Update on Operating Budget Structural Deficit: Multi-Year Budget Plans and Proposed City Referendum

In last Tuesday’s Council meeting, the City Finance Director and the Mayor gave a presentation to alders and the public on a multi-year plan to balance the Operating Budget. Those interested can watch the recorded presentation at this link, which should take you right to the correct portion in the meeting. There was a lot of really important information shared in that meeting.

Background

The City’s Operating Budget pays primarily for the salaries and benefits of the City staff who provide services to the public: police, firefighters, snow plow drivers, librarians, park rangers, etc. State law distinguishes this from the Capital Budget, which funds assets like property, infrastructure, or vehicles. Because of how the State’s limit on the local property tax levy is structured, the City can’t legally free up money for the Operating Budget by making cuts to the Capital Budget.

The Operating Budget is over-reliant on the property tax compared to other Cities and the State doesn’t return shared revenue back to Madison on-par with other municipalities (lowest increase in the state in last year’s “historic” budget compromise). The State also limits how cities like Madison can raise money. The result is that funding available for the Operating Budget does not keep up with the cost of providing services. Apparently, the City has faced a multi-million dollar deficit in each of the Operating Budget every year for more than a decade and has relied upon service efficiencies, held staffing levels down, and the use of one-time money to plug those deficits. See slide 4 in the Budget Plan presentation for more information about this. According to the Mayor’s Office, if the City workforce had kept up with population growth since 2014 per-capita, the City would have an additional 217 staff to keep up with the higher need services.

In the last couple of years, the federal pandemic-era funding helped to close the growing gap in the Operating Budget but that funding runs out after this year. The City’s Operating Budget now faces a deficit of $22 million in 2025, which is a smaller deficit than the originally-projected $27 million at the beginning of the year but still requires a significant change to either expenditures (staff and service cuts), to revenues, or both in order for the City to get by. That annual deficit in the Operating Budget is expected to grow by an additional $6 million in 2026, $7 million in 2027, and so on. I began sharing background information on the situation starting early this year in my February 11th blog post.

Are you getting frustrated reading this? I’ve personally grown pretty frustrated while wrapping my head around the whole situation. Wisconsin’s model for funding local government is broken. Its goal appears to be for a top-down way to force local government in Wisconsin to struggle and to shrink. It’s no surprise that at least three neighboring communities and many school districts are considering going to referendum this year. In Gov. Tony Evers’ last executive state budget proposal, he proposed giving cities the option of enacting a local sales tax and proposed a shared revenue deal that wouldn't have shortchanged Madison. You can probably guess how far those ideas went with the Wisconsin State Legislature. Here’s another fun fact I just just learned last week: Wisconsin cities provide services to State-owned facilities such as police and fire protections, and in 2024, Madison only received 38 percent of what the State says it owes for these services. Full payment would provide an additional $13 million which the City could use to offset the growing cost of providing those municipal services to State properties, which don’t pay local property taxes.

Five-Year Operating Budget Plan Scenarios

In last Tuesday’s Council meeting, the Finance Director and the Mayor presented two potential five-year budget plans: one that reflects funding from a $22 million referendum and one that does not, due to either alders or voters rejecting a referendum.

• The scenario that includes an extra $22 million from a referendum does not cut services. It shows the use of $25 million from the General Fund (“rainy day” fund) over the next five budgets, which keeps Fund levels above the 15% threshold to maintain the City’s highest-possible AAA bond rating. It also shows the use of more “special charges” on the municipal services bill starting in 2027. 

  

• The scenario that does not include funds from a referendum instead shows service cuts of $6 million, or about 60 City staff, each year over the next five years. It shows a similar use of $25 million from the General Fund, plus new “special charges” starting right away in 2025. Most worryingly, this scenario shows continued unmet operating budget deficits starting again soon: $2 million unmet deficit in 2027, $7 million in 2028, $10 million in 2029, and $22m in 2030. Realistically, without new revenue sources available to the City, I expect those amounts would be added to the annual staff and service cuts each year. 

  

You can find both of the above plans in the 7/16 presentation to Council. Both of the above budget plans include timelines by when the State has an opportunity to change its budgetary policy to provide relief to Madison in the form of a better deal on shared revenue or by granting permission for new sources of revenue, given that State Budget policy is a key driver of local governments’ budget pain. In her portion of the budget planning presentation to the Council on Tuesday, the Mayor committed her office to organizing a multiyear advocacy effort to make the case for improved support for Madison to state lawmakers on both sides of the isle.

What’s next?

At last Tuesday’s Council meeting, a resolution was introduced that authorizes a referendum question on the November ballot to ask voters if they would approve exceeding the state’s limit on the property tax levy by $22 million. This increase would apply to the City’s portion of the local property tax bill, which in 2024 accounted for around 35% of what Madison residents paid in property taxes. In 2024, the average home was valued at a bit over $450,000; a referendum for $22 million would cost the owner of that home about $240 in 2025, or about $20 per month. The amount would not grow in future years: under state law, cities can only ask voters to exceed the tax levy limit by a fixed amount. While much smaller than MMSD's ask, this increase would still impact the cost of living in Madison and alders are hearing from concerned members of the public about their fears of getting priced out of their homes.

The City's referendum resolution first goes to Finance Committee on Monday, July 22nd. I expect there will be a discussion among its members about the amount. The Common Council will hear public comment on the referendum resolution at the August 6th Council meeting. Debate and the Council’s vote on the referendum resolution will take place in the August 20th special meeting.

City agencies’ detailed Operating Budget requests and their staff/service cut proposals were due to Finance on Friday July 19th and will be posted online soon. Alders have started to receive very frustrated communications from the public about those staff/service cut options that have been presented and voted on at recent City committee meetings. Then the Mayor will put her Executive Operating Budget proposal together and send it to the Council Finance Committee in October. Staff in the Common Council Office have been busy in recent weeks going through all of the feedback, notecards, and activity notes from the Council’s public information meetings in May and June about the Operating Budget deficit. They will have a Frequently Asked Questions document finished soon with answers to those questions that came in, which I will share in a future blog post. Stay tuned for more updates as this process continues. District 3 residents should please feel free to email me any time with questions or input: district3@cityofmadison.com.