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Dueling Budgets in Milwaukee

CHICAGO - Budget hearings begin next week on Milwaukee County Executive Scott Walker's proposed $1.5 billion 2010 budget that includes plans to accelerate borrowing to take advantage of federal stimulus programs.

Meanwhile, at nearby city hall, the Milwaukee Common Council will hold a joint public hearing in mid-October on Mayor Tom Barrett's $1.5 billion spending plan for 2010.

The proposed county budget relies on a 3% wage cut, furlough or reduced work weeks for most employees, increased health care premium contributions, overtime pay limits, and the cutting of nearly 400 jobs to eliminate a $78 million deficit.

The budget represents a 6% increase over the 2009 plan but holds the property tax levy steady at $258 million.

Walker, who still needs to reach a union accord on some of his proposals, released his spending plan on the same day late last week that Barrett unveiled his blueprint for city spending next year. The proposed city budget marks a 2.4% increase over 2009 spending levels and relies on a 4.4% increase in the tax levy to $247 million.

It freezes wages for city workers with the exception of police and firefighters and scales back on some city services, like library hours, to wipe out a $90 million deficit as the city grapples with falling state aid and the need to fund a $49 million pension contribution that rose due to investment losses. The city won union concessions with a no-layoff pledge.

Both civic leaders faced shrinking revenue and increasing employee and health care costs in crafting their budgets and took some similar measures to shore up their government's respective balance sheets. However, it's the differences that would provide the political fodder should the two face each other in the 2010 Wisconsin governor's contest.

Walker is one of two candidates so far vying for the Republican nod, and Barrett, who was re-elected mayor last year, is considering a run for the Democratic nomination. Barrett lost the Democratic nod in the 2002 race to Jim Doyle, who has served two terms and is not seeking re-election.

Barrett, who has drawn national attention due to injuries he suffered after intervening in a domestic dispute outside the state fairground in August, is expected in October to announce his intentions.

The Wisconsin Republican Party this week sought to capitalize on the lack of a tax increase in the county proposal.

"Barrett's budget has been called a 'grim budget for taxpayers,' which is a stark difference to Walker's sound budgetary policy that holds the line on taxes at the county level," said Republican Party chairman Reince Priebus, citing a local headline.

Tom Barrett

In his budget address, Barrett said his focus remains on shoring up Milwaukee's finances over the long-term and he urged the Common Council against turning to one-time measures.

"It is absolutely essential we keep a multi-year perspective in mind. Compromising our pension obligations, overreliance on limited reserves, or one-time borrowing for recurring operations will only postpone our necessary transformation," the mayor said. "As I've mentioned on numerous occasions, this budget was by far the most difficult budget I've had since taking office. It is a budget of shared sacrifice."

The city also will seek regulatory approval for a water rate increase. The budget includes authorization for $679 million of general obligation, school, short-term, and sewer and water revenue bonds, although $421 million represents renewed authorization from prior years.

Barrett also outlined his strategy for providing a more long-term salve to Milwaukee's struggling finances that includes lobbying state officials to allow the city to impose a 0.15% sales tax. Het said the city needs the tax revenue to increase the level of non-property tax, non-service fee revenue that makes up its operating budget. The mayor also hopes to strike an agreement with council members and the water works department on a means to tap its surpluses.

City Comptroller Wally Morics last year proposed leasing the city's water system to establish a trust fund with earnings earmarked to supplement city operations, but that proposal was put on hold by the Common Council.

State Rep. Frederick P. Kessler, D-Milwaukee, is expected today to unveil legislation that would forbid any future privatization efforts, requiring that the water department remain under public control.

A recent Public Policy Forum report warned that Milwaukee's financial stability is threatened by growing problems like stagnant state aid levels and increasing employee and safety costs. 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."

The city has increasingly turned to raising fees and charges and drawn on its tax stabilization fund and other enterprise funds to meet growing costs, an approach that is not sustainable as reserves will eventually be tapped and revenue from service charges faces statutory limitations, the report warned.

Scott Walker

Walker's proposed budget calls for Milwaukee County to accelerate borrowing to help fund a $400 million capital improvement program in an effort to jump-start the local economy and create 1,000 jobs. The county would issue later this year and next $128.5 million of new general obligation debt to speed up projects slated for 2010 through 2012. It would then forgo borrowing in 2011 and 2012.

The move is designed to save up to $3 million in interest costs by tapping the Build America Bond program and recovery zone facility bonding program in the federal stimulus program. The budget includes plans to create a new business development office that would oversee the issuance of $18.4 million of recovery zone bonds.

"The primary driving factors are the low rates and the availability of the federal stimulus programs," said budget director Steven Kreklow. "It just made sense to borrow more now." The federal subsidy programs expire at the end of 2010.

Other factors include the need to spur economic development and jobs and the operational savings the county expects to achieve on maintenance by replacing aging vehicles and by replacing pools with revenue-generating aquatic centers. Another $142 million in capital improvements are included in the budget for Milwaukee-General Mitchell International Airport to be paid for with federal funds and revenue bonds.

In his budget address, Walker defended the job cuts and wage and benefit concessions. "With so many private-sector workers seeing their wages and benefits frozen or cut, it is hard not to expect the same from those in government," the county executive said.

Walker faces opposition from county board members who want to follow the city and push for state authorization to impose a local sales tax to generate new revenue.

A recent study of the county's finances warned that deficits will ramp up in the coming years, growing to $153 million in 2014 even as revenue is expected to return to positive growth in coming years. The county, like the city, faces increased costs for its pension system. Investment losses drove an $18 million increase in the county's contribution in 2010.

Fitch Ratings rates Milwaukee's $850 million of general obligation debt AA-plus and Moody's Investors Service rates it Aa2, both with negative outlooks. Standard & Poor's rates the city AA. The county's $700 million of debt is rated AA, Aa3 and AA, respectively.



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