News: 2024 Executive Operating Budget Proposal Released

2024 Executive Operating Budget Proposal Released

The Mayor released her 2024 Executive Operating Budget proposal on Tuesday, October 3rd. This City webpage includes links to all relevant summaries and details on the Operating Budget. The Operating Budget pays for staff, community contracts, and other expenses to provide core services to residents. Note that the City has to pass a “balanced” Operating Budget – meaning that all spending must be paid for by revenue and not by borrowing or issuing debt, unlike the Capital Budget.

City Agencies will provide present highlights of their operating budgets to the Finance Committee in the 10/9 and 10/10 Finance Committee meetings (details to come in my weekly updates post). Finance Committee will then propose, discuss, and vote on amendments to the Operating Budget in a few weeks before forwarding the amended Operating Budget to Common Council in November. Note that the Operating Budget is different from the Capital Budget, which includes spending on infrastructure and buildings and is the source of capital borrowing. Information on the earlier-released Capital Budget and its process is available on this 2024 City Budget webpage.

I went through the 2024 Operating Budget Executive Summary document and pulled out excerpts and details of the budget (good and bad) that I think are important for District 3 residents to know:

Expenditures

Major categories of expenditures include the following:

• Personnel accounts for the largest share of expenses ($253.6 million, 62.7%). This includes salaries and benefits of staff who provide direct services and administer core government functions.
• Debt Service, which pays back borrowing for capital projects, accounts for the next largest share of the budget ($66.4 million, 16.4%, includes General and Library Fund debt service).
• Non-Personnel includes contracts with community - based organizations that provide services on behalf of the City, supplies, and other expenses. This accounts for the third largest category ($50.2 million, 12.4%).
• Other expenses include the general fund subsidy to Metro Transit ($15.7 million), the City’s share of the joint City-County Public Health Agency ($10.2 million), and the City’s contingent reserve, which is set aside to cover unbudgeted expenses ($2.7 million) (Total: $30.5 million, 7.5%).
• Agency Charges includes inter-departmental billings and charges between agencies to recover costs for services performed. This includes the general fund portion of Insurance, Workers Compensation, and Fleet Services, which procures and maintains City vehicles (e.g. Police and Fire vehicles, refuse and recycling trucks, snow clearing equipment) ($16.8 million, 4.2%).
• Agency Revenues offset agency expenses. This includes charges for services, facility rentals, permits, and other sources. In 2024, the City anticipates $12.8 million in agency revenues (-$3.2%).

Revenues

The Operating Budget is primarily funded by property taxes, which account for approximately 71% of the total General Fund revenues. Other local revenues, such as payments in lieu of tax, charges for services, and license and permit fees, along with application of fund balance, account for 18% of General Fund revenues. Intergovernmental sources, such as federal and state aid, account for the remaining 11%. Major changes in revenues in the 2024 Executive Budget compared to the 2023 Adopted Budget include:

• $12.6 million increase in property tax revenues, based on an increase in new construction and added property value from closed tax increment districts.
• $2 million increase in earnings from City investments due to higher interest rates.
• $3.3 million increase in State Aid; though we received a $3.1 million increase from the recent State Shared Revenue legislation, this represents less than 1% of the City’s budget due to Madison receiving the lowest increase per capita statewide.
• $16.7 million in one-time funds to balance the budget. This includes $9.2 million in fund balance applied (which includes $4 million of previously lapsed funds from Tax Increment District (TID) 25); $3.1 million in proceeds from the closure of TIDs 29, 39 and 47; and the remaining $4.4 million in local American Rescue Plan Act (ARPA) funds for government services.
• $1.5 million decrease in the payment in lieu of taxes (PILOT) from the Water Utility due to declining property tax rates and slower growth in Water Utility plant-in-service.

Impact on Property Taxes

2024 Mill Rate: While the 2024 property tax levy is up 4.6% (limited to inflationary increases by the state levy limit), the overall increase in the assessed value of property in the City reduces the mill rate (tax rate) by 7.9% to 7.11 mills (0.711% of taxable value). The annual mill rate is calculated by dividing the property tax levy by the total net taxable property value in the City.

Taxes on the Average Value Home: Based on the proposed levy and the estimated mill rate, taxes on the average value home (TOAH) will increase by 3.74%, or $108.82. The average value home is currently assessed at $424,400, up from $376,900 (12.6%), in 2023. This growth continues recent trends in increased residential home assessments.

Major Changes from 2023 Adopted to 2024 Executive Proposed Budget (General and Library Fund Expenditures Only):

• City-Wide Reductions
  • Includes a 1% reduction in all agencies (-$3.0 million) and higher savings from vacancies (-$2.4 million)
• Personnel
  • 6% COLA for General Municipal Employees (GMEs). 4% will be effective January 1 and 2% will be effective July 1. These increases will close the wage equity gap between GMEs and protective service ($4.9 million)
  • 3% COLA for protective service based on negotiated agreements ($3.0 million)
  • Includes an additional $1.5 million in the City Clerk’s budget for staffing the polls and absentee voting sites. This reflects the Clerk administering 4 elections in 2024 compared to 2 elections in 2023.
• Non-Personnel
  • Restores the subsidy to Metro Transit and includes first year of a subsidy repayment based on the reduction in 2023 (net increase: $13.7 million)
  • Increases Debt Service to repay borrowing for capital expenditures by $2.2 million
  • Includes $1.8 million in funding for supplemental requests, including general fund support for shelter operations ($300,000), a 5% COLA increase for contracts with community providers in CDD ($146,000) and funding for a 3rd Party Transit contract in Police ($100,000)
  • Increases room tax support by $645,000 for the City’s share of funding for operating the Henry Vilas Zoo and Olbrich Botanical Gardens

Future Budget Challenges

Cities in Wisconsin are limited to fewer revenue options than cities in most other states. Unlike most major cities throughout the country, Madison does not have a local sales tax or a local income tax. Most regional transit systems in the country are run by regional authorities able to generate their own revenue, but in Wisconsin the legislature does not allow that to happen.

Wisconsin’s model for financing local government for over a century has been to collect income and sales taxes at the state level and “share” them with local governments. But the State’s aid to cities has not kept pace with inflation over the years. If annual state aid had simply kept pace with inflation from 2000 levels, Madison’s share would be $9 million higher than it is today. Recent state legislation used a part of the historic state budget surplus to provide the largest increase in “shared revenues” in a generation. For the first time in our state’s history, this legislation also authorized a 2 percent city sales tax, but only for the City of Milwaukee. Despite all of these favorable conditions, the State Legislature specifically excluded Madison from receiving its fair share of the increase in shared revenue and excluded Madison from authorizing a local sales tax.

The City’s 2024 budget represents the last year of the significant federal and local resources and reserves to support City programs in response to the COVID pandemic, with nearly $17 million of these funds and other one-time monies allocated to balance the budget. The forecast beyond 2025 is bleak. Simply maintaining current service levels to residents (e.g., libraries, snow plowing, parks, public safety) is expected to cost $75 million more than the maximum revenues the state will allow by 2029.