Budget Overview

The Milwaukee County Executive’s 2006 recommende= d budget proposes to spend $1,246,150,622, an increase of $58 million from 2005. The most substantial increase is in capital spending, from $53.4 million to $82.1 million. Most of this increase is due to ai= rport projects. Although general obligation bonds are taken out to pay for these projects, the retirement of this debt is self-supporting as it is paid by the revenue generated by the airlines serving General<= /st1:PlaceName> Mitchell International Airport. The property tax levy is frozen at= its 2005 level, $225.9 million.

Structural Deficit

Significant proposed cuts to the court system have been deemed the most newsworthy aspect of the county executive’s recommend= ed budget. Although these reductions in spend= ing are important, the Public Policy Forum’s biggest concern is the county’s continuing structural deficit – an imbalance between revenues and expenses. In its review of the county executive’s budget, the county board staff notes some contributing factors to this problem:= “In the past, the county executive has made a compelling case = that Milwaukee= County has a structural deficit problem…. Indeed, the structural deficit has grown considerably over = the past few years as both the tax levy and state aid have been cut or frozen a= nd employee fringe benefits have skyrocketed.”

Pension System Contribution

Since fringe benefits are a key reason for the county’s structural deficit, current efforts to decrease these benefi= ts are key. For example, the bud= get document states that the county executive will propose legislation to rescind the controversial pension enhancements adopted in 2000. The budget document notes that, “These enhanced benefits are unsustainable in the long term…. T= he county has faced annual deficits that have required cuts to services, capit= al projects, and layoffs that have been caused in part by the need to fund the= se enhancements.” Although= it is probably necessary to reduce these benefits to balance the budget, the likelihood of such a reduction is unclear because the benefits are now part= of employees’ benefit packages. <= /span>

Additionally, the county executive plans to make a contribution of $19.2 million to the Employees Retirement System, a decrease from $35.4 million in 2005 and, according to the county board staff, $26.7 million less than what the contribution should be. The county executive states that t= he reason for this lower contribution is to spur a debate about what the pensi= on benefits should be. Although = this debate needs to take place so the county will be able to negotiate benefits= it can afford, the fact remains that the enhanced benefits are the county̵= 7;s current obligation; under-funding them will only add to the county’s structural deficit.

Capital Projects and Debt

It is important to monitor the county’s level of= debt because substantial increases in debt service obligations can compound structural deficit problems. = In 2003, the county restructured its debt, significantly increasing its debt service obligations. The coun= ty recognized that it was necessary to keep capital spending in check so that = this debt restructuring would not have an adverse effect on the county budget as well as on the county’s solid bond rating. Although the county’s corpor= ate (non-airport) purpose bond amount is below the 2008 cap of $30 million that was set as a result of this policy, the county has had difficulty achieving other debt goals. For example, in 1995 t= he county established a goal of achieving 20 percent cash financing of capital projects by 2005. However, th= e 2006 budget’s cash financing is only 7.4 percent (including airport projec= ts) or 9.2 percent (excluding airport projects), both below the goal. The county needs to keep up with i= ts sound debt and capital policies.

Carryover Budget Deficit

The county has a policy of carrying over the budget su= rplus or deficit from two years prior to the current budget, meaning that if ther= e is a surplus the county has extra money to put toward the budget and if there = is a deficit, the county has to pay for it.&nbs= p; The 2004 amount is a deficit of $1.6 million. This highlights the importance of keeping the budget balanced during the year; it is undesirable to embark up= on a new budget already in the hole.

Contingency Fund

The state of the 2006 contingency fund is evidence of = sound budgeting policy. In the past, the coun= ty has had a problem with optimistic revenue projections, causing mid-year deficits. In the 2006 budget,= the contingency fund is projected to show a large increase, from $4.4 million in 2005 to $12.2 million in 2006, because the county is expecting revenues from two new sources (one from the anticipated adoption of the county’s wa= ge and benefit package and one from a new Medicare program to reimburse the co= unty for providing prescription coverage to retired employees). Instead of budgeting the revenue for specific purposes, the proposed budget would put it in the contingency fund. The budget document sta= tes that, “Given the uncertainty surrounding these two new revenue source= s, it is recommended that these revenues not be relied upon to fund County expenses, and that they instead be deposited into the contingency fund, in order to avoid a potential deficit in 2006.” This is an excellent move by the c= ounty to ensure it is not relying on revenues of uncertain permanence.

Conclusion=

The Public Policy Forum is most concerned with the county’s long-term outlook. Annual budget strategies that do nothing to improve the structural deficit are not in the county taxpayers’ best interests. Nor is ignoring sound long-term de= bt policies for short-term tax relief.

Operational efficiencies must be expected from every department, including the courts, but the result cannot be merely a reducti= on in services. The result must = be a better positioning of the county for the future. Building the contingency fund with= new revenues is an example of the type of budgeting decision that is needed now= to ensure better results later. =