Milwaukee’s financial stability is threatened by growing problems like stagnant state aid levels and increasing employee and safety costs, says a report released last week by the Public Policy Forum, a research and watchdog group.
The 60-page analysis concluded that although the city benefits from high bond ratings, a well-funded pension system and healthy reserves, it has “exhausted the capacity of existing revenue sources to support its expenditure needs.”
“Unfortunately, the city’s predicament cannot be blamed solely on the economic downturn,” forum president Rob Henken said. “The situation has been building for more than a decade despite the efforts of city leaders to manage it.”
The report compared Milwaukee’s situation to other similarly sized cities and found that it has fewer revenue sources under its direct control. It relies heavily on state revenue sharing, which has not grown in more than a decade. Its dependence on property taxes as the main local revenue source also poses a challenge.
The city has turned to raising fees and charges and drawn on its tax stabilization fund and other enterprise funds to meet costs. That approach is unsustainable as reserves will eventually be tapped and revenue from service charges face statutory limitations, the report warned.
There have also been sharp increases in employee and retiree health care costs, which grew $26 million between 2004 and 2008. Pension costs are stable but the market downturn has taken a toll on the fund’s investments requiring an additional $37 million contribution in 2010, $29 million in 2011, and $20 million in 2012.
“These factors demand consideration of significant change in fringe benefits structure,” the report said.
Public safety and public works costs are growing at a rate higher than inflation while debt service is on the rise — growing 37% between 2004 and 2008 — and capital needs will put further pressure on the city’s operating budget.
“Even if the city can hold overall expenditures at the level of inflation, revenues are not likely to rise by that amount,” Henken said. “Whatever actions are decided upon must be of the size and scope needed to truly address the city’s fiscal challenges. Otherwise, the city faces several successive years of deciding between police or potholes.”
The city has warned it faces a $78 million deficit next year. Comptroller Wally Morics has issued similar warnings about the long-term stability of the city’s finances and last year proposed leasing the water system to establish a trust fund with earnings earmarked to supplement city operations. The plan was put on hold by the Common Council.
