City faces pension contributions jump
Projections call for increasing reserve fund now
Fending off a significant spike in the city’s pension contribution could consume a larger part of the Milwaukee’s budget in next few years, starting with $10 million in 2020, Mayor Tom Barrett said in advance of his preliminary budget hearing Thursday.
Consider it an addition to a rainy day fund created the first time storm clouds were drawing near. And now, they’re back again.
Officials are anticipating a jump in the city’s annual pension contribution in 2023 — from about $70 million currently to about $160 million that year.
The projections call for adding $10 million to the pension reserve fund in next year’s budget and additional funds in the two subsequent years to smooth the transition to the higher annual pension contribution.
How the extra pension funding will affect the tax levy and city services are questions that will play out as elected officials mold next year’s budget over the coming months.
“This is going to be a challenging budget, and then you add onto it the need to put $10 million into the reserve fund,” Barrett said.
And, what’s particularly troubling, he said, is that this isn’t a one-time influx of funds into the reserve. Based on current projections, in 2021 and 2022, it would be necessary to inject about $22.5 million and $33.5 million, respectively, into the pension reserve fund in preparation for 2023.
If all goes according to plan, the reserve balance heading into 2023 would be about $95.7 million. The city can then pull from the reserve fund to ease the jump in the city’s contribution starting that year.
Barrett anticipated much of a preliminary budget hearing Thursday evening would focus on the city’s pension challenges — and the hope is to get feedback from residents about their priorities.
He will also highlight the challenges facing the city as it relates to shared revenue from the state, limits on the city’s ability to raise revenue locally and internal budget pressures, much of which comes from police and fire budgets.
Rob Henken, president of the Wisconsin Policy Forum, said it’s correct fiscal policy to start planning now for the jump in 2023 by putting additional money into the pension reserve.
“The problem is that you’ve now added another huge competitor to the already fierce competition among city departments and capital needs that already exist going into the next budget,” he said.
The city’s pension reserve fund dates back about a decade, when the city could see a pending jump in its contribution. Barrett said he and the Common Council worked together to ensure that the payments were made but also that money was put aside.
Now there are challenges on the horizon again.
Common Council President Ashanti Hamilton said the city has been dealing with the increased cost of the pension contribution for years, and it’s been a significant obligation within the budgetary process. The council has been mindful of that obligation and has supported efforts to fund the pension.
At the same time, Hamilton said, it’s becoming increasingly difficult to do under tight financial circumstances.
“There are so many immediate concerns facing the city right now that are requiring immediate attention and immediate funding,” he said. “I’m hoping that there can be a balance between this rainy day fund for the costs that are coming down the road and being able to balance some of the important infrastructure and public safety needs that the city is facing right now.”
Hamilton also called on the state to give the city more resources, whether through greater shared revenue or allowing the city to diversify its revenue streams, including by allowing the city to have a local sales tax. He anticipated that additional revenue would allow the city to satisfy its obligations and improve services.
A couple of factors have contributed to the pending increase, Barrett said: Police and fire budgets and a drop in the anticipated earnings on the city’s pension fund from 8% to 7.5%.
Police and fire pensions
The city’s fire and police sworn personnel make up about 80% of the total pension costs.
Barrett said the city is looking at the structure of the pension system for all other police officers and firefighters throughout Wisconsin as a potential template for the city’s package for those departments.
Milwaukee and Milwaukee County are separate from the state’s retirement system.
The city is interested in having parity with the Wisconsin retirement system, Barrett said.
“We are faced with the notion of having a dramatic increase in the pension payment on the horizon, (and) a law that does not allow us to renegotiate this unless we do it through collective bargaining,” Barrett said.
Shawn Lauda, president of the Milwaukee Police Association, said he believes the parity is already there. He said the union has made concessions.
“I think we’re absolutely paying our fair share if not more so than some,” he said.
Mike Bongiorno, president of Local 215 of the Milwaukee Professional Fire Fighters, said both sides do significant research before bargaining to ensure the city retains good employees and is comparable to the rest of the state and cities of the same size.
“We are faced with the notion of having a dramatic increase in the pension payment on the horizon, (and) a law that does not allow us to renegotiate this unless we do it through collective bargaining.”
Milwaukee mayor Tom Barrett
He said Local 215 understands the financial challenges facing the city and said it’s necessary to find ways to help fund not just the pension system but the entire city.
“We understand the financial challenges that the city faces, and we’re here to be a part of the solution, not part of the problem,” he said.
A ‘fiscal straitjacket’
The city needs fundamental changes in the shared revenue coming back to the city from the state and its ability to raise revenue locally, Barrett said.
“As the state revenues have grown, the revenues shared with local governments have shrunk,” he said. “And so there’s truly an attempt to have this system atrophy, and that is the crux of the problem.”
Milwaukee, the city and the county, is an economic engine in the state, local leaders say.
Hamilton said if the state was honest about fiscal constraints facing the city and its obligations to residents, the only conclusion is to allow the city more control over raising resources locally.
It’s a message Milwaukee County is also pushing through its “Fair Deal for Milwaukee County” efforts.
Property taxes in the city have gone up but the police budget has also grown to the point that it surpassed the city’s total property tax levy as of 2016. That’s the reason the city is seeing cuts in other areas, Barrett said.
Even as the amount allocated to police and fire has increased, the number of employees for those departments has been decreasing. There’s been a small increase in general city employees.
That underscores why the pension situation is not sustainable, Barrett said.
Because of the pension obligations, having fewer officers has not freed up cash for other city needs, he said. The pension payment was 13.5% of the police budget and 14.5% of the fire budget, based on 2019 budgets and pension payments, according to the city.
Barrett said his goal is to keep the same number of officers but it could be challenging.
The proposed budget will also include replacing the police and fire dispatch system and maintaining existing firehouses and library branches and hours.
“Given the fiscal straitjacket we’re in and the increasing police costs, it becomes more and more difficult to maintain these other departments,” Barrett said.