2025 Budget Presentation from October 17 Virtual Meeting

I'm sharing the presentation I gave about the 2025 Budget on October 17, 2024.  I reviewed available information from the Finance Dept. and put together the slide show with the help of City Communication Manager Dylan Brogan. I've summarized some of the remarks I shared during the meeting below. 

Here is a pdf of the slide show

or you can listen to the recording of District 6: Budget Outlook for 2025 - Meeting of October 17, 2024: https://media.cityofmadison.com/Mediasite/Showcase/madison-city-channel/Presentation/49ed79822bef4f7e9ea902067646c53f1d

Since 2011, the city has faced budget deficits, but this year is extraordinary. We started discussing the 2025 budget in January at least 8 months earlier than usual because we are 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 made it difficult for the City to cover the increasing costs of providing services because revenues have not kept up with inflation and growth. 

On August 20, the Common Council voted 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.  We adopt our budget November 12-14.

This year for the first time in city history, Mayor Satya Rhodes-Conway has prepared two operating budgets: one if the referendum request for $22M fails on November 5 and one if the referendum passes.  If the referendum fails, the Mayor has proposed adding $10M in new special charges, using $6.4M in fund balance/rainy day fund, and applying $5.6M in service cuts/staff layoffs to make up the $22M gap. 

The presentation contains a list of the proposed service cuts and staff changes for both budgets plus future potential cuts and special charges if we don't get relief from the state. Both budgets propose either reductions or the elimination of the Office of the Independent Monitor.

Budgets are value documents. My goal is to effectively serve historically marginalized populations and address systemic racial and economic disparities, reduce greenhouse gas emissions, provide wage parity for municipal workers, add more affordable housing units, provide services for individuals experiencing homelessness, improve pedestrian and bike safety, and improve public safety and neighborhood stability. 

The presentation includes FAQs about the impact of the BRT and the Public Market, the role of ARPA and other federal COVID funds, the impact of real estate development on city property taxes, and city staff wage increases.

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.  

Every year since 2011, the Mayor and Council have struggled to fill annual budget gaps with an assortment of strategies including special charges on the municipal services bill, higher ambulance fees, raising hotel room taxes, staff furloughs, not filling staff vacancies and using the rainy-day fund.

Due to the economic disruptions of COVID, the inflation rate has exceeded allowable increases in the levy limit for the last several years by a significant amount.

It might 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 $4.5B (yes billion) dollar surplus.  Despite 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 equitably distribute shared revenues with local government is a policy choice. The policy to shrink local government has been spearheaded by state and national conservative forces for several decades. Redistricting may help change the balance of power, but it may take a few years.  

You may have read about the $31M surplus the city has received from higher interest investment income in 2023 from our general fund unassigned balance portfolio (AKA rainy-day fund) combined with savings due to vacant positions. The City’s policy is to ensure that 15% of the operating budget every year is set aside for emergencies. The rainy-day fund helps us maintain our AAA bond rating and enables the city to borrow at the lowest interest rates. 

In 2023, with this combined investment income and salary savings, the result is a net $16M increase above the 15% minimum threshold. In 2024 it is estimated we will have $10M more in investment income than 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 revenues from investment interest income in the future. 

We can certainly use the surplus in the rainy-day fund to pay down the deficit.

If we use most of it in 2025 to cover the $22M deficit as some suggest, we will still face structural deficits in 2026, and every year going forward. And we will lose out on the opportunity to earn investment interest income on these surplus funds. 

Even with more intense lobbying, we may not convince the state legislature to change their policies on the levy limit formula, the dismal amount of shared revenues allotted to Madison, allow us to implement a .5% sales tax, or pay the city the full share of the municipal services bill for police and fire services they receive. 

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.  If the legislature does change its policies, we can reduce the tax levy.

The Council has heard from many property taxpayers 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 households, including renters, low-income retirees and people with disabilities have been hit especially hard by inflation from escalating housing costs, groceries, insurance rates, and household and student debt. 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 the city's quality of life might erode if we must impose service cuts, layoff city workers, and remove community programs that make Madison a livable and humane city.  We truly need to build a care economy to create the community well-being we all deserve

Thanks-

Marsha