Election Issues '08: Revenue challenges for city and county

On April Fools' Day 2008, Milwaukee citizens will elect people to four-year terms in city and county public offices. Candidates for those offices have an obligation not to fool voters with shallow promises but rather to provide answers to critical questions facing local government. Among those questions, none is more important - and more rarely addressed - than this one: How do you plan to ensure the long-term financial stability of the government with which you will be entrusted?

The Forum releases today the first of a series of reports highlighting government finance issues vital for local voters to understand. A challenging revenue picture for Milwaukee local government lays out the recent trends in municipal and county general purpose revenue and concludes stable long-term financing is in jeopardy for both the City of Milwaukee and Milwaukee County governments.

The key findings:
- Intergovernmental support – mostly in the form of state shared revenue – for both the city and the county has declined sharply in real terms over the past 10 years.
- Both the city and the county have relied most heavily on service fees to fill the gap, although in the county’s case that is primarily due to an accounting change.
- Property tax revenue to support both governments has outpaced inflation even though the taxpayers’ resources to pay have not.
- Spending for city government has kept pace with inflation whereas county spending has exceeded it.

The city and county governments of Milwaukee are the two largest governments in Wisconsin other than the state itself. Their financial viability affects the surrounding region and the state as a whole. Candidates for mayor, county executive and the legislative bodies of county and city governments need to address this fundamental issue. Where are they going to get the revenue to run local government?

Note: Future reports in this series, covering capital expenditures and employees benefits, will be released over the next two months.

PPF Analysis of the 2008 Milwaukee County Budget

Each year, the Public Policy Forum releases an analysis of Milwaukee County's proposed budget. This year's brief can be found here.

What follows is the concluding statement from our 2008 budget brief:

The single greatest opportunity for the county's future fiscal solvency is the strategic planning process presented in the 2008 recommended budget. Strategic planning is about prioritizing. In order to be successful, county officials will need to prioritize spending. In other words, they will have to decide what the county can afford and how to pay for it.

The county is significantly hamstrung by unfunded and underfunded state mandates. This is evident throughout the budget, although the county seems to be at a loss as to what to do about it. County officials have been lobbying the state for years to fund its mandates, without results. In fact, the costs to the county of these mandates continue to rise. In response, cuts have been made to administrative spending and to non-mandated services. This cannot continue; in this budget alone, bus hours are cut more than 9%, and parks maintenance continues to be underfunded.

The reality is that the county is an arm of the state and it has to provide the services required by the state. However, the county should not have to go bankrupt to provide these services. Without a substantial increase in revenues, this may require giving up some non-mandated services. This reality needs to be the starting point of the county's strategic planning process.

PPF Analysis of the City of Milwaukee's 2008 Budget

Each year, the Public Policy Forum releases an analysis of the City of Milwaukee's proposed budget. This year's budget brief can be found here.

What follows is the concluding statement from our 2008 budget brief:

"In our analysis of the 2006 proposed budget, we praised the city for its three-year fiscal sustainability plan. The existence of such a plan showed the city's commitment to thinking strategically, planning for the future, and moving away from a focus on yearly budget balancing and toward long-term fiscal solvency. The city has made good progress toward all of its goals; some it has achieved. Throughout the budget, there are signs of the city's attempt to be more strategic in its thinking. A strategic plan toward capital budgeting is being crafted. The city is spending some money in the short term that will save money in the long run in the area of energy efficiency. Changes in the library system are being made as a result of a strategic plan. The fire department is planning on making cuts that may be unpopular but have been extensively studied and shown not to result in less safety. The police department is in the process of doing a number of studies to use its force more efficiently, and has shown progress toward evidence-based policing.

Nevertheless, the budget lacks a comprehensive plan for fiscal stability in the future. The budget is not only a ledger of expenditures and revenues; it is a policy document. As such, it would be stronger if the administration included a more detailed analysis of the successes and failures of its three-year fiscal sustainability plan, as well as a new plan for moving forward. Although the city did identify some issues that need to be addressed in the future to improve fiscal sustainability, a continuation of the original three-year plan would be preferable. This is particularly important because, even though the city has made substantial progress toward the goals set out in 2006, this year's budget makes it abundantly clear that even complete achievement of those goals is not enough to rid the city of its structural deficit."

Transit dollars: Spend now, pay later?

For several years, $91.5 million in federal aid has been sitting around waiting to be spent on a new mass transit plan for the Milwaukee area. This pool of money has received a lot of publicity lately, some of it from people who find it appalling that Milwaukee has sat on this “free money” for so long without spending it. However, there are strings attached to this “free money” and one of those strings is key: the $91.5 million can only be used for capital expenses. So, in other words, the infrastructure can be built and vehicles bought for whatever transit plan is adopted (with a local match, by the way), but it is up to the local government to fund the new system’s operation. That’s a substantial local expense to take on for the sole reason of using “free money” from the feds.

Intergovernmental revenue is always unreliable. One example is the extensive use of the federal Community Oriented Policing Services (COPS) grants by the Milwaukee Police Department (MPD) during the 90s. MPD used the money to hire more police officers—why wouldn’t they use it for that? It was free money. The city paid the price, however, when the grant money dried up. Milwaukee didn’t want to lose officers, so the city picked up the expense. Now, several years later, the city is lobbying the federal government for a reprisal of the COPS grants in order to again add more police officers.

The most fiscally responsible way to use intergovernmental revenue is for one-time projects. Relying on unreliable money for ongoing expenses leaves a local government financially vulnerable. It would make sense to use the federal transit money for the capital expenses of the construction of a new transit system only if the local government had decided that it was something it would pay to operate anyway.

Obviously, that isn't the case here in Milwaukee because both Mayor Barrett's transit plan and County Executive Walker's transit plan lack detailed operating budgets. The history of attempts to craft a transit plan for Milwaukee indicates our leaders are trying simply to spend available money rather than fund identified and existing capital needs.

Capital Project Audits Show Continuing Problems

The City of Milwaukee’s Comptroller Office released its audit of the Canal Street expansion project. The audit was requested by Alderman Murphy in order to determine why the project cost millions of dollars more than was originally projected. The audit determined that the City of Milwaukee Department of Public Works (DPW) had never provided an accurate cost estimate of the entire project.

The most disturbing part of the audit is that many of the recommendations to improve the capital project planning process were made four years ago in the comptroller’s audit of the 3rd District Police Station project. These recommendations include the development of better cost estimation procedures; a cohesive system for monitoring and reporting capital projects; and a comprehensive project budgeting system rather than separate budgets for different project components.

The city is currently involved in a very large, expensive capital project: the City Hall restoration. According to DPW and the Department of Administration, the process for this project is going much more smoothly and is in accordance with some of the comptroller’s recommendations. Hopefully, these mechanisms will keep the city’s capital projects in check.

A New Commission?

The Milwaukee Journal-Sentinel reports that Governor Doyle has appointed a Commission to Reduce the Racial Disparity in Wisconsin's Criminal Justice. The key is to figure out why Wisconsin has the third highest ratio (18:1) of incarcerated minorities to whites, and to fix it.

While the main charge of the group seems to be to look for discriminatory practices throughout the state's criminal justice system, the story said the governor wants to consider how poverty, parental involvement, education and abuse all factor into the crimes. That is certainly a laudable goal, but doesn't an examination of the root causes of crime deserve its own high-profile commission?

Structural quicksand

On March 20, Milwaukee Mayor Tom Barrett testified before the State Joint Finance Committee about the "Milwaukee Initiative," the money appropriated for Milwaukee in Governor Doyle’s proposed 2007-09 budget.

The verdict? He wants more money.

While that’s not a shocking statement from the mayor, the looming budget gap he noted is a little surprising. Even with $4 million in additional state shared revenue and a 3% property tax increase, the city is facing a $12.5 million funding gap for 2008 when increases for only a few programs are taken into account (most notably, an additional 100 Milwaukee police officers over the next two years).

Of course, the mayor has time to find other revenue and make cuts to balance this gap before he proposes his own budget in September. His statement makes it clear, however, that the city is still facing a significant structural deficit (the gap between ongoing revenues and the cost to continue).