Wisconsin Policy Forum Review of Proposed 2024 City Budget

Background

Each year the Wisconsin Policy Forum reviews and analyzes the Mayor's proposed Executive budget for alders and the public. The Forum's full report on the proposed 2024 Executive Operating and Capital Budgets is published to their website, here and I highly encourage you to check it out if you're interested in teh full set of details and graphs. I thought it would be useful to share this independent, third-party review of the proposed budget to give residents more context on the proposal and the City's future budget challenges. My goal is to help folks provide informed input before the Common Council takes up the budget in a couple of weeks. For more detailed information check out the resources on the City's budget webpage.

In this post I include a few highlights and screenshots of graphs from the report showing what I consider to be the most important summary information about the proposed 2024 City budget and future budget challenges based on current conditions. Sections of text in quotes ("") are direct quotes from the report. All of the 2024 figures are proposed; numbers from 2023 and prior are what was already approved; numbers from 2025 and later are projections based on the 2024 proposal and adopted budget-related policy. Note that this information was created before last Monday's Finance Committee meeting where Finance Committee alders did pass a few amendments to the proposed Executive Operating Budget. My sincere thanks to the folks at the Wisconsin Policy Forum for sharing this work with us.

[Also, quick reminder from me about the virtual Public Information Session on the 2024 Budget and resident input opportunities hosted by City staff tomorrow, Nov 1st at 5:30pm; here's the registration link!]

Budget Shortfall

"The mayor faced a potential shortfall of $28.3 million as she considered the 2024 budget, up substantially from $13 million last year (see Figure 1). The growth in the city’s ongoing revenues will cover much of the gap, but the proposed budget also adds various spending items that further add to the potential shortfall. To bridge it, the proposal turns to various one-time sources of funds that should fill the hole for this year but would add – in the absence of sustainable fixes – to the city’s challenges in 2025 and beyond. The biggest contributor to the initial budget gap for 2024 came from increases to employee pay and benefits at roughly $20 million in total." [....] 
"To help close the gap, the city is drawing on roughly $18 million in new ongoing revenues that include $12.6 million in property tax growth, $3.3 million in additional state aid, and $2 million in increased investment earnings due to higher interest rates. Other gap-closing proposals include a $3 million savings from cutting 1% from each city agency’s projected 2024 cost to continue its current level of services, and a savings of $2.4 million from keeping greater numbers of positions vacant." [....]
"Despite the sizable use of city reserves, they are expected to remain strong because of the tendency for city agencies to spend less than their budget in recent years due to employee high turnover." 

Key Changes in Proposed 2024 General Fund Spending

Major increases and decreases in spending with General Fund sources (doesn't include grants or restricted-use sources):

• Metro Transit's increase is the largest increase, with $13.7m (note that much of this, $7.1m, is to repay a $7.1m balance that the 2023 City budget "borrowed" from Metro)
• Police's budget is the second largest increase at $4.1m, "a 4.7% bump" (see page 7 of the report for this quote; also pasted below)
• Miscellaneous & Capital Projects is the biggest reduction in spending at $5.8m
• Planning & Development is the second biggest reduction in spending at $2.2m

"The other major spending changes in the budget include:

• $2.4 million in savings from vacant positions and a decision to not include an additional $3 million that on its face was needed to maintain current service levels – city officials say agencies often spend less than what is budgeted and should be able to manage these trims.
• A 6% raise for general city employees, with 4% taking effect on January 1 and the remaining 2% on July 1 at a total estimated cost of $4.9 million. This increase is aimed at closing the pay gap between general workers and police and firefighters, who would receive a 3% increase that would cost $3 million.
• $2.3 million in increased debt payments (see the Capital Budget section for more detail), $1.5 million for a major election year in 2024, and $1 million for various supplemental items including funds for operating temporary shelters for the homeless ($300,000), a 5% increase for outside groups that provide community services ($146,000), and $100,000 for an outside contractor to take over the transport of individuals to secure mental institutions – a service that would free up time for police officers to do other law enforcement work.

The spending increases also include $4.1 million more for the police department, a 4.7% bump, and $2.2 million for the fire department, a 3.2% increase. The budget also would cut funding to the city’s Community Development programs by $3.3 million, or 17.7%. The decrease primarily reflects the phase-out of $2 million in one-time general fund support for an endowment to support a homeless shelter in the city and $2 million in one-time ARPA funding being transferred to the general fund for services to homeless individuals. Funding would rise for other Planning and Development areas such as building inspections, however, leaving overall funding in that larger program area down by $2.2 million, or 7.2%."

Property Taxes and the General Fund

"The city’s proposed property tax levy would total $286.3 million and rise by 4.6% overall on December bills, less than last year and similar to the current rate of inflation but still a relatively rapid pace (see Figure 7 on page 8). Taxes on the average home valued at $424,400 would rise by 3.7%, or $109, to $3,016, a somewhat smaller increase than last year. Madison also benefits from relatively strong construction activity. In general, state law limits city property taxes used for operations to the rate of net new construction in the city. This year, the city’s new construction rate grew to 2.2%, representing a slight dip from last year but still easily outpacing the state average of 1.7%. Tax rates do not rise on existing property owners to cover the growth in this portion of the overall levy since the increase is covered by the new development in the city."

Proposed Municipal Fee Increases

• Urban Forestry: a 11.5% increase, $8.88 per customer annually "for city forestry vehicles as well as personnel costs."
• Stormwater: a 6% increase, $37 per customer annually "to cover debt payments on projects and cash funding for additional work to help the system better handle large rainfalls." This is an estimate that will be finalized in the spring.
• Sewer: a 9% increase "to cover increased charges from the Madison Metropolitan Sewerage District and debt payments that funded the city’s own past sewer improvements." This is an estimate that will be finalized in the spring.
• Water: a 0% increase.
• Recycling: a $1.80 increase "due to increased costs from food scrap collection and drop-off sites and a decision to drop the current tax funding for the program."

2024 Capital Budget 

"The mayor’s proposed $266.5 million capital budget would represent a 27.1% decrease from 2023’s record high of $365.6 million. Figure 9 on page 10 shows how 2024 would stack up against prior years, showing a smaller capital investment than 2022 and 2023, but considerably higher than the pandemic-limited years of 2020 and 2021. A large portion of the drop can be attributed to a lull in funding for Bus Rapid Transit (BRT) projects, as the initial east-west route has been fully funded and the north-south route is still in the planning phase. Despite that pause on new BRT funds, transportation again makes up the largest share of the 2024 capital budget, with major street improvements and Metro Transit targeted for the largest investments."

Debt Service Payments

"...the percent of general fund revenue dedicated to debt payments is still projected to climb to nearly 20% by late in the decade, as debt costs will increase and the city’s revenues will likely continue to be limited by the state. This presents city managers with a dilemma. On the one hand, slowing the growth in debt payments now – particularly for optional projects – could prevent this expense from slowly crowding out other priorities such as public safety, libraries, and public health. On the other hand, some capital projects cannot be avoided and putting them off can merely increase their ultimate cost."

"Keys to the City Budget" 

1. "Historic State Aid Increase Did Little for Madison"

"Act 12, however, provided more modest assistance to other large cities in Wisconsin, particularly those such as Madison that have relatively high property values and as a result have historically received little in county and municipal aid. The budget currently includes a $3.1 million boost in municipal aid from the state in 2024. This influx would amount to a 62.2% increase over the $5 million in aid expected for 2023. Yet the bump still amounts to less than 0.8% of Madison’s general fund budget for 2024 and annual inflationary increases on the roughly $8.1 million in total municipal aid to the city in future years will likely be less than $300,000. Madison will garner the least municipal aid per resident from Act 12 out of all of the 1,848 municipalities in the state, receiving $11 per capita in 2024 compared to the statewide average of $35 per resident, according to a Forum analysis of Legislative Fiscal Bureau data."

2. "City Officials Seek to Reroute Metro Transit"

"Madison Metro Transit has seen some improvement in its outlook over the past year but still has challenges to overcome in 2025 and 2026. The agency is in the midst of a transition period, with ridership rebounding but still below 2019 levels, construction work ramping up on a new Bus Rapid Transit (BRT) system scheduled to start service in 2024, and issues being ironed out from a route redesign that was implemented over the summer. Since the start of the school year, the transit system has faced overcrowded buses and service delays on some routes, with a lack of bus drivers making it difficult to add service. Further, while the mayor’s 2024 proposal would increase city tax funding to Metro Transit to make up for the looming loss of federal pandemic funds, the agency could need additional funding or spending cuts to balance its budget in 2025 and 2026. The budget proposes total funding for next year of $72.1 million, which would represent a 6.3% increase over projected 2023 expenditures. The new spending would support expanded paratransit service for people unable to use the agency’s regular buses, including new service to Sun Prairie. It also would add six new positions and provide funding for the agency’s satellite facility and costs associated with a switch to electric buses. Five of the positions would work from Metro Transit’s remodeled north side satellite facility on Hanson Road, performing bus cleaning and fueling, maintenance, and scheduling. The remaining position would focus on the city’s electric bus infrastructure."

3. "Metro Gets Most Positions, General Workers Biggest Raise"

"The mayor’s budget would increase total employment across city agencies by 15.15 full-time equivalent (FTE) positions, or 0.5%, to 3,065.85 positions. The city’s population has been growing more rapidly in recent years, with increases ranging from 1.0% to 1.5% annually including a 1.4% rise in 2022, according to recent data from the U.S. Census Bureau. Only one department would see a gain or loss of more than two positions: as noted above, Metro Transit would add six FTEs." [....]
"The mayor’s budget would provide pay increases for all city workers but would prioritize general employees to reduce gaps between their pay and that of public safety workers. All general employees would receive a 4% cost-of-living adjustment at the beginning of next year, followed by a 2% pay increase on July 1. Public safety workers would receive a 3% increase at the beginning of the year. The budget also acknowledges a reality the Wisconsin Policy Forum has written about: record numbers of local employees around the state have left their jobs over the last few years. While in the past, the city has operated with the assumption that it will save 2% on salaries given turnover and vacancies, the 2024 proposed budget assumes a higher level of vacancy savings for larger departments. On average, this results in a 3% savings, or about $2.4 million in the mayor’s budget. With inflation lingering and the city budget remaining tight, it’s an open question whether over the long term Madison can add employees and maintain staffing ratios in key areas such as public safety while also providing additional raises to city workers. For now, some of the budget pressure has been reduced by the higher levels of turnover and vacancies, but fiscal challenges could mount as city officials seek to stem the loss of workers and fill open positions."

4. "Room Tax Revenues Rebound but Still Lag Costs"

"As the pandemic has subsided, travel and tourism have returned, bringing renewed visitors and commerce to the city. As a result, room tax revenues from hotel and home-sharing stays are recovering from their steep drop during the worst of COVID-19. City officials currently estimate $20.0 million in expected revenue for 2023, a rise of 8.0%, and project an additional 5.9% increase in 2024 to $21.2 million (see Figure 14)."

5. "Parking Fees Still Well Below 2019"

"More than three years after the onset of COVID-19, revenues have not yet recovered for the city of Madison’s parking utility as many workers continue to spend at least some of their work days at home. Ongoing revenues from parking garages, meters, and permits are expected to hit $14.4 million this year, an improvement from 2022 but still well below pre-pandemic levels..." "Next year, revenues will once again dip. This is in part due to the closure and redevelopment of the State Street campus garage – the largest of the city’s six garages – which officials estimate will have the effect of decreasing revenues by $1.6 million, or about 11% of this year’s ongoing revenues."

Conclusion

"With only modest assistance from the state budget and Act 12, the city of Madison faces a difficult budget in 2024 and the knowledge that the degree of difficulty is likely to increase in future years. The path ahead is far from clear. Some will argue that Madison already benefits enormously from the presence of UW-Madison and the state capitol in the city and that local taxpayers, as opposed to the state, should bear most responsibility for paying to maintain their relatively high current level of services. This is in fact how the city once managed its affairs – before strict property tax levy limits were adopted – and many would argue it is a reasonable approach. There is only one problem: it is becoming more challenging year after year for the city to do so. At present, state law prohibits a sales tax in Madison and tightly limits the amount of new property tax revenue that can be directed to the city’s ongoing operations. City leaders could choose to seek authority for a larger property tax increase through a referendum, but would need to wait until next year at the earliest to put such a question to voters. This possibility seems increasingly likely for a future city budget. Municipal referenda have proven more difficult to pass in other communities compared to ballot questions for school funding, and the Madison schools are increasingly eying a funding referendum of their own for 2024. However, the other options for the city – such as steep fee increases, spending cuts, or a heavy reliance on reserves, borrowing, and other short-term maneuvers – would present difficulties of their own. One other more positive path for the city can be found in Metro Transit, which has its own budget challenges over the next several years. That agency has been working with neighboring municipalities to expand service and bring in additional revenues to cover its operations. Other city agencies could likewise seek to work with their suburban counterparts to find similar opportunities, although such moves would take time to implement and are unlikely to solve the city’s problems on their own. Ultimately, these challenges should not be seen as insurmountable. The city has a strong economy and retains largely healthy finances, while the state in theory could still consider further assistance for cities like Madison given the massive chunk of its surplus that is left to allocate. Yet city leaders must recognize that the difficult politics of this question could forestall its solution for some time to come, and their deliberations on the 2024 budget should continue with an eye toward both the year ahead and a more difficult future."