2025 Budget Explainer
postedThe City of Madison is faced with an unprecedented operating budget gap of $22M due to population growth, the lingering economic disruption from COVID and state levy limit constraints which have created an inability for the city to cover the increasing costs of providing services because revenues have not kept up with inflation.
After the Council initiated a series of community engagement meetings to explain the causes of the budget deficit, we voted on August 20 to authorize the City to place a referendum on the November 5 ballot to increase the property tax levy by $22M.
The referendum would cost approximately $230/year for the average-value home ($457,300) - an estimated $20 dollars/month, though most property owners would see a number below that amount. That's roughly $60 per $100,000 of property value, or less than $1 per day for the median home.
I’ve summarized available information from the Finance Dept. to prepare this presentation. I realize it’s long, but hopefully easier than digging through the info on the Finance 2025 Budget pages. Please let me know if you have questions or comments at district6@cityofmadison.com.
Budget Overview
The Council actually adopts two budgets every year: a capital budget and an operating budget. The operating budget is subject to the state levy limit caps, but the capital budget is exempt. Mayor Satya Rhodes-Conway introduced her 2025 Executive Capital Budget on September 10. And on October 8, the Mayor will introduce her 2025 Executive Operating Budget.
In an unprecedented and historic move, the Mayor will offer two operating budgets for 2025: one if the referendum request for $22M fails on November 5 and one if the referendum passes.
The capital and operating budgets will go through separate Finance Committee review and public hearing processes until the Common Council votes to adopt each budget on November 12-14. Public input is welcome. Send comments to allalders@cityofmadison.com, and indicate your street address or district number so alders know whose constituent you are.
Please vote on November 5! Your vote for state and national candidates, on the state constitutional amendment Cap Times article, and city and school district referenda will set our future.
I’ve included some links at the end of this document with more information.
Capital Budget
The capital budget funds infrastructure improvements such as roads, bikeways, bridges, parks, and storm water management. It also funds public buildings like the men’s homeless shelter at Bartillon, the Imagination Center library at Reindahl Park, and the proposed new South District Police station at Park and Badger.
The city funds capital improvements using general obligation borrowing, federal and state grants, impact fees and tax incremental financing.
The vast majority of the bus rapid transit/BRT project is being funded by federal infrastructure spending, and not by local taxes. BRT and the 2025 Budget
The 2025 Executive Capital Budget includes a 6-year timeline called the Capital Improvement Plan/CIP. Since it often takes several years to plan and construct projects, unfinished projects are reauthorized and the unspent funds are carry forwarded. The Council will adopt a capital budget for 2025 and that also includes the estimated cost of future projects for 2026-2030.
2025 Capital Budget Highlights for District 6, downtown and east side residents
* $14.5M in affordable housing assistance for 2025 and similar amounts in each year of the CIP.
* Reconstruction of John Nolen Drive (Broom-Lakeside) is scheduled for 2025. The majority of funds come from the federal government. John Nolen Drive
*The Parks Division will refine plans for the Lake Monona Waterfront project (now rebranded as Madison Lakeway), with a focus on the first phase called the Community Causeway in collaboration with Madison Lakeway Partners who will assist with fundraising and operations. Madison Lakeway/Lake Monona Waterfront
*Planning for the future use of the Baldwin triangle in McPike Park. Parks staff will lead a community conversation to explore adaptive reuse of the office/warehouse building at 212-214 S Baldwin and discuss future uses of this corner of the park including a potential dog park. I expect this process will start in the first quarter of 2025.
* The Transportation Dept. is proposing $400K for a local match for the intercity passenger rail station. We should be hearing more about the station selection this fall. Three of the eight proposed stations are in District 6. Locations under consideration are Monona Terrace, Blair St, S Livingston, McPike Park, 1st St at the Madison Public Market, 1st St at E Johnson, Oscar Mayer, and Aberg Ave. Passenger Rail Station FAQ
* TID 53/Wilson St is the new tax increment district that includes part of the First Settlement neighborhood near the Capitol. In 2025, funds are allocated for predevelopment costs of the city owned Brayton Lot (E Washington and S Butler in District 6). There will be a Request for Proposal prepared and issued later this year seeking a master developer. Brayton Lot
Operating Budget
The majority of operating budget funds come through the property tax levy (about 71%), but the city also receives revenue sharing from the state, and from grants and fees. Wisconsin makes local municipalities more dependent on the property tax compared to surrounding states.
The city uses operating budget revenues to pay for day-to-day operations and 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).
The operating budget funds salaries and related personnel benefits. It also includes contracted services with consultants, vendors and agreements with nonprofits who provide community services.
The operating budget must be balanced. This means the city cannot spend more money than what is coming in through taxes and other revenues. The operating budget is subject to state levy limit constraints. Debt service from borrowing is paid out of the operating budget but it is excluded from the levy limit calculation.
For almost 20 years, Wisconsin has instituted property tax levy limit caps but after the election of Gov Scott Walker in 2011, the inflation escalator of 2-3.5% was eliminated. The inflation escalator allowed the city to keep up with the rising costs of wages, health insurance, fuel, etc. Now the allowable increase in the property tax levy is based on “net new construction”, i.e. real estate development and any adjustments if a tax incremental district is closed.
A Decade of Strategies to Address Structural Deficits
Since 2011, the City has used many strategies to address the structural deficit caused by levy limit caps - adding special charges like the Urban Forestry Special Charge and Resource Recovery Charge to the municipal services bill, the local vehicle registration fee, higher ambulance fees, increasing the room tax, staff furloughs, increased employee contributions to retirement funds, higher fees, cutting expenses, bond premiums and use of the “rainy-day fund”.
Per current state law, the city cannot utilize a local sales tax or local income tax. And federal funding for COVID relief is ending.
Madison is seeing new real estate construction, but we don’t get enough revenue from the property taxes generated to adequately serve new residents. Revenue from the property tax bill is divided up between the City, County, School District and Technical College. Madison gets 35% of the total property tax bill.
Communities that have not seen significant net new construction are being hammered. At the September 20 press conference of Dane County Mayors, Monona Mayor Mary O’Connor stated that Monona’s 2025 allowable levy limit increase is $25,000 because Monona is landlocked and doesn’t have many opportunities for infill development. Monona is also seeking a referendum this fall. Dane County Mayors Urge State to Fund Local Governments
Madison is growing and we are trying to serve more people with less resources and fewer staff. We finally hit the wall. Policymakers have used all the tools.
Managing Austerity
I don’t know how the Council can effectively serve historically marginalized populations and address systemic racial and economic disparities, reduce greenhouse gas emissions, promote climate resilience, provide wage parity for municipal workers and improve safety and neighborhood stability if the referendum fails.
Managing austerity is not what I signed up for as District 6 alder. My focus is on adding more affordable housing units, providing services for individuals experiencing homelessness and other vulnerable populations, improving pedestrian and bike safety, and encouraging your participation in local government. But the city will face dramatic cuts to programming and basic services if the referendum fails, not just for one year, but for years to come.
Two Operating Budgets for 2025
For the first time in city history, Mayor Rhodes-Conway will offer two operating budgets for 2025: one if the referendum request for $22M fails and one if the referendum passes.
The graphs along with lots of supporting data are explained in the September 2024 Budget and Referendum update . The Mayor asked agencies to present options for a ‘cost to continue’ operating budget with 1% cuts if the referendum passes and options for 5% cuts if the referendum fails.
The Mayor's request for 5% cuts totaled about $24M which is more than the $6M in operating cuts the Mayor has indicated she will seek in 2025 and subsequent years if the referendum fails (shown above in orange).
$6M in cuts would result in about 60 permanent layoffs.
You may have seen media reports this summer about proposal to close the Goodman Pool and reduce Library services. As I write this in early October, these cuts are not part of the Mayor’s Executive Operating Budget, merely potential cuts offered by the agencies. The Mayor will introduce the Executive Operating Budget on October 8.
I reviewed all of the agency proposed 5% cuts and as a policy maker, it is a horrifying list. 2025 Operating Budget Agency Requests
Maintenance of Effort - 2023 Wisconsin Act 12
It should come as no surprise that Wisconsin state law affects how the Mayor and Council will choose options from the list of requested 5% cuts.
In 2023, Wisconsin Act 12 was adopted. It adds a Maintenance of Effort requirement to shared revenue funding for law enforcement and fire/emergency medical services. Starting in 2024, municipalities will need to certify to the Dept. of Revenue that these services have not decreased from the previous year and failure to certify will result in the reduction of shared revenue payments by 15% for the next year.
To meet the Mayor’s requested 5% cuts, Fire proposes to reduce the CARES program from three teams to one resulting in the loss of coverage on weekends and holidays and less capacity during the week and remove one fire engine company. But based on the new rules, the City’s shared revenue would be dinged by the state if these cuts were implemented. The same holds for the 5% cuts totaling $4.7M offered by MPD which would eliminate the daytime Traffic Safety and Enforcement Team (TEST), eliminate the Neighborhood Gang Abatement Team and eliminate 43 sworn positions and 11 civilian positions.
If the referendum fails and we have to come up with deep cuts, the impacts will be shouldered unevenly across city agencies based on the state Maintenance of Effort law. This will further squeeze the resources of city agencies that provide community services, library services and parks, trash pick up and snow plowing -basically everything else that is not police and fire services.
Highlights of Proposed 5% Cuts
*Eliminate the property look up function in the Assessor’s office* Eliminate Code Enforcement Officer, Housing Inspector, and Information Clerk positions in Building Inspection *Reduce poll workers in the Clerk’s office *Eliminate AASPIRE interns across all agencies * Discontinue City contribution to various economic development activities including the Downtown BID, MadREP, Summer Meals program, and the Community Gardens Network manager * Discontinue the Arts Grants program, placemaking activities, and the Neighborhood Grants program in Planning* Reduce the City’s financial contribution to case management and outreach services for persons experiencing homelessness in Community Development *Reduce evening hours at all seven libraries and provide fewer programs overall *Reduce Metro late night and weekend service * Eliminate Parks Aquatics Program at Goodman Pool and splash parks * Eliminate Parks ice rink program, beach cleaning service, reduce restroom support *Reduce Streets scheduled brush pick up to 3x/year from 5x/year *Reduce Streets staff for snow and ice clearance, extend time to plow the city streets and clear sidewalks at bus stops and cross walks *Eliminate crossing guards at 10 locations
If the referendum fails, not all the cuts would be implemented in 2025. Unfortunately, we may have to look at the 2025 list of agency operating budget cuts over the next six years.
The Budget Deficit is Structural, it is not a one-year problem
If we don’t get relief from the state – like restoring the 2-3.5% inflation escalator clause to the levy limit, upping the city’s dismal amount of shared revenue which totals $29 per resident (according to the Wisconsin Policy Forum the municipal average is $142 and city average is $195 per resident), allowing municipalities to share transit costs via regional transit authorities using a local sales tax or getting reimbursed for the full amount of the state’s share of city municipal services for fire, police and trash/recycling which is reportedly $13M short (the Wisconsin Dept. of Administration acknowledges it pays only 38% of their municipal bills) - ongoing and growing deficits will continue.
Wisconsin has a $3B Surplus
It would be one thing to justify all this belt-tightening if the state was confronted with declining revenues, but they are not. In fact, the state has a $3B (yes billion) dollar surplus.
In spite of record state surpluses, 65 municipalities around the state have placed referendum on the ballot over the last two years. Both Fitchburg and Monona will join Madison in having a referendum on the ballot this fall. The Village of Oregon is considering a referendum for 2025.
The failure of state government to increase shared revenues with local government adjusted annually for inflation is a policy choice. Instead of systematic underfunding of local government to reduce taxes, a shrink government agenda spearheaded by state and national conservative forces, the city needs to step up our advocacy for a more progressive shared revenue funding mechanism that will benefit all state residents.
Whether the referendum passes or the referendum fails, more special charges will be pursued if there is no relief from state levy constraints and the dismal amount Madison receives from shared revenues. Special charges are a more regressive type of taxation, not based on the ability to pay or the value of property. They show up on the municipal services bill. Most renters don’t receive a municipal services bill. But rental property owners can pass along the costs in future rent increases, at their discretion.
What about the $31 Million Windfall?
You may have read about the $31M surplus the city has received from higher interest investment income from our rainy-day fund portfolio in 2023 combined with savings due to vacant positions. The result is a net $16M increase in the rainy-day fund.
The City’s policy is to ensure that 15% of the operating budget is set aside for emergencies. The so-called rainy-day fund helps us maintain our Aaa bond rating and enable the city to borrow at the lowest interest rates. In 2023, with these combined revenues and savings, we are 6% above the 15% minimum threshold. In 2024 it is estimated we will have $10M more in investment income than projected which is 6-8% over our 15% threshold for the rainy-day fund.
This surplus is from one time money and is not an ongoing revenue source. After four years of raising interest rates, the Federal Reserve recently lowered rates and further cuts are expected this year. This will likely reduce the investment income surpluses we have experienced in the last two years.
We can certainly use the additional investment income to pay down the deficit. But if we use the majority of it in 2025 to cover the $22M deficit, we will still face structural deficits in 2026 and every year going forward and lose out on the opportunity to earn investment interest income on these funds.
Based on my fiduciary duty, I don’t believe spending the bulk of the rainy-day fund surplus in one year is a sound financial approach. I believe we should allocate a portion of these funds over several years until we spend down the surplus.
Referendum
The referendum would cost approximately $230/year for the average-value home ($457,300) - an estimated $20 dollars/month, though most property owners would see a number below that amount. That's roughly $60 per $100,000 of property value, or less than $1 per day for the median home.
If the referendum fails November 5, I believe there is a strong chance the Mayor and Common Council will request another referendum on the April 2025 ballot but meanwhile we will pass a 2025 budget on November 12-14 that will cut an estimated $6M in services, add $10M in new special charges, use $5M of the rainy-day fund, and find $1M in efficiencies (or some combination of the above) in order to balance the budget.
The Madison Metropolitan School is also seeking to pass two referenda. Wis Policy Forum Budget Brief on 2025 Madison School District Referendum
The Council has heard from many property tax payers and renters reeling from higher housing costs who are feeling anxious at the prospects of a higher property tax bill if the city and school district referenda pass. Working class and BIPOC residents and households, renters, low-income retirees and people with disabilities have been hit especially hard by inflation from escalating housing costs, groceries, and insurance rates. Household debt, in the form of student debt, medical debt, credit card debt, home equity loan and payday loan debt, is spiraling and many people’s financial situations are precarious. I understand voting to increase property taxes is a tough ask for many of you.
As you consider the city’s referendum, please keep in mind how city services affect your quality of life and how your quality of life might erode if we have to impose deep cuts and remove programs that make Madison a livable and humane city. The city's ability to provide services and help residents weather insecurity is being eviscerated under current conditions. We truly need to build a care economy to create the community well-being we all deserve.
Alder Marsha Rummel
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Alder Marsha A. Rummel
District 6
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