Madison’s budget handcuffed by state’s police, fire spending requirements

Madison is facing a $22 million budget deficit that city officials say is made more challenging to fix because of police and fire spending requirements imposed by the state. (Henry Redman | Wisconsin Examiner)

Finding a solution to the City of Madison’s $22 million budget hole has been made more difficult by a provision in the local government revenue law passed last year that requires the 41 municipalities with more than 20,000 residents to certify annually that funding amounts for police and fire departments have been maintained.

Those maintenance of effort requirements, according to Sam Munger, the chief of staff to Madison Mayor Satya Rhodes-Conway, have put a frustrating constraint on the city’s budget process by preventing any cuts to the two largest departments in the city government.

The shared revenue law, Act 12, passed through both chambers of the Legislature with bipartisan support, was signed into law by Gov. Tony Evers last June. Prior to the law’s enactment, the budget situation for local and county governments across the state had gotten bleak. Milwaukee was staring down a fiscal cliff while much smaller local governments with less ability to rely on property taxes faced problems of their own.

Shared revenue funding is uncategorized, meaning local governments can use it for anything. The money largely comes from sales and income taxes collected by the state. For decades, the amount of shared revenue provided to local governments had stagnated even while inflation increased the cost of government services.

The problem had gotten so dire that the shared revenue negotiations dominated the legislative session. Despite Democratic attempts to pass a “clean bill” Republicans in control of both chambers succeeded in including a number of maintenance of effort requirements. Three years after protests against police violence had spurred activist calls to “defund the police,” Republicans included the provision to discourage any local government from cutting police budgets.

“We have a maintenance of effort requirement, so that you can’t defund the police,” Vos said during the floor debate on the bill. “We have requirements to say that going forward we want everybody who works in local government to be focused on merits. We wanted to ensure that every single person who is involved in local government focuses on those core programs. That was done in negotiation.”

If a municipality fails to prove it has maintained its police and fire spending, it will receive a 15% reduction in shared revenue payments the following year. In July, local governments were required to prove their maintenance of effort to the state Department of Revenue. According to records obtained by the Wisconsin Examiner, every municipality in the state subject to the requirements maintained public safety spending.

But while the Act 12 negotiations helped provide a sunnier financial outlook to the city of Milwaukee and smaller communities saw massive increases in the per capita amount of funding received from the state, Madison saw less benefit. The city’s shared revenue payment increased by $11 per resident, among the lowest in the state. After the law’s passage, Madison receives the second-lowest amount of state aid per capita, only the Village of Merton in Waukesha County receives less.

As Madison city officials work through the budget writing process this year, they’re facing a $22 million deficit.

Munger says that Madison faces distinct challenges from Milwaukee. Madison doesn’t operate its own pension system and can rely on the taxes generated by the relatively higher property values in the area. But the state capital is still facing a dramatic budget shortfall because of the lack of support received from the state even as the city experiences rapid population growth.

“Fundamentally, we are in the same situation as Milwaukee, which is the state is extracting money and not returning it, and [the Legislature] has gone out of its way to rig the state formulas on shared revenue, so that we get a really tiny amount. Madison, by most measures, gets the smallest per capita amount of shared revenue in the state by a pretty wide margin. So we’re a few years behind Milwaukee, but we’re getting there,” says Munger.  “We’re hitting a fiscal cliff, and it’s only going to get worse, because our costs continue to go up and our revenue continues to stay flat. So we’re going to have to go to the state and ask them for some version of what Milwaukee got, which means we are going to face the same devil’s bargain that they did.”

To fill the hole, the city has asked voters to approve a referendum that would increase property taxes. The average homeowner would see property taxes increase by $5 annually for every $100,000 of property value. State law institutes a levy limit that caps the amount of property taxes a municipality can institute unless residents agree to tax themselves more. The referendum would raise that limit.

But if the referendum fails, cuts to city services will be necessary, city officials say. Rhodes-Conway has asked departments to submit proposals for 5% budget cuts, which could mean up to 250 city workers are  laid off.

Proposed cuts have included closing the city’s Goodman pool and reducing transit services.

Munger says that facing these cuts with the paltry amount of increased aid the city received through Act 12 and the additional constraint imposed by the maintenance of effort requirements have made budget decisions more challenging. Collectively, the police and fire departments accounted for about 41% of the city’s $405,368,750 2024 budget , but because of Act 12 the city can’t turn to those line items as it looks for services to cut.

“Police is our single biggest department, and fire is our second biggest,” Munger says. “So broadly speaking, there’s no question that police and fire would be a more significant part of the calculus if not for the maintenance of effort requirements. So it really significantly ties our hands.”

Additionally, the penalties for not complying with the maintenance of effort requirements are just high enough to discourage the city from making cuts anyway because any additional room in the budget created by the cuts would be wiped out by the lost funding.

The summer of 2020 in Madison did see protests against police violence and some activist calls for cuts to police spending, however those calls were never seriously considered as part of the city budgeting process and four years later, the calls have subsided. Munger says that Republicans in the Legislature included the maintenance of effort provisions without considering how they would influence future budget decisions.

“I think it’s fair to say the political rationale [for MOE requirements] has been long forgotten,” he says. “It’s pretty divorced from the current budget debate. And I think the Legislature used it to score political points in that moment without real thought about what the consequences would be for cities and municipalities and towns, and for local governments now dealing with the consequences in a way that has nothing to do with that debate.”

Ari Brown, a researcher at the Wisconsin Policy Forum, says that in a hypothetical case in which a municipality were actually cutting police and fire budgets, that’s more likely to be evidence of genuine financial struggles than a sign that the city council is controlled by anti-police advocates.

“So to the extent that we actually do see communities where there’s less police funding from year to year, especially in these larger municipalities that are subject to these reporting requirements … It is probably genuine budget pressures that are forcing, you know, forcing the issue in some way,” Brown says. “In a lot of these bigger communities, law enforcement is the No. 1, if not one of the top spending categories.”

In Wisconsin, where municipal governments have a lot of responsibilities, Brown adds, “all of these cross-cutting pressures are going to impact when you do see something like a police department that is genuinely spending less from one year to the next, there are other things going on than just ideological shifts.”

Aside from the property tax levy limits and the maintenance of effort requirements, municipal governments are also subject to expenditure restraint requirements — meaning they can have state aid cut if expenses increase by too much — and limits on revenue that can be raised through fees. Jason Stein, president of the Wisconsin Policy Forum, says that all of these cross pressures can make for a convoluted budgeting process for city officials.

“These laws were not always sort of completely written in such a way that they always mesh well with one another,” Stein says. Complying with the  maintenance of effort requirement for police and fire under Act 12 can mean cities must increase  spending. But to finance a spending increase they might need to go to referendum, which in turn can run afoul of state-mandated expenditure restraints, threatening state aid.

“As there are more and more requirements on local government, then it is just more for the local leaders to think about,” Stein says of this Catch-22, “not just in terms of, do they have the willingness, do they have the will and the funding to comply, but also, are they able to keep up to date and remember all the requirements?”