Facing years of budget woes, Madison moves to develop strategy to change state finance laws – Isthmus

Something’s gotta give.

Whether Madison voters pass a $22 million budget referendum or not, city leaders have a message to share: if the state Legislature does not change municipal finance law, Madison will face the same budget issues year after year.

“We have faced structural deficits for more than decade,” Madison Mayor Satya Rhodes-Conway said during a July 16 city council budget presentation. “This is a direct consequence of the state Legislature interfering with Madison’s ability to govern responsibly.”

Rhodes-Conway outlined two budget outlooks for the city — one accounting for a successful referendum, and another without referendum funding. 

If voters were to approve a referendum asking taxpayers for an additional $22 million in operating funding on an indefinite annual basis, Rhodes-Conway said no further budget deficits or cuts would be expected until 2030. That might give the city an “adequate amount of time to make some progress at the state [level],” she added. 

The referendum would add an estimated $20 dollars a month in property taxes on an average-value ($457,300) home in Madison, though most property owners would see a number below that.

Both plans call for the city to raise $10 million in special charges by 2027. But without a referendum, the city would need to institute $6 million in cuts for 2025, or around 60 layoffs, and the city’s rainy day fund would be fully expended by 2029. Bigger budget deficits would come back as soon as 2027, according to the city, “with no obvious way to fill them.” 

People continually ask the mayor’s office what it has done to address the financial issues, Rhodes-Conway said. But state law limits the tools available to city officials: levy limits are constrained and do not match inflation, Madison’s state revenue payouts are meager, and municipal sales tax authority — for cities other than Milwaukee — is non-existent. Rhodes-Conway also noted that the state Legislature currently sits on an over $3 billion budget surplus.

City officials say, additionally, that Madison has long lobbied for more control over raising revenue. City Communications Director Dylan Brogan tells Isthmus that the city has perhaps not effectively communicated its lobbying efforts previously. He also says he hopes to see state lawmakers and the public become more involved in advocating for municipal finance reform. 

All in all, Madison city leaders say something has to change. The city of Madison is part of a statewide lobbying effort led by the League of Municipalities seeking finance reform. Brogan says the argument for municipal finance reform is something “every city in Wisconsin” will be interested in.

“It’s a statewide problem,” Ald. MGR Govindarajan tells Isthmus. “When you’re looking at the big picture, you can really see it is a systematic underfunding from the state government to our local municipalities.” 

Without a referendum, the city would need to find additional revenue or places to cut. City Finance Director David Schmiedicke outlined a potential traffic engineering and street repair special charge — fees directly related to provided services, which cannot exceed the service’s cost — that could bring in $10 million in annual income. Other special charges could include charges like parks and library fees.

Brogan notes that drafting special charge language is time-consuming and unlike property tax increases, the city must charge all residents the same fee, regardless of income or property value. It’s a more “regressive” option than a property tax increase, he says: “We’re severely constrained in our ability to raise revenue in a responsible way.”

It is unclear, at this time, where cuts would come from. Agencies are expected to submit budget proposals with a minimum 5% budget cut by July 19.

If a referendum passed, the city would not have to draw from its “rainy day fund,” currently at $82.9 million, until 2026. Ald. Michael Verveer asked why the city is targeting a $22 million referendum number, rather than a lower number that would incorporate drawing more from the fund.

Rhodes-Conway said the city should not take from its rainy day fund in multiple years because Madison’s AAA bond rating would be put at risk if the fund drops below 15% of the general fund balance. She added that taking from the rainy day fund would just punt structural problems down the road. 

“Every subsequent year, we would have to struggle more to find what the solution to the gap was,” Rhodes-Conway said.

But change will not be easy, or quick, in a Republican-controlled state Legislature that is unlikely to flip after the November election. 

While the Legislature recently granted the city of Milwaukee authority to levy a 2% sales tax and agreed to increases in shared revenue payouts, the deal happened only as Wisconsin’s largest city was nearing financial insolvency. Milwaukee also had to agree to numerous restrictions on what the funds could be used for. 

“The threat of going bankrupt, seemed to be kind of the big reason why Republicans finally took that seriously,” Brogan says. He adds that though Madison provides a valuable economic driver for the state, the city has been a “punching bag around the state” for years. 

The city council Tuesday night approved a resolution directing the city’s executive council to develop a lobbying plan and ask the city of Milwaukee for information and advice from its revenue deal. Rhodes-Conway told the city council she has talked with Milwaukee Mayor Cavalier Johnson about strategies for state-level advocacy.

Govindarajan says in an interview that alders should participate in the lobbying efforts, too. Govindarajan, who works as a legislative aide in the state Legislature, emphasizes that any advocacy as an alder would be separate from his role in the statehouse. 

“It would be very beneficial to have alders go to the state Capitol and talk to the Madison legislators, but also others outside of Dane County,” Govindarjan says. “Talk about how Madison does have an impact on the rest of the state as well.”

Even if the Legislature decides to enact changes in municipal finance law when the next session convenes in January 2025, Madison would not see any budget relief until 2026. Neither Sen. Howard Marklein, R-Spring Green, nor Rep. Mark Born, R-Beaver Dam, responded to questions from Isthmus on whether changes to municipal finance law are planned in response to cities increasingly having to turn to referendums to close budget gaps. 

A Wisconsin Policy Forum report found that 2022, the most recent year the group has analyzed, was a “record year for referenda” and had the highest number of municipal referendums since levy limits were created in 2006. 

Brogan says that Madison has been fiscally prudent, noting that city staff numbers are lower than they were a decade ago, despite rapid growth in the city; the city would have an additional 217 full-time employees if hiring kept pace with population, he says. 

But Brogan says “we’re at this breaking point” where service and employee cuts will soon be inevitable. “We need to make a permanent change,” he adds, “so we don’t end up in this calamity every single year.”