Report: With pension bill, revenue constraints, fiscal tipping point looms for Milwaukee

The city of Milwaukee is closer than ever to a major fiscal tipping point that could lead to severe cuts in services in the coming years and require swift action by the city and state lawmakers to avert a crisis, according to a new report released Tuesday.

In search of a long-term resolution, “city and state leaders must begin to talk and act almost immediately if they wish to avoid untenable budget cuts,” the Wisconsin Policy Forum analysis states. Federal pandemic relief has helped stave off the damage, but only offered a short-term respite, not a permanent solution to the city’s straits.

The Wisconsin Policy Forum report, titled “Nearing the Brink,” measured the city’s short- and long-term fiscal health using metrics developed by the International City/County Management Association (ICMA). It was commissioned by the Greater Milwaukee Committee, a body of corporate and other civic leaders. It is the third report that the Wisconsin Policy Forum or its predecessor, the Public Policy Forum, has produced on Milwaukee’s fiscal condition and challenges, starting in 2009.

The report finds that shrinking revenues have forced the city to reduce core services that it provides. While the city’s access to cash has been bolstered by borrowing, its unbudgeted reserve funds have dwindled. 

Stagnant growth in state aid to the city is a major contributor to Milwaukee’s revenue bind, according to the report. State aid accounted for more than 40% of Milwaukee’s general revenues in 2000 while local property taxes amounted to 21%. By 2020, state aid was 27.6% of the city’s general revenues, now exceeded by property taxes at 28.4%.

State lawmakers have also blocked efforts to allow local governments to raise their sales taxes. As a result, Milwaukee’s sales tax, another potential revenue resource, remains at 5.1%, well  behind other cities its size or larger in the U.S.

At the same time, a potential $50 million hit to the city looms in 2023 to cover its required employee pension fund contribution. Meanwhile the city’s longer term unfunded pension liability now exceeds $1 billion, and unfunded obligations in other retirement programs compound that figure.

“The bottom line is that there is no easy solution to this problem given that pension benefits that have been promised to current retirees and vested active workers cannot be legally taken away,” the report states. “The city will need to meet its financial obligations, and barring any relaxation of its current revenue restrictions, that is almost certain to produce substantial reductions in personnel and city services in the coming years.”

Those cuts will have to extend to all city departments, including public safety, which already accounts for more than 60% of the city’s general purposes budget, the report concludes. Avoiding cuts in the police and fire departments to cover the 2023 $50 million pension contribution increase “would be difficult if not impossible.” 

By comparison, cutting $50 million out of the 2022 city budget would have eliminated the budgets for the city’s library system, its health department and its neighborhood services department, the report observes.

 “In short, the terrain ahead is steep and treacherous and Milwaukee and state leaders cannot delay for long the work that will be needed to chart a path to safety,” the report states.