Public Policy Forum Blog

City budget effectively manages short-term challenges

In our annual Budget Brief of the mayor’s proposed City of Milwaukee Budget – released this morning – the Public Policy Forum cites the City’s familiar challenge of balancing increased health care and pension costs, operational priorities, and long-term fiscal sustainability.  We find that the proposed 2015 budget is able to overcome these challenges with health care plan design changes, fee increases, increased borrowing, and the use of reserves and special fund transfers.     

One of the most notable items in this year’s budget involves the interplay between pension costs and employee wages.  Per a recent Wisconsin Supreme Court ruling, the proposed budget includes a change in policy requiring general city employees to contribute toward the cost of their pensions, which amounts to 5.5% of a city worker’s salary. This change frees up $8 million that the City otherwise would have been required to contribute to the pension fund on behalf of employees.

Citing this new obligation, as well as sacrifices made by employees in previous years by way of furloughs and wage freezes, the budget diverts $4.8 million of this savings toward a 3.9% wage increase for the majority of general city workers.   The budget also proposes the elimination of furlough days for general city employees at a cost of $2.8 million. 

To provide perspective on this issue, the budget brief includes a broad, “back of the envelope” calculation that shows that even with the 3.9% pay increase and elimination of furlough days, the average employee’s compensation – when taking into account the impact of the new pension contribution – would be slightly below his or her 2014 compensation amount.  It could be argued, therefore, that use of the pension savings to provide wage increases to general employees is a matter of fairness. 

A counter argument also could be made, however, that other priorities, such as public safety, are of greater concern, and that some or all of the pension savings would be better invested in those areas.  While this decision is a value judgment and goes beyond the scope of the report, we hope that our brief analysis, as well as our more comprehensive look at the City’s overall fiscal challenges, will add important perspective to the debate.  

Other key budget items discussed in the Forum’s 2015 City of Milwaukee Budget Brief include the following:

  • A new round of changes to employee health care, including increased co-pays and deductibles, which will decrease anticipated cost increases by $4 million.  Still, health spending would increase from the $110 million budgeted in 2014 to $119.8 million in the proposed budget.
     
  • The continuation of a financing plan for the employer share of the pension contribution, which uses reserves built up in 2012 and 2013 to help cover pension obligations without putting too much strain on the operating tax levy. 
     
  • The use of reserves and transfers from special funds to help meet operational needs.  The report states that given the City’s limited revenue options, the use of reserves and transfers to fund ongoing operations is understandable.  However, competing funding priorities within these funds might prevent the budget from sustaining such transfers in the future, placing additional pressures on the general fund.

Overall, the proposed budget does an effective job of managing the City’s short-term challenges while chipping away at long-term structural issues.  On the other hand, the persistence of a structural imbalance prevents the City from taking on new initiatives in 2015 – with the exception of a new workforce development effort called “Compete Milwaukee” – and will continue to haunt its ability to sustain service levels in future budgets if these problems are not addressed. 

Stay tuned for an analysis of the 2015 Milwaukee County budget that will be released later this week.

Author: 
Mike Gavin