Anchor institutions may be called on to do more

A New York Times article yesterday noted that financially-challenged municipalities across the country are calling on land-holding non-profit/tax-exempt organizations to make larger contributions in lieu of property taxes. These organizations, usually college campuses or hospital facilities, might represent a significant portion of a municipality’s property tax base. These “eds and meds” thus represent a potential drag on city government finances by requiring considerable city services but paying no property taxes.

Viewing education and medical campuses as drains on the tax base is hard to resist during tough budget times, and Milwaukee itself budgeted an 8.4% increase in payments in lieu of taxes for 2011. Yet some are able to see these organizations as assets in economic development. From that lens, the eds and meds are “anchor institutions” serving as resources for local economic development. These institutions are neighborhood anchors due both to their size and resources. They are often among a city’s largest employers, but unlike a private business, they are unlikely to relocate.

It is obvious how these institutions can assist in economic development: by employing significant numbers of resident workers, investing in neighborhood infrastructure, and purchasing goods and services from local vendors. What is less obvious is why they may wish to do so. Lacking a mission to serve local residents, why should an institution implement preferences for local employees, goods, or services?

A report from Chapin Hall at the University of Chicago analyzes the costs versus the benefits of local investments by anchor institutions and concludes that, while it will differ by institution, in general the benefits to the institution will outweigh the costs. For example, investing in streetscaping and lighting beyond the campus may bring about a measurable decrease in crime or vandalism on campus. But more often, these benefits can be somewhat intangible, arising from the goodwill, trust, and knowledge gained by partnering with local government and/or community organizations.

Many of the anchor institutions in Milwaukee practice local investing. Marquette University, for example, has helped lead the redevelopment of the neighborhoods on the city’s near West Side. UWM and Aurora Health Care have “walk to work” programs that provide faculty and staff with home-buying assistance when purchasing homes in the neighborhood.

Never the less, while it is likely that these investments have improved property values in the neighborhood, when a local government is faced with an unsustainable structural deficit, the tax-exempt property owned by an anchor institution may feel more like an anchor around the neck.

Are Milwaukee County's child care providers ready for YoungStar?

New results from a statewide survey of 1,425 child care providers show that Milwaukee County providers compare favorably to providers across the state with respect to several measures that will be rewarded under the state's new YoungStar child care rating system.

The survey, conducted by the Forum in partnership with the Wisconsin Early Childhood Association, was designed to provide a picture of the status of the early childhood workforce in the state. Provider characteristics such as educational attainment, experience, professional credentials, and salary were measured. Providers were also given a chance to express their opinions about the new rating system.

Key findings include:

• The 223 respondents from Milwaukee County demonstrate higher educational attainment and earned professional credentials than their colleagues statewide, factors that can earn a provider a higher rating under YoungStar.


• Providers in Milwaukee County appear to enjoy greater access to professional development than providers elsewhere in the state, via higher rates of membership in professional associations and use of scholarship and stipend programs.


• Providers in Milwaukee County have higher median wages than the state as a whole and have higher child care subsidy usage rates. Not surprisingly, Milwaukee County providers also charge higher fees.


• Child care centers in Milwaukee County are more likely to be accredited. Accreditation can mean a center automatically receives the highest rating under YoungStar.


• Milwaukee County providers are more likely to see YoungStar as an opportunity to improve the quality of their early childhood programming than providers statewide.

For the full report, visit the Forum's website.

Are the right tools in the toolbox?

As the Public Policy Forum’s 2010-2011 Norman N. Gill Civic Engagement Fellow, I am working on a year-long project examining how local governments raise revenues. An earlier blog post on the project discussed alternatives to financing local governments, including a local sales tax. Overall, 33 of the 45 states that have a sales tax also allow their local governments to levy one. In addition, 43 of the 67 largest cities in the country have a local sales tax.

Under the governor’s proposed 2011-2013 state biennial budget, the city of Milwaukee stands to lose $10.3 million of state shared revenue. Shared revenue currently is a $271.6 million line item in the city budget and represents an unusually large portion when compared to other cities.

In return, the state would give local governments “tools” to help control costs, such as greater flexibility to impose higher health care and pension contributions on public sector employees. Yet, one tool that has been left out of the tool box is the ability for local governments to establish new revenue streams.

Milwaukee has no city sales tax and, by law, it is prohibited from implementing one. If the city could respond to state budget pressures by levying a sales tax, however, what might it look like? Assuming that the city’s tax would bring in revenue proportional to Milwaukee County’s sales tax, a 0.5% tax would generate estimated revenue of $40.3 million. This figure is consistent with economic studies about the city that show a 0.5% sales tax in Milwaukee would raise about $45 million. Therefore, a 0.5% sales tax would more than offset the cut in state shared revenue. In fact, a 0.1% sales tax would almost be enough.

There are several issues, however, that may limit the effectiveness of a local sales tax in Milwaukee. First, it makes sense that cities levying a sales tax should have a large tax base of retail sales. Oklahoma City, which has a 3.875% city sales tax, has more than $6.25 billion of retail sales per year. When measured on the basis of its population of 537,734, Oklahoma City’s retail sales per capita equals $12,057. On the other hand, Milwaukee, with a similar population, has far fewer retail sales. In 2002, Milwaukee saw $3.5 billion of goods sold, which is about $6,094 in retail sales per capita. Moreover, as the chart below indicates, Milwaukee’s retail tax base compares very poorly to similar cities with a city sales tax.


Another big hurdle is that unless a sales tax also is adopted by neighboring cities and towns, a sales tax in the city might put local retailers at a competitive disadvantage by providing even less of an incentive to shop in Milwaukee. For example, if Milwaukee were to impose a 0.5% sales tax to offset a cut in state shared revenue and meet other needs, then goods sold in Milwaukee would be subjected to an overall 6.1% sales tax rate, compared to a 5.6% rate elsewhere in the county. Furthermore, the difference would be even greater when compared to Waukesha County, which has a 5.1% rate. Lastly, the sales tax could disproportionately harm those Milwaukee residents without the means to shop elsewhere.

In return for less state shared revenue, municipal leaders might logically argue that Madison should equip cities with as many tools as possible to fix their budget woes. Were that to occur, however, Milwaukee policymakers would need to carefully consider the tools they use; what’s appropriate for Oklahoma City is not necessarily appropriate for Milwaukee.

The Forum is now accepting applications for the 2011-2012 fellowship year. For more information, go to the Norman N. Gill Civic Engagement Fellowship website. Applications are due April 30, 2011.

The cruel world of local government finance

In the weeks since release of the governor's proposed 2011-13 state budget, much has been spoken and written about the potential impacts of cuts in state aids on local government budgets and services. Yet, while much of the discussion has focused on high-profile cuts to shared revenues, municipal recycling grants and general transportation aids, buried within the budget are dozens of less-publicized, complicated provisions that also may have far-reaching impacts.

One of those relatively obscure provisions is related to the new property tax levy limit on municipal and county governments. The limit itself has received considerable attention, as instead of having their annual allowable property tax growth capped at no lower than 3%, counties and municipalities would be capped at the greater of 0% or the percentage growth in equalized value resulting from new construction. Because the change in new construction is projected to be less than 1% in many counties and municipalities, that's a significant reduction.

But perhaps equally noteworthy is a provision that would require counties and municipalities to decrease their allowable levy in any year in which they experience a decrease in debt service on debt issued before July 1, 2005, by an amount equal to the decrease. In other words, if a local government is fortunate enough to experience a lower overall debt service payment from one year to the next, then instead of having the discretion to do as it pleases with those savings, it may be required to pass the savings back to its property taxpayers.

Without taking up the issue of whether the new provision is good or bad for those taxpayers, it does throw a curveball at those local governments that have consciously tried to keep a lid on their debt issuances as a strategy for obtaining long-term operating budget relief.

One such government is Milwaukee County. Despite the county's overall budget woes (as documented in several reports by the Public Policy Forum and others), one of its true fiscal success stories has been in the area of debt management. Just last month, for example, the Standard & Poor's ratings agency praised the county for its "moderate debt burden with rapid debt amortization."

As we explained in our recent Milwaukee County Executive Election Brief, after it decided to refinance a major portion of its debt in 2003, the county made a concerted and deliberate effort to keep a lid on annual borrowing. In fact, its discipline in adhering to self-imposed caps on general obligation bonding, while arguably contributing to its vast backlog of infrastructure needs, has positioned the county to benefit from a significant decrease in annual debt service payments by 2015. In that year, according to the county's 2011 budget, the annual debt service payment could drop from $63 million to $47 million.

Until recently, county fiscal officials viewed the funds freed up from potential reduced debt payments as a critical piece of a long-term approach to dissolving the county's structural deficit. In fact, given the painful nature of all other potential strategies, this was one of the few bright spots in the county's long-term fiscal picture.

If the new requirement that local governments reduce their levies commensurate with reductions in annual debt service payments is adopted, however, then one of the only promising tools in Milwaukee County's limited deficit-reduction toolbox will be eliminated. Such is the world of local government finance, where even the best laid plans can be wiped out by higher levels of government at a moment's notice.

People Speak Poll: Budget Debate Trumps Jobs

The latest People Speak Poll, conducted by the Public Policy Forum and the Center for Urban Initiatives and Research at UWM in partnership with The Business Journal Serving Greater Milwaukee, finds that the state budget ranks as the most important issue in the minds of southeast Wisconsin residents. The poll of 400 residents of Milwaukee, Waukesha, Ozaukee, and Washington Counties was conducted in late February and early March, at the peak of the debate over the budget repair bill. Four previous polls over the past two years had found jobs were the issue of most concern.

Analysis and full results of the latest poll, along with those of previous polls, are available at http://www.peoplespeakpoll.org/.

Other findings:

• The region's citizens are less optimistic about the nation's economic future and Milwaukee's eocnomic future than they were in September 2009.


• No major change in opinion has occurred since September 2009 with regard to state government--40% of residents feel the state is on the right track.


• Crime in the City of Milwaukee is not perceived by most to have declined over the past year, despite the actual drop in crime.


• Half of respondents consider the north side of Milwaukee to be an unsafe place to be in the middle of the afternoon.


• One in five respondents feel unsafe in the middle of the afternoon at Mayfair and Grand Avenue Malls.

Measuring up education

A common complaint about education reform is the slow pace with which it takes place. I've often heard the analogy, "Improving a school system is like turning a battleship." In contrast, political changes can occur quite rapidily, as this state has witnessed over the past several months. And while the Forum's mission is to conduct timely and topical research, sometimes the policy world moves faster than we had anticipated. Such is the case with the report we release today.

The report, entitled "Measuring Up Education: Community-Driven Accountability in Milwaukee," was commissioned last summer by the Greater Milwaukee Foundation (GMF) in a quest to find community consensus on a dozen or so simple metrics that could be used to measure progress in the Milwaukee Public Schools.

Since that time, the voters have elected a new governor, and the state legislature has enacted new laws dramatically changing the landscape for local governments and school districts. These changes affirm the need for consensus when it comes to holding the district accountable, yet they also make consensus more difficult to achieve. And, in this case, they perhaps make consensus on turning the ship around less of a priority than simply keeping it upright.

Nonetheless, we believe the report contains important information for those seeking a simple framework through which to view the district's momentum. We suggest several metrics that could find consensus in Milwaukee based on experiences in other urban districts, the priorities Milwaukee education reformers have voiced, and the district's internal and external goals (as reflected in the MPS strategic plan and state and federal regulations).

In the end, while reasonable people will disagree about the specific strategies needed to improve the quality of teaching and learning at MPS, it would be constructive for community leaders at least to agree on how we will measure whether those strategies are succeeding, and how to ensure accountability if they are not.

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.