Tax increases are never good news for consumers or businesses. But the 2% sales tax increase recently approved by City of Milwaukee officials was realistically the only way the city could avoid drastic cuts and give it a chance to rectify financial problems that have been growing for many years.
Milwaukee County is facing similar severe budget problems. The County Board could vote on July 27 to increase the county’s sales tax by 0.4%.
That means the sales tax in Milwaukee could be 7.9%, and the sales tax in suburban Milwaukee County could be 5.9% next year. By comparison, Waukesha County’s sales tax is 5.0%; Ozaukee and Washington counties both have a 5.5% sales tax.
So, Milwaukee will be a sales tax island in the region, which will create a challenge for retail businesses in the city and an additional financial burden for city residents. But the tax increase was approved overwhelmingly by the Common Council vote, and signed by Mayor Cavalier Johnson, as city officials said it was needed to prevent a financial disaster. The city and county have been approaching a fiscal cliff for years as investment returns on their pension fund have not been adequate to meet their growing pension obligations and the state made several cuts in shared revenue to local governments during the past 20 years. The state has limited what local governments can do to raise revenues.
As a result, the city and county have made numerous cuts for years, each eliminating more than 1,000 jobs since 2000. The impact of their budget cuts shows up in many ways including slow police response times, run-down parks facilities and streets in need of repairs.
The sales tax increase is expected to provide $193.6 million in annual revenue in 2024, a huge increase that largely solves the city’s budget crisis, though some cuts still might be necessary.
In addition to allowing Milwaukee to raise its sales tax, the state has also finally agreed to increase shared revenues to local governments, which will benefit Milwaukee and communities around the state. But the state should do even more to help local governments.
Act 10, signed into law by then-Gov. Scott Walker, removed most collective bargaining rights for public employees in the state. That helped local governments significantly reduce the cost of benefits for their employees, resulting in a huge savings for taxpayers. But Act 10 has a major flaw: it exempts police officers and firefighters. In a community like Milwaukee with large police and fire departments, that’s a big problem. If the Republicans in the state Legislature want to help local governments cut costs, they should eliminate the police and fire exemption for Act 10.
Regardless, from a budget perspective, Milwaukee’s city and county governments have a new lease on life. Local officials need to take advantage of it and not squander the opportunity to right their financial ship.
