Explainer: City Operating Budget and the 2025 Structural Deficit
postedHi everyone, City Finance staff and Common Council Office staff compiled the below explainer that provides information about the City Budget process and the City's options to address the 2025 structural deficit in the Operating Budget. I will continue to share budget updates via these blog posts as the Council gets closer to making decisions over the next month or so about how to proceed. Note that there will be a staff presentation on a multi-year budget plan at Tuesday's Common Council meeting. Stay tuned!
About the City Budget
The City of Madison has two budgets: the capital budget and operating budget. Both are planning documents that outline how the City will spend money from January 1 through December 31, 2025. The operating budget must be balanced. This means the City cannot spend more money than what is coming in through taxes and other revenues.
Budget Process and Timeline
The budget development process takes place throughout the year with input from staff, policymakers, and the public. The Common Council approves the final budget in November for the upcoming year. The basic timeline can be summarized in four key steps.
- Planning (January – May): The Finance Department studies the current budget and estimates how much it will cost to provide the same level of services in the upcoming year. Policy makers also make decision about the most important items for the budget.
- Agency Request (April – July): Agencies develop requests for the capital and operating budget. They present their requests to the mayor’s office. Recently, agencies submitted their capital budget requests, which can be reviewed here. The 2025 Operating Budget Kickoff took place on June 17 and agency requests will be submitted by July 19. City staff use input from residents to decide what is important to include in their requests.
- Executive Budget (July – August): The Mayor develops the executive budget based on important policy issues and agency requests. The executive capital budget will be released on September 10, and the executive operating budget will be released on October 8.
- Legislative Process (September – November): The Finance Committee and Common Council hold a series of budget hearing meetings. The Finance Committee will hold meetings on the capital budget on September 16, 17, and 30, and meetings on the operating budget on October 14, 15, and 28. Then, the Common Council meetings for both the capital and operating budgets will take place from November 12-14, if necessary. Residents can register to speak at these meetings and provide written comments on the budget. Alders can suggest changes, called “amendments,” to the budget. The final budget must be approved by a majority vote by the alders.
Revenues: Where does the money come from?
Revenues are money received from taxes and non-tax sources to pay for services. Most of the City’s revenues are from property tax (71%; $286.5 million). Local revenues, which include licenses, permits, fines, and other charges for service, and fund balance make up 18% ($73.2 million). State aid makes up 11% ($45.7 million).
It is important to know that the City has limited revenue options. For example, under Wisconsin state law, the City cannot raise a local sales tax or income tax. To learn more about Wisconsin’s municipal funding structure, please review this Wisconsin Policy Forum report.
Expenditures: Where does the money go?
The City uses revenues to pay for day-to-day operations and essential services. The total cost of services in 2024 is $405.4 million. The largest expense is public safety and public health, which makes up 42.5% of the budget ($172.4 million). This includes police, fire, emergency medical services, and public health. The second largest expense is debt service, which is how the City pays back borrowing for capital projects for long-lasting improvements in the City’s infrastructure (15.8%; $63.9 million). The third largest expense is public works, which includes services like street and facility maintenance, trash pickup, snow clearance, parks, and more (12.4%; $50.1 million).
What is the City of Madison’s financial outlook?
What steps have we taken to balance the budget?
The City has taken many steps to balance the budget since 2011. These include increasing local revenues and cutting expenditures. Some of the actions used to balance the 2024 budget included:
- Cutting expenditures in all general fund agencies by 1% ($3 million)
- Planning for a higher rate of staff vacancies and turnover ($2.4 million)
- Using $18 million in one-time funds from the closure of Tax Increment Districts (TIDs), City fund balance (“rainy day fund”), and federal funding from the American Rescue Plan Act (ARPA)
What is causing the deficit?
- Revenues: The State of Wisconsin places strict limits on how much cities can raise through property taxes and other revenues. These limits prevent our revenues from keeping pace with inflation or rising costs. The City’s revenues also have not fully recovered from the COVID-19 pandemic.
- Expenses: Costs go up every year because of cost-of-living adjustments, higher healthcare costs, and inflation. Madison is the fastest growing city in Wisconsin. The City needs to hire new staff each year to meet basic service needs, like public safety and public works.
What are the City’s Options?
The City must pass a balanced budget. This means our costs (expenditures) cannot be more than the money we are bringing (revenues). The City must find ways to balance the budget by:
- Cutting costs and reducing services available to the public. This could include lowering the budget for all or most agencies. The result would be less staff and fewer services offered to the public. Any proposed reductions must be within the general fund budget to impact the deficit. Reductions to capital projects or non-general fund budgets (like Water Utility) would not help the deficit.
- Increasing revenues coming into the General Fund. This could include increasing charges for services and fees. Another option is to ask voters if they would approve a property tax increase through a referendum. A referendum is an issue on the ballot that voters decide on. Proposed revenue increases must be legally allowed by the State. For example, the City cannot raise a sales tax without authorization by the Wisconsin State Legislature
- A combination of expenditure cuts and revenue increases.
How can I participate in the budget process?
- Contact your alder to share your concerns about the budget.
- Email the City Finance Department to share your concerns or ask questions about the budget.
- Submit written comments by email to the Finance Committee or Common Council.
- Attend public budget hearings of the Finance Committee and Common Council in September, October, and November. The meeting schedule and links to register to speak or watch online will be available online closer to the meeting dates.
Where can I learn more?
- To review the current budget, visit the City’s Budget website.
- Visit the 2025 Budget Outlook website for detailed information on the budget deficit. Additionally, within the 2025 Budget Outlook website are videos of presentations from Finance Director David Schmiedicke on a number of topics related to the budget. These can also be found below:
