Public Policy Forum Blog

The Calm before the Storm…

This morning, the Public Policy Forum released its annual evaluation of the mayor's proposed City of Milwaukee budget. The 2012 budget is the city's first since passage of the state budget repair bill that ends collective bargaining for most unions, and a new state budget that severely limits property tax increases and significantly reduces aids to local governments.

We find that the proposed budget manages to provide at least one more year of sustained city services, while also replacing certain areas of lost federal and state grants with reallocated property tax levy, and bolstering the city’s pension reserve fund. All this is accomplished with only a small increase in the property tax levy and relatively modest increases in city fees.

The key for 2012 is the state budget repair bill, which allows the city to reap the benefits of much larger employee contributions to the cost of their health care and pensions, and to engage in a substantial redesign of its health care offerings without the need for collective bargaining. A total of $36.8 million in savings results largely from this new flexibility, but also from changes the city would have pursued regardless. Taking into account the state aid reduction of roughly $13.4 million resulting from the recent state budget, the city was able to derive a net total savings of $23.4 million to put toward city services, build reserves and limit property tax levy growth.

In fact, despite the small increase in property taxes and the reduction in state aids, city departments collectively see expenditure growth similar to that seen in better economic times. General operating expenditures, net of fringe benefits, grow by $27.5 million in 2012, or 6.2%. An increase of that magnitude has not been seen since 2007. Such an occurrence would have been unlikely without employee benefit changes.

This good fortune may only be fleeting, however, as the opportunity for this magnitude of savings subsides and several cost spikes come on line. Beginning in 2013, the city expects to face several successive years of unprecedented pension payments ranging from $58 to $80 million annually, as well as an end to federal stimulus funds that now support 50 police officers. Tough decisions will be required, including whether to continue to balance growing fixed costs, stagnant revenues, and gradually declining reserves with additional reductions to employee compensation.

The 2012 City of Milwaukee Budget Brief can be accessed here. A similar report on Milwaukee County's 2012 budget will be released Monday.

Vanessa Allen