Why raising revenues can't fix Milwaukee County's problems

In recent weeks Milwaukee County officials, notably Executive Scott Walker along with former State Secretary of Administration George Lightbourn, have been in the news for shining light on the County’s severe fiscal problems. Predictably, the County’s situation has set off a debate between those who believe the problem can be partially or entirely fixed by raising revenues versus anti-tax types who are opposed to raising revenues.

As a member of the second camp (though I am not as firmly anti-tax as many fiscal conservatives), I have been debating Seth, who is squarely in the first camp, for a few weeks now. Seth has been gracious enough to air my side of the story.

Many bloggers from the left attack Scott Walker for causing these problems because of his agenda to keep tax revenues flat. Walker’s flat-levy platform, while not realistic, has nothing to do with this problem for two main reasons: first, the Milwaukee County board has routinely overridden Walker and approved levy increases in its annual budget at a 2.9 percent clip; and, second, the main drivers of the crisis on the expenditure side are enhancements to benefits made long before Walker was elected Executive.

The County’s pension system is a significant burden and has been well covered. Due to enhancements in sick leave payouts and backdrop benefits, the County’s required contribution to its pension system is tens of millions of dollars more than anticipated when they were passed. But the pension system is not the primary benefit enhancement that has the County in trouble: it is the provision that employees who began service with the County before 1994 are eligible to retire with full medical benefits, free of charge, for life. This benefit is included in the 5-year projection of the County’s finances on both the Journal Sentinel website and Secretary Lightbourn’s report, combined with current employee health benefits.

The reason that increasing revenues cannot possibly cover the cost of this benefit is simple math. The projection assumes the following: for the years 2007 to 2011 an additional 250 county employees will retire and take advantage of the health care benefit, they will be replaced by 250 more people who also take health care benefits, and the premiums to cover those people will rise by 15 percent annually. Calculating the rate of annual growth in the estimates shows that the County’s health care costs for employees and retirees will grow by 8.5% in 2007, 19.3% in 2008, 19.4% in 2009, 19.5% in 2010 and 19.6% in 2011. Not only do health insurance costs to the County rise almost 10 times faster than inflation, the rate of growth continues to increase in the out years – an exponential effect.

This is key because there is no source of revenue that the County can tap that would grow at an exponential rate; even the most liberal of politicians know it would be politically impossible.

Much has been made by bloggers on the left that the County’s projection is worst-case. This is a fair concern but the fact is the projection is actually somewhat realistic. Reducing the number of employees that replace health insurance-eligible retirees would not reduce the growth in costs to a sustainable level. The projection already includes property tax growth at the legal limit allowed by the state. Assuming flat federal and state revenues is very much in line with recent trends and the current political climate – it would be foolish at this time to budget increases in these revenues to cover operating costs. Quite literally, Milwaukee County is the worst case scenario.

In addition to this structural problem, Milwaukee County’s culture must change. The current culture, defended by management, the unions and abetted by the majority of the County Board, seeks to benefit the employees regardless of the cost and without consideration of each manager’s or employee’s effectiveness and value to the organization or the taxpayer. Patronage, nepotism, and a “We’ve always done it that way” attitude are endemic of such dinosaur governmental organizations.

What the County needs to do, immediately, is have an open and honest debate about its role as a governmental entity. Elected officials need to make decisions on what the County is going to do and how it should do it. Feedback should come from constituents, business and civic groups, employees, unions, and academics; but at the end of the day elected officials need to exercise the leadership to make decisions about what services the County will and will not provide.

They also must understand that their allegiance lies first with the taxpayers and the people served by County programs, and with employees second. That means instead of protecting benefits to curry favor with employee unions, the County has to consider outsourcing and contracting out those services were quality and oversight would not suffer.

Increasing revenues should be on the table. But the bottom line is that there is no revenue source that can cover a shortfall of this size that is projected to grow exponentially. Nor does any revenue source exist that will continue to enable the County’s elected leadership to continue to avoid making tough decisions.

-- Kevin Ryan