Shared state revenue for Wauwatosa may double
Mayor cautions that doubling a very small number is still a small number.
During May 9th’s Government Affairs committee meeting, Mayor Dennis McBride and City Attorney Alan Kesner discussed the state’s draft legislation on taxes, crime (kind of), Milwaukee, housing, and the implications of all those things for Wauwatosa.
Taxes
The short story of property tax legislation in Wisconsin is that from about 1998 to 2005, municipalities kept increasing property tax rates above the rate of inflation, people who paid property taxes got irritated, and the state legislature told those municipalities to stop it. They passed a law that said local governments could only increase property tax revenue based on the greater of new taxable property (“net new construction”) added in the previous year or a variable “floor” set by the state that was maybe meant to track the rate of inflation.
In 2011, the “floor” was eliminated entirely and property tax revenue could only be increased based on net new construction.
So, if your city had property valued at $10 billion, taxed it at 1% to generate revenue of $100 million, but then added $500 million in net new construction (which is a lot and probably not realistic1), then state law would allow it to raise up to $105 million in property tax revenue the next year. If there was no net new construction but everything got 5% more expensive anyway, including the costs for city services, the city could still only raise $100 million in revenue2.
There are ways to work around this. They could use TIF to encourage more net new construction. The city could fund services with things other than property taxes. For instance, they could create a transportation utility. They could pass a referendum. They could also try asking the state to let them raise more sales tax or give them more “shared revenue”—money that the state collects through various taxes and redistributes to municipalities that need it.
From the Milwaukee Journal Sentinel:
Wisconsin Gov. Tony Evers on Thursday threatened to veto legislation that would raise funding to local governments, saying the increases would be too small and that restrictions on local decision-making should be removed.
"Send me a clean bill that talks about the money that we're going to give to the municipalities," said Evers, who offered his own plan earlier this year. "It is not enough resources."
His warning came via a video posted to Twitter minutes before an Assembly committee began hearing input from local officials from across Wisconsin on the 133-page bill that was released just two days ago.
The bill includes a litany of proposed policy changes, in addition to local government funding through shared revenue and potential sales taxes for Milwaukee and Milwaukee County. The funding proposal comes in response to a push for increased revenue from municipalities and counties that argue the state's current funding structure is making it increasingly difficult to provide services to residents.
During the Government Affairs meeting, Mayor McBride provided his own notes from the hearing and it’s impact on the city. The bill—AB 245—would increase shared revenue to counties and municipalities by $227 million. Wauwatosa would see a 98% increase in shared state revenue, although the mayor noted that, “If you start with a small number and double it, you’re not getting a lot.”
Right now we get $703,000 dollars a year in shared revenue. That’s less than 1% of our $73 million budget. So if it went away it wouldn’t change much. A 98% increase is $691,000 and change. Added to that, the total would be something like $1.39 million. That would be less than 2% of our budget. […] $1.39 million? That's about the cost of a firetruck. That's it. We'd get a firetruck every year. So that doesn't really solve our problems.
The additional shared revenue also comes with several requirements. In order to get the full increase, municipalities would need to meet at least two of the four following requirements:
Maintain the amount of funding for police.
Keep the same number of police officers.
Maintain the same level of citations for moving violations.
Maintain the same number of arrests.
A municipality that failed to do so would have their shared revenue reduced by 15% though the mayor did mention that state law actually prohibits quotas for citations or arrests and so maybe this would change.
A short digression on crime
I don’t know the exact motivation for these requirements, although I imagine that it has at least something to do with being against the movement to “defund the police” (that was popular several years ago but seems to have kind of lost steam since then?), the trend toward laxer law enforcement in some U.S. cities, and just a general sense that crime and lawlessness are increasing (for example, the murder rate in Milwaukee almost doubled between 2019 and 2022) and that reducing the size and budgets of police departments or the proclivity of police officers to enforce the law will make that worse.
You can see this pullback in enforcement in the bottom-right corner of the table below from the Wauwatosa Police Department. Between 2019 and 2021 traffic citations dropped 72%, parking citations dropped 45%, and arrests dropped 23%. By comparison, the number of offenses is roughly the same in 2021 as it was in 2019 while crashes are only down 19%.
Finance Director John Ruggini also mentioned these reductions in his April 25th presentation of the city’s unaudited 2022 financial statements to the Financial Affairs committee. Revenue from traffic and parking citations came in much lower than budgeted, and he attributed this both to staffing vacancies in the police department as well as nationwide trends toward issuing fewer citations.
Parking ticket revenue was only 59% of budget as vacancies continue to hamper collections. And citation revenue, while 90% of the revised budget, it was only 76% of the original budget. Again police vacancies are really hampering our citations. The number of citations that we’re issuing is down considerably. And this has been both parking and municipal citations we’ve been struggling with probably for four years now. First through Covid and now with vacancies.
[…]
The parking I feel we will eventually get back. The parking checker position is a unique position. We had someone who was retired for a long time and they did it as a second career. And it worked out great. That person has now retired from their retirement job, and we’ve just struggled both with the part-time position and the full-time parking checker position. I think we’ll eventually get back there.
The municipal citations I think we’re also seeing a trend country and nationwide—there’s a trend for fewer citations being issued, so we’ve been trying to gradually reduce that budget.
On one hand, it seems reasonable that the state legislature is worried about crime and wants to incentivize its prevention. On the other hand, it seems stupid to penalize communities for arresting fewer people than they did last year since one big reason fewer people might get arrested is that fewer people are committing arrest-worthy offenses which is what everybody wants.
Likewise you might reduce the number of police officers not simply because you have some ideological aversion to the very idea of policing but simply because the police might have less to do. Mayor McBride, during his presentation, mentioned that the Wauwatosa Police Department has recently signed a contract with the Milwaukee Regional Medical Center to provide security there. This involved hiring more police officers, and it would make sense, if that contract were to go away, that the police department would then want to reduce it’s work force to account for that.
Governor Tony Evers has promised to veto the bill though the Mayor felt state legislators were receptive to the input of local municipalities and that negotiations would continue.
Milwaukee
Pensions work by taking a small amount of money today—usually from both employees and their employer—and investing it over decades so they can pay out a larger amount of money in the future once the employee retires.
There are a lot of ways this can go wrong. One way is for the city and its employees to pitch in money assuming the fund returns, say, 8.5% each year when it really ends up growing at only 7.5% per year. The city then ignores this fact, keeps doing what it’s always been doing, and when the employee retires there’s not enough money. Oops!
Another very similar way this can go wrong is for the city and its employees to pitch in money assuming the fund returns 8.5% per year when it really ends up growing at only 7.5% per year. The city recognizes this, stops assuming 8.5% annual returns, and figures out how much more it needs to pitch in today to meet all its obligations tomorrow with this lower rate of return. But then the city doesn’t actually have any extra money to pitch in. Oops again!
From a review of Milwaukee’s fiscal condition by the Wisconsin Policy Forum in 2022:
As of Jan. 1, 2022, the fund’s actuaries estimated that its assets would be enough to cover 83.4% of its expected liabilities, an improvement from 80.7% the previous year and a somewhat better level than comparable public pensions nationally. Still, that was down from 137.2% in 2002, a stunning reversal that has been somewhat worse than the negative trend for all pensions nationally.
[…]
Besides the investment losses in certain years, one of the key reasons for the increased liabilities was a decision by the pension board to lower its assumed rate of investment return from 8.5% to 7.5%. While that decision was made in 2018, its real impact will not be felt until the 2023 budget, because for planning purposes the city sets its annual pension contributions for five-year periods and the next re-set comes in that year.
[…]
When the employer pension fund contribution is reset for the next five years in 2023, the contribution is projected to rise from the roughly $83 million for all plan employers to $142 million (see Figure 16), with the city’s share projected to rise from about $71 million to $121 million. That sets up a daunting fiscal cliff for the city, which is responsible for about 83% of the overall employer contributions.
The abbreviated report concludes that the city “will clearly require consideration of actions on a number of fronts – from expanding the city’s local tax or fee revenues beyond the property tax to reforming its pension and retiree health care benefits, limiting borrowing where possible, and finding new ways to cut spending and increase efficiency.”
Luckily, there’s AB 245. Another proposal in the bill would allow the City and County of Milwaukee to raise extra revenue and cover rising pension costs with a 2% higher sales tax. Of course, the city would prefer to be able to raise this tax unilaterally, spend the money on whatever they want, and keep it forever. But the state says they have to get the tax increase approved through a referendum, use the money to fund their pension obligations and increase police and fire department staffing, eliminate the tax once the pensions are funded, and any new employees must be moved to the state’s pension fund.
They also told Milwaukee not to put any of that extra money toward their new light rail system—the Hop MKE. One article I read said Republicans added this stipulation because they hate mass transit. Maybe! But it also seems like the Hop doesn’t have many riders and loses a lot of money. In 2021, for example, the light rail cost $4.5 million to operate but generated only $1.2 million in revenue.
Mayor McBride said that “What's good for Milwaukee is good for Wauwatosa” but warned none of this is enough:
We're grateful that Milwaukee is being supported in this. But I said, you know, this is a good start. But it's only a start. It's not a finish. Please don't be under the impression that this is going to solve everyone' s problems for all time.
[…]
The property tax levy cap is the lingering issue and will continue to be the lingering issue. I said as time goes by we have a bigger and bigger structural gap. It’s into the millions of dollars over the next five years. Closing that gaps gets harder all the time.
Housing
Local development is a collective action problem. Everybody in town might agree that something—a prison, a paper mill, a giant 28-story mixed-use commercial building—might be good for the community, but if you ask them to live next to it, they will say no. If you try to put it next to them anyway, they will get very angry and appeal and file lawsuits that cost everyone lots of time and money.
Consider the 28-story 300-unit apartment tower John “Johnny V” Vassallo tried to build on a pair of empty lots at 10845 West Blue Mound Road and 301 North Mayfair Road in early-2021. The residents living in single family homes right next to the empty lots were… concerned. They filed a protest petition which then triggered a requirement for a supermajority of the Common Council to vote in favor of the development in order for it to proceed. The vote failed and the Common Council ultimately denied his request for a zoning amendment to exceed density limitations for the two lots.
Undeterred, Johnny V came back the next year with a second proposal that was—hilariously—even larger than the first one. But this one had fewer apartments and didn’t need Common Council approval to exceed density limits. Nevertheless, the Design Review Board approved the design, and nearby residents hired a lawyer to appeal the decision. The Board of Zoning Appeals asked the Design Review Board if they really meant to approve this thing, the Design Review Board said, Yes, we really meant it, the Board of Zoning Appeals heard arguments from lawyers on both sides, and then they sided with the Design Review Board. The neighbors were sad.
But it was all moot because then inflation happened, the cost of financing increased, and Johnny V couldn’t afford to build it anyway. This was a happy ending for the residents but at the cost of a lot of time and money—two years and $1 million dollars (according to this article) for Johnny V, and probably a lot for the neighbors as well. The last I heard, he wants to put a car wash there instead. The neighbors still aren’t happy, and there’s still some kind of outstanding lawsuit.
A separate lawsuit is unfolding over the fate of 1300 Glenview Place. It was supposed to be a 500-unit apartment complex but then inflation happened and financing became difficult and the project was scrapped. In March, the Common Council approved a conditional use permit for a different company to turn the property into commercial storage units.
Robin Palm, a city planner in Mt. Pleasant, read about this in the Milwaukee Journal Sentinel and, according to the affidavit, “was immediately furious at the poor land use, planning, and outright waste of such a great opportunity.” In response, he “took to social media and expressed [his] dismay.” He also felt the city didn’t follow their own rules for approving a conditional use permit and improperly dismissed his appeal. “Not many people would pick up on these illegalities, but I did,” he said, and therefore “felt compelled to act not only for myself, but on behalf of the common good of the wider community.”
But draft legislation from the state could make this impossible. City Attorney Alan Kesner mentioned four new bills that have been proposed by a bipartisan group of state legislators to facilitate housing construction by reducing costs and making it harder for residents to appeal decisions they don’t like.
From the Washington County Daily News:
LRB-2199 would provide "zero percent loans for the conversion and or demolition of vacant commercial buildings to workforce housing and senior housing."
LRB-2771 was actually passed and signed into law during the previous legislative session, but was not funded, according to the release. If approved, the bill would allocate "funds to the Wisconsin Housing and Economic Development Authority, to ensure qualified applications are awarded loans for the rehabilitation of residential properties."
According to the release, LRB-1633 would establish a revolving loan fund to finance infrastructure for workforce and senior housing developments.
LRB-2198, also known as the Main Street Rehabilitation bill, would provide no-interest loans to rehabilitate the second and third story apartments over a main level business.
The last bill, LRB-0585, would create "more certainty and predictability in the development-approval process by limiting the ability of NIMBYs (‘Not in My Back Yard’) to delay or terminate the housing development approval process," according to the release.
Attorney Kesner looks forward to keeping future Robin Palms safely sequestered on Twitter and out of his hair:
It limits local government’s ability to deny some types of housing and other zoning proposals that may come to us. But it also limits people’s ability to challenge those in lawsuits against the city. As you may know, we’re involved in two lawsuits against the city to challenge developments that have been approved at various processes. Both the Drew Tower one and there’s another lawsuit involving a planner down on 1300 Glenview.
This bill would actually eliminate both of [their] ability to move forward with those lawsuits [and] challenges. Which are really—on my part—they’re creating a lot of work, and I don’t know that they’re going to lead to a lot of success.
[The fourth bill] makes judicial remedies for development approvals or denials very straightforward. It also eliminates our ability to have a supermajority for zoning changes.
Ald. Tilleson thanked the Mayor and Attorney Kesner for their presentations and adjourned the meeting.
For instance, during April 25th’s Financial Affairs committee meeting, Finance Director John Ruggini and City Administrator Jim Archambo said that it would be great for Wauwatosa, with a total property value of about $7 billion, to do $130-140 million in net new construction per year but that they hit this target only rarely. To meet such a goal, the city would need to see the equivalent of twelve or thirteen 2100 Apartments—a new 1-acre, 97-unit apartment complex on North Mayfair Rd.—constructed each year.
Thank you for covering the tax levy/shared revenue issue. From my understanding, Tosa may see a 98% increase in shared revenue; the funding level is based on old levels and will make little difference in providing quality core city services of police, fire, and public works in 3-5 years. 5% - 7% inflation is making things very hard. Nobody wants austerity but it is staring us right in the face.