sector employers, most governments have stayed loyal to "defined benefit" pension systems. In such a system, regardless of the pension fund’s investment earnings, an employee can have confidence in receiving a certain pension payment upon retirement. This approach shelters government employees from unfavorable economic realities and requires the government to shoulder all the risk. When exposed to the downside of the risk, governments typically reallocate money away from other public service areas to appropriately fund their pension systems.

Most employers in the private sector have responded to market declines by switching to "defined contribution" (usually 401(k)) plans, which put the risk on the employee with benefit levels dependent on investment results. Many governments have contemplated similar moves, yet wrestle with whether or not switching to defined contribution plans will eliminate one of the key attractions to government employment and whether those plans provide for appropriate retirement security for their employees.

With federal regulations now better established for hybrid systems, pension options could be less polarized, a sentiment echoed in this Wall Street Journal article. Hybrid pension systems have gained traction because they remove some of the risk from governments, providing them with more shelter from poor stock market returns. However, unlike 401(k)-style systems, hybrid systems do not transfer the entire burden to employees. The risk is spread, instead, between both the government and its employees. This compromise could serve as a tool to both lessen the impact of market decline and protect an attractive benefit of public sector jobs.

There are various forms, but hybrid systems have the same basic composition – part defined benefit (usually a lower fixed benefit than the prior defined benefit plan) and part defined contribution. Benefits are viewed as hypothetical account balances and the accrued balance is portable, meaning it can be moved when an employee leaves government service to 401(k)s of his/her subsequent employers.

Hybrid plans often differ in the defined benefit formula, employer and employee contributions, and participation (voluntary or mandatory). The degree of shared burden, savings, and appeal depends on plan characteristics in addition to how those components differ from the current or proposed alternative and the subset of employees to which the change will apply. The Little Hoover Commission provided several examples of hybrid plans currently in place at the federal, state and local government levels, including Washington, Utah, and Orange County, California, shown in the table below:

Given that market uncertainty has caused defined benefit pension systems to significantly strain public services, as well as fierce public pressure to put public sector compensation in line with that of the private sector, hybrid plans are likely to continue to attract the attention of policy makers across the country. That attention has not taken shape in Wisconsin, however, with hybrid plans having yet to be picked up in the swirl of discussion surrounding local pension reform.

Framing the issues for the county executive candidates

During the past three years, the Public Policy Forum has churned out more than a half-dozen reports on issues pertaining to Milwaukee County government as part of our mission to educate the public about key policy issues impacting the region's economy and quality of life.

Those include an award-winning report on the county's transit funding crisis; a comprehensive review of the fiscal condition of its parks system and cultural facilities; another award-winning assessment of its overall fiscal condition; a redesign plan for its adult mental health system; and a carefully-researched analysis of potential substantive changes to its governance structure.

Today, we release a 2011 Milwaukee County Executive Election Brief that describes and frames those issues in a manner designed to be comprehensible to voters and helpful to the candidates themselves. The report begins with an overview of Milwaukee County’s budget and finances that provides a broad sense of the county’s budgetary structure and its longstanding fiscal challenges. Then, it summarizes and updates our recent research on the structural deficit, mass transit, mental health, and parks/recreation/culture. Each section concludes with a set of questions and policy considerations that should be foremost in the minds of candidates and voters.

Our goal, as always, is to cut through the politics and boil down these controversial issues to their basics. Doing so shows that in many respects, the issues and problems facing Milwaukee County government are elementary in nature and demand equally elementary, yet politically difficult, responses. Our hope is that the candidates will acknowledge the relatively uncomplicated roots of the county's challenges and candidly discuss their proposed solutions.

The full report can be accessed here. Also, tomorrow's the last day to sign up here for our February 4 county executive candidates forum, at which the report will be discussed.

Tracking local government in metro Milwaukee

For years, the Public Policy Forum has urged local governments to use performance measurement as a means of tracking progress toward strategic objectives and educating constituents about the outcomes associated with various government services and expenditures. Today, as government budgets grow tighter and taxpayer tolerance for spending money on all but the most essential services diminishes, it would appear that use of this tool is a necessity.

In keeping with that sentiment, the Forum has released its inaugural Tracking Local Government report. The report – made possible by a grant from the Northwestern Mutual Foundation – should be viewed as a resource both for the ordinary citizen to use in understanding the breadth and effectiveness of local government services, and as a potential model for local governments to consider in determining the types of information they should be collecting and sharing with constituents.

The 47-page report identifies 25 local government or government-funded services in nine functional categories that are considered critical to the metro area’s economy and quality of life. For each set of services, the report tracks fiscal and performance data over a five-year period to provide readers with a sense of revenue and expenditure levels, as well as a sense of what taxpayers are getting for their money. The report also provides brief analysis and observations regarding why the services are important, data trends, and future implications associated with those trends.

Performance measurement has been used increasingly by all levels of government since the early 1990s to better manage programs and services and communicate results to stakeholders and constituents. Unfortunately, not all government entities and departments in our metro area do an adequate job collecting performance data, and even those that adequately collect it often do not share it with policymakers and citizens.

The Tracking Local Government report is an effort to compile such data – to the extent it is readily available – in an easily understandable format in one place. In addition to informing citizens, the Forum’s objective is to “encourage those agencies that are not engaged in an appropriate level of performance measurement to improve their efforts."

The inaugural Tracking Local Government report is considered a work in progress. Time and data limitations required us to focus exclusively on Milwaukee County, City of Milwaukee and other Milwaukee-based governmental entities, as opposed to looking at government services within other Milwaukee County municipalities or other southeast Wisconsin counties. We hope to expand the project in the future to include a broader perspective.


The full report can be accessed here.

Is bankruptcy really an option?

The politicization of a recent disclosure that a leading civic organization has discussed potential bankruptcy for Milwaukee County is not surprising. But putting aside the politics, shouldn't we be asking whether, from a government finance perspective, bankruptcy is a realistic or viable option for the county?

A recent article on the Governing website examined the question of whether we're likely to see a surge in government bankruptcies nationally. It found the answer, generally speaking, to be "no." The article features excerpts from an interview with Robert A. Kurtter, a senior public finance official from Moody's credit rating agency. Among the points in the article that are relevant to Milwaukee County's situation:

• Local governments across the country clearly are being squeezed and facing agonizing decisions regarding whether to cut services, raise taxes, or both. Nevertheless, the specter of bankruptcy typically is tossed around as a rhetorical tool, as opposed to a legal one. As Kurtter puts it, "There may be talk about governments being bankrupt and insolvent when what is meant is 'We don't want to raise taxes and don't want to spend so we have to cut.'"


• Municipal bankruptcies typically occur when governments no longer can afford payments on their debt. Kurtter expects defaults at a higher rate than after previous recessions, but they should continue to be "rare and idiosyncratic," and likely will be linked to huge capital projects (like incinerators or steam plants) that "went bad."


• When the city of Vallejo, California, resorted to bankruptcy three years ago to seek relief from unaffordable union contracts, many thought it would set off a wave of similar filings. That hasn't happened, according to Kurtter, because "municipal bankruptcy is expensive, it's time consuming and the outcome is not at all clear...governments understand they need to figure out how to balance budgets and deliver essential public services now."

The Public Policy Forum has not minced words in our assessment of Milwaukee County's financial situation. In a July report, we cited the county's own projection of a $100 million structural deficit by 2014 and called its long-term budget prognosis "alarming." And, in a March 2009 report, we stated that "while the county enjoys cash solvency and a reasonable debt service level, annual reductions have not achieved financial equilibrium, and the county's fiscal condition remains highly unstable."

Still, we have suggested that despite its deep structural imbalance, the county's fiscal woes stem mostly from a lack of political consensus on how to plan for and manage its financial challenges. That reality - combined with the county's continued strong capital debt management, its huge inventory of physical assets, the fact that it is tens of millions of dollars below its state-imposed property tax levy cap, and the uncertainties regarding bankruptcy's legality and its impacts on critical county services - makes it difficult to imagine a bankruptcy declaration any time soon.

A budget marked by uncertainty

The Public Policy Forum's annual analysis of the Milwaukee County recommended budget - released this morning - focuses on the significant wage and benefit concessions that allow the county executive to bridge the county's annual structural gap while averting major service cuts and revenue increases.

The analysis emphasizes the necessity of stringent controls on wages and deep cuts in benefits given the county's ominous fiscal challenges, and gives particular credit to the budget's creative attempt to rein in the lucrative free health care benefit provided to retirees hired prior to 1994. While noting the appropriateness of these measures as a strategic direction for the county, however, it suggests there is considerable risk in plugging the savings into the budget in light of the need for collective bargaining and questions surrounding the timing of implementation.

A key theme of this year's budget brief, in fact, is the uncertainty surrounding several areas of major savings in the recommended budget and the potential consequences should they not come to fruition. We update three models used in our July budget preview report to give readers a sense of the types of options available to the county if it is faced with a sizable mid-year gap, while also pointing out some key policy considerations regarding the potential for another 26 furlough days for 1,700 union workers and up to 165 union layoffs.

The 2011 Milwaukee County Budget Brief can be accessed here. The Forum released a similar analysis of the 2011 City of Milwaukee budget earlier this week, which can be accessed here.

A temporary reprieve in the City of Milwaukee's budget challenges

In our annual analysis of the City of Milwaukee's proposed budget - released this morning - the Public Policy Forum discusses the "remarkable reversal" in the city's required pension fund contribution, which significantly eases the financial pressures that have characterized most city budgets this decade. We point out, however, that this is only a temporary reprieve from the city's difficult structural issues.

The Forum documented the city's long-term fiscal challenges in an August 2009 report entitled "Between a Rock and a Hard Place." Those challenges stem largely from the city's significant reliance on stagnant shared revenue payments from the state, combined with difficult-to-control expenditure drivers (such as health care costs) that are exceeding the rate of inflation.

For 2011, the city's structural problem essentially is erased by an unexpected $49 million reduction in its required pension fund contribution. That's the good news. The bad news is that half of the pension reduction is eaten up by health care increases, and that the contribution is expected to go back up to more than $60 million in 2013.

Commendably, the proposed budget puts away $17.4 million of the pension savings in a reserve in order to help prepare for future pension contribution increases. Otherwise, the budget is remarkably status quo, with federal stimulus dollars helping to boost spending on city infrastructure and select departments, and significant service reductions and tax and fee increases averted.

The 2011 City of Milwaukee Budget Brief can be accessed here. A similar report on Milwaukee County's 2011 budget will be released in the near future.

MATC facing growing demands, shrinking resources

Today, the Forum released the third in its series of financial reports on local taxpayer-funded entities in Metro Milwaukee: a comprehensive fiscal assessment of the Milwaukee Area Technical College (MATC). This report uses the same fiscal monitoring methodology as 2009 reports on Milwaukee County and the City of Milwaukee, which were recognized with an award for "most effective education" earlier this year from the Governmental Research Association.

Like the city and county reports, the report on MATC paints a somewhat alarming picture. It finds a local institution that has taken on increased importance in light of the economic downturn and community-wide efforts to increase the number of college degree-holders, but one that has been hit hard by the recent decline in property values.

Key findings from the MATC fiscal assessment include:

• Property tax revenues comprise roughly 60% of MATC's budget, causing it to rely on the property tax more than most local governments and school districts. MATC's budget has mirrored the ups and downs of the real estate market, with revenues climbing much faster than the rate of inflation from 2005 to 2009, but falling in the next two years.


• MATC has seen a steady decline in revenue from the state. The college was able to weather this decline when overall revenue growth was strong, but faces difficulty doing so in today's revenue climate.


• Student charges have been the college's fastest-growing revenue source of late, with tuition and fees rising nearly 40% since 2005, raising questions about impacts on student access.


• Fringe benefit and salary increases were responsible for about three-quarters of the college's expenditure growth during the five years under review, with health care expenditures rising twice as fast as those at the City of Milwaukee and Milwaukee County.


• A newly developed imbalance between ongoing expenditure needs and revenue capacity will continue to grow without substantive budgetary corrections, reaching a projected $11 million to $62 million within the next five years.

This turbulent financial picture leaves MATC little choice but to examine current levels of employee staffing, pay and benefits, which are quite robust based on comparisons with state and national peers. For example, the report finds that MATC ranks first among a group of 85 national peers in operating expenses, salary expenditures and fringe benefits expenditures per full-time equivalent student.

The report cautions, however, that any significant expenditure reductions must weigh impacts on the college's academic quality and its capacity to meet recent double-digit increases in enrollment. It also suggests that college leaders step up efforts to establish clear performance goals and collect performance data as part of the effort to address difficult budget issues.

Finally, the report offers an opportunity to compare the fiscal practices and condition of MATC - which operates as a local authority and is governed by an unelected board - with local governments operating under traditional elected models. It notes both similarities and differences in the manner in which these entities have responded to common fiscal challenges, and offers insights into what this tells us about the debate over government structure in our region.

A full copy of the report can be accessed here, and our media release here.

We're far from alone when it comes to fiscal chaos

Every summer, members of the Governmental Research Association (GRA) - an association comprised of organizations devoted to government research from across the United States - get together to exchange research ideas, discuss topical issues and recognize outstanding research products.

It should come as no surprise that at this year's conference, held in New York City last week, a primary topic of discussion was the fiscal difficulties facing state and local governments.

Among the many sessions that focused on those difficulties was a luncheon address by New York Lieutenant Governor Richard Ravitch that described the political dimensions of that state's budget challenges; a panel discussion on state finances with budget officials from New York, New Jersey and Connecticut, as well as an official from the Standard & Poor's bond rating agency and the vice president of the California Taxpayers Association; a panel discussion on city finances with a group of officials and experts from New York City, Philadelphia and Boston; and a session on the "roots of dysfunction" with a panel of researchers from New York, Chicago, Louisiana and New Jersey.

Those sessions and discussion with fellow GRA members revealed several common themes, which might sound familiar to those who have followed recent budget deliberations in Madison and locally:

• Stimulus dollars were enormously important in staving off deep budget cuts and/or tax hikes in 2009, but state and city governments now are alarmingly ill-equipped to deal with the loss of those dollars, especially given that the expected economic recovery has not meaningfully materialized.


• Unfunded pension and retiree health care liabilities are huge problems virtually across the board, yet very little can be done to reduce their fiscal burden in the short-term because of legal protections.


• Elected officials are maddeningly unwilling and/or incapable of responsibly dealing with their complex and difficult budget challenges. A researcher from Rutgers University, for example, lamented the unwillingness of legislators in his state to acknowledge and use fiscal data, while a New York budget official cited one anonymous legislator who publicly decried the irresponsibility of raising taxes to fill the state's huge budget hole while pushing behind the scenes for pork barrel spending in his district.


• There is a feeling among government insiders in many states (and most notably, California and New York) that the political class has given up - they know the problems they face demand difficult and unpopular solutions, so they have resorted to posturing and kicking the problems down the road for someone else.

Despite the pessimism that permeated these sessions, the "misery loves company" dynamic certainly came into play. Indeed, while we tend to think of our state and some of our local government budgets as hopelessly imbalanced, it was perversely satisfying to realize there are others in worse shape.

California and Connecticut, for example, are being dragged down by immense unfunded retirement liabilities, while Wisconsin's state retirement system is in reasonably good shape. And Philadelphia and New York City are just as dependent on state aids as Milwaukee, yet their capacity to weather continued state cuts is far inferior given the huge reductions in personnel and depletion of reserves they have already implemented.

An interesting perspective also emerged, albeit from an unlikely place. State leaders in New Jersey - widely known as a hotbed of irresponsible budgeting - instituted a strict property tax levy cap as part of an initial package of state budget cuts, which also included sharp reductions in state aids to local governments. Instead of leaving local elected officials to fend for themselves, however, state officials have engaged them to identify the reforms in state law they would need in order to live within the cap without slashing valued services. A scenario in which state and local officials here would attempt to work together in similar fashion certainly would be refreshing.

Overall, it's clear that state and city budgets across the country are in a state of disarray. At the GRA conference, the hope was that strong leadership based on solid data and sound research would emerge to address those challenges.