Public Policy Forum Blog

Something’s Got to Give

In several reports and budget briefs during the past few years, the Public Policy Forum has cited the ongoing struggle for the City of Milwaukee to balance increasing cost pressures with limited revenue sources. Approximately 80% of the City’s revenue comes from state aid, property tax revenue, and user fees.  The problem with this revenue mix is that it is insufficient to deal with inflationary cost increases for services such as police and fire, which comprise the bulk of the City’s operating budget. That is because user fees can only be raised to offset transactional cost increases, state aids have been flat for years, and growth in the property tax levy is capped by the State.   

In addition, unlike its peer cities in other states, Milwaukee does not have the authority to levy additional local taxes, such as a local sales tax.  This point is better illustrated in a report released several weeks ago by the City’s Comptroller in which Milwaukee’s Fiscal Year 2013 revenue and expenses were compared to several peer cities. One key finding is that the City is well below average when it comes to overall local taxes collected per capita. This stems from the property tax being the only local tax revenue option available in Milwaukee, which contrasts with peer cities that all have other local tax options.

The dramatic difference in local tax revenues collected is illustrated in the plot below, which shows where Milwaukee and its peer cities stand in terms of both total expenses and total local tax revenue.  Milwaukee is at the bottom with regard to local tax revenue per capita, but is in the middle when it comes to spending compared to its peers.  This implies that the City is able to fund services at comparable levels despite having the lowest local tax revenue.  

When we use the same approach to compare intergovernmental revenue to spending, we see that Milwaukee collects the second highest amount of intergovernmental aid. This underscores how reliant the City is on state aid to fund general operations compared to its peers, who have a multitude of revenue streams at their disposal.

    

While the City is the most constrained in terms of revenue options, it appears to find a way to fund services at competitive levels.  A key question is whether this trend can continue as healthcare and pension costs continue to rise while revenue growth and options remain sparse. At some point, something’s got to give.

Author: 
Mike Gavin