Public Hearing Statement

City of Milwaukee

Proposed 2006 Budget

By the Public Policy F= orum

Jeffrey C. Browne, President=

Amy Schwabe, Research Analyst=

October 10,= 2005

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2006 Proposed Budget Overview

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Although the mayor’= s 2006 proposed budget calls for a $95 million increase in spending, the largest p= ercentage increase since 2001, most of this increase would pay for capital improvemen= ts such as the City Hall Restoration Project and the relocation of public works facilities into the Menom= onee Valley. The budget calls for a $10.1 millio= n increase in the property tax levy -- to a total of $213.1 million. The property tax rate would declin= e from $9.19 to $8.76. There are no = new user fees in this year’s budget, but there are increases in existing fees. The solid waste fee wou= ld increase $57, from $75 to $132. The sn= ow and ice removal charge would remain the same.&= nbsp; The sewer maintenance fee would experience a change in calculation t= hat also would translate into an increase.&nbs= p;

The mayor and the budget office deserve to be commende= d for their candor and foresight in preparing the 2006 proposed city budget. The budget includes an honest asse= ssment of the city’s structural deficit – a term which means that the city’s ongoing expenses are higher than its ongoing revenues. Rather than attempt to shift blame= , the mayor and budget office realize that the city needs to change its patterns = to bring the ongoing budget into balance.

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2006-= 2008 Budget Plan

The mayor and budget office understand that to solve an ongoing problem, the standard single-year focus of the budget planning and deliberation process must be changed. Therefore, they present not only a 2006 budget, but a three-year plan that is intended to start solving structural issues. This three-year plan is important because it identifies specific issues that need to be dealt with to bring t= he city into structural balance (such as trends in health care costs and debt service obligations), a welcome departure from previous years when such spe= cifics were not as readily discussed.

Although a multi-year approach is necessary to balance= the structural deficit, and although this approach is an excellent sign that the city is addressing these structural issues, we do have some concerns about = some of the strategies identified in the worthy effort to solve the imbalance.

Debt

The city plans to bring stability to its debt service = by substantially reducing the amount of tax-levy supported borrowing to match = the amount of new debt to that of debt payoffs. While this is an excellent goal, we wonder how achievable it is in light of large capital projects, such as the= city hall restoration project. Whi= le this debt is not adding to the tax levy this year, it will in future years. Although the city vali= dly points out that this specific project is a one-time endeavor, the nature of capital projects is that there is always another big one. Also, as evidenced by such project= s as the police department’s 3^rd district station, the city has= had problems with capital budget overruns.&nbs= p; Based on past results, it is possible that the city hall project wil= l continue to exceed its original $44 million budget, necessitating more debt, and that there will be more “one-time” capital projects that will require more “one-time” funding. Therefore, in order to make sure that the laudable debt service goal= is achieved, the city must find a workable way to ensure that capital projects stay on budget.

The Public Policy Forum also is concerned about the pr= oposed budget’s plan to temporarily suspend the infrastructure cash conversi= on (ICC) policy goal of 100%. Th= e ICC was established in 1986 and has ensured that recurring infrastructure proje= cts are paid for with cash instead of borrowing. This policy is excellent both in t= erms of holding down debt and in creating structural balance. Additionally, this policy is often= cited as a reason for the city’s excellent bond ratings. The proposed one-time fix to free = up non-tax levy revenue is a slippery slope and will add to future years’= ; debt repayment. There will always = be pressures on the budget. If i= t is acceptable to suspend the policy this year, what protects it in future year= s?

Revenue

The Public Policy Forum also is concerned about whethe= r some of the city’s revenue diversification strategies are realistic. Specifically, the budget hopes to achieve $7.2 million annual revenue growth through additional revenues including state aids increases, regional tax base sharing, and voluntary payments for services from tax exempt organizations. Although these revenue sources sho= uld be pursued, it would be unwise to count on them.

Other revenue diversification strategies have been pre= sented but not included in the budget because they are not viewed as politically palatable. One example was introduced in the Finance and Personnel Committee’s meeting to decide user fees for 2006. Specifica= lly, Alderman Bauman proposed a motor vehicle registration fee. While wheel taxes have never been popular, this particular proposal seemed well-reasoned. The alderman suggested that as an alternative to requiring abutting property owners to pay special assessments which can run in the thousands of dollars to fix streets and alleys, it mig= ht be more equitable and make more sense to charge a fee for every vehicle registered in the city. The r= evenue from this fee would be put into an enterprise fund, which would only go to = pay for road work. There may be f= iscal downsides to such a fee; however, they were not discussed. Revenue diversification is necessa= ry to repair the city’s structural deficit; all reasonable proposals should= be considered despite political calculation.

One particularly attractive feature of the proposed wh= eel tax is putting the revenue into an enterprise fund. In past years, the Public Policy F= orum has recommended that each of the city’s user fees should have an enterprise fund to reassure citizens that their money is going to pay what = it is supposed to pay. The absen= ce of a solid waste fund is particularly disturbing this year since the fee is increasing substantially because the money goes directly into the general f= und; it makes it difficult to convey to taxpayers that the fee is not just a tax= in disguise.

Like user fee revenue, grants should also be used to f= und their intended purpose. In the Public Policy Forum’s budget hearing statement for the 2004 proposed budget, we had this to say about Community Development Block Grant (CDBG) funds:

Community Development Block Grant (CDBG) funds continue to go to pay for city department programs that used to be tax-levy funded. Some notable examples= are the Bookmobile and some overtime costs in the Police Department. Funding such programs with CDBG fu= nds raises not only the question of whether CDBG dollars, which traditionally f= und community based organizations, should appropriately be spent by city departments, but also raises the possibility that these programs could run = into the same dilemma as the Police Department did. Specifically, if CDBG funding is decreased or if city services are no longer able to be funded by these gran= ts, what is the city going to do? If the city determines that these programs are important enough to not be cut, maybe they should have been financed with more reliable revenue all along.<= /p>

This warning has manifested itself in the 2006 proposed budget where it is stated that not only has the federal government significantly decreased the amount of CDBG funding, necessitating cuts to s= uch programs as the Bookmobile, but the Department of Housing and Urban Develop= ment (HUD) has told the city that it cannot use CDBG funds to pay for vacant-lot maintenance. This means that = these costs will need to be covered by the city’s operating budget. The city needs to closely monitor revenues that are not under its control because such revenues are unreliable and should not be depended on in structurally balancing the budget.

Spending Priorities

The city budget was prepared at a time of great concern about homeland security and violent crime in the city. Therefore, it is understandable th= at the budget includes a large increase in police spending -- $23 million. That brings total proposed spendin= g for the department to $209 million, which is nearly as large as the proposed to= tal property tax levy of $213 million. <= /span>In contrast, the city spent about $22 million on the police department in 1970= , a year when the property tax levy was $75 million. For the police department, the bud= get includes a large increase in personnel: 71 positions. The increase for t= he police department is much larger than other proposed increases: $10 million= for public works, $3.3 million for library and a $1 million increase in the Dep= artment of Neighborhood Services. Pol= ice spending now consumes nearly 40% of spending for general city purposes. Less clear is the relationship bet= ween crime, public safety and police department spending. An argument can be made that the f= unctions of other city departments are also linked to public safety and crime prevention. Examples of depar= tments potentially capable of helping prevent crime are health, city development, libraries, neighborhood services and public works.

Conclusion

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The mayor and the budget office have presented the com= mon council with a plan to deal responsibly with the city’s structural imbalance.= Although some of the strategies fo= r this goal’s achievement may be difficult to achieve, and some of the budget’s actions seem to contradict that goal in the short run, this = is an excellent beginning. The c= ommon council may be tempted to restore some of the cuts that the mayor has made. This is understandable because ald= ermen look out for their constituents, and they want to ensure that they get the = best services. However, the counci= l must bear in mind that the final goal of spending cuts and revenue diversificati= on is a structurally balanced budget, which is in the best interests of all of= Milwaukee’s citizens.