Madison is Seeking a Funding Referendum

The City’s structural deficit is the result of two basic dynamics: a rapidly growing city and harsh restrictions on revenue enacted by the State Legislature and former Gov. Scott Walker. Since 2011, the State Legislature has strictly limited the amount of revenues available to pay for City services. According to the independent Wisconsin Policy Forum, Wisconsin has the one of the tightest restrictions on increases in the entire country. As a result, the City has had to close deficits in every City budget since that time.

• Revenue restrictions have caused deficits each year of approximately $10 million.
• The latest estimate of the deficit for 2025 is $22 million.
• The City has done many things to balance its budget over the past 13 years, such as increasing the amount that employees pay for their pensions and health insurance, increasing existing fees, and creating new special charges.
• Limits on City revenues under state law — property taxes levy limits, no local sales tax, no local income tax, low level of shared revenue — have not allowed the City to keep up with the need for services.

Madison is limited mainly to using property taxes to pay for services. Over 70% of the City’s budget comes from the property tax. In fact, Wisconsin municipalities are the most dependent on property tax of any state in the Midwest and are some of the most limited in the entire country due to the state legislature’s restrictive policies. Moreover, Madison has over 1500 tax-exempt properties, including many extremely prominent and high-value locations such as the UW Campus and state government buildings that are cut out of the City’s property tax base, further shifting the burden of property taxes onto residential property owners.

• The State constitution and state law requires that property taxes be uniformly applied. This means that there cannot be different tax rates for different property nor surcharges for certain types of property. For instance, the City is not allowed to reduce property taxes just for seniors or for those living on fixed incomes.
• The City can charge for services (for example, ambulance fees), collect fees for licenses and permits (such as building permits), and issue fines and forfeitures (parking tickets). Revenues from these charges and fees cannot exceed the cost of the service provided; that means, for instance, that Madison cannot charge large commercial developers more money and then use that money to fund other services for residents.
• Madison has a 10% room tax. Each 1% on the room tax generates about $2 million. Under state law, only 30 cents of every dollar raised can be used for general City services. The remaining 70 cents must be used for “tourism-related activities.”
• The City is allowed to have a local vehicle registration fee under state law. In 2020, the City created a $40 annual vehicle registration fee.
• Wisconsin cities are allowed to have special charges for certain services under state law. The City has created an urban forestry special charge and a resource recovery special charge. These special charges raise a total of about $10 million annually for those services.
• Special charges could be created for other city-wide services, such as transportation infrastructure and parks.

The economic effects of the pandemic exacerbated the City’s budget deficit.

• The COVID pandemic significantly reduced City revenues, which remain below pre-pandemic levels to this day.
• Meanwhile, costs have increased in the last couple of years due to the high rate of inflation.
• ARPA funding helped address the deficit while maintaining basic city services over the past 5 years. That funding is no longer available.

These and other large infrastructure projects are part of the City’s capital budget, which is funded by long-term debt, and were previously approved by the Common Council. That funding does not come out of the City’s operating budget that pays for City services, nor can it be used to pay for the ongoing cost of those services. The interest on that debt, or “debt service,” will eventually need to be paid back but does not directly impact the $22 million budget gap. Moreover, the vast majority of the bus rapid transit project is funded by federal infrastructure spending, and not via local taxes.

No. State law does not allow local sales taxes for cities. The exception is the City of Milwaukee, which as of 2023 was authorized to enact a local sales tax by the State Legislature in order to avoid bankruptcy. 

• The State Legislature would have to pass a law allowing Madison and other cities to levy a sales tax; it has repeatedly declined to do so despite being asked by Madison and other cities across the state for that authority. 
• Gov. Tony Evers has requested a 0.5% sales tax for cities in his recent budgets. The State Legislature has stripped that language from each and the current legislative leadership has made it clear that they have no intention of granting that authority.

One-time funding such as surpluses from closed TIF districts, and allocations from the City’s “Rainy Day Fund” used haves been used in many previous City budgets.

The 2024 budget includes one-time funding of $9 million from the City’s fund balance (“rainy day fund”) and one-time funding of $3 million from surpluses in closed tax increment district, as well as the final $5.6 million of the ARPA SLFRF funding is allocated in the 2024 budget.

Madison is continuously reviewing its processes and seeking efficiencies. In fact, the City is currently operating with 11% fewer staff per resident than it did just a decade ago.

• City agencies are audited on a 5-year cycle for review of internal controls and identification of ways to improve efficiency.
• The Results Madison initiative is a strategic framework intended to align city services with the outcomes that matter most to Madison residents. To further improve efficiency, City agencies are currently in the process of developing performance measures related to the services and activities they provide.

As a local government, the services we provide are dictated by the needs and vision of Madison’s residents and their elected officials.

• The City currently uses what is called a “cost-to-continue” budget process, which allows us to account for inflation in the cost of providing the same level of service year over year.
• “Zero-based budgeting,” which means starting from scratch each year, is another way to evaluate services.
• Both processes include a review of every budget line item. And under either system, the Common Council may vote to discontinue a service or to add a new service to any agency’s budget during their deliberations.