Higher Taxes in Milwaukee County?

In case you missed it in Sunday’s paper:

“While relocating executives are often excited about the size and setting that they can get for their $1 million here, they're taken aback by the high property taxes.
"They're very, very surprised at how high the property taxes are in Milwaukee County. Maybe that's a good reason why Ozaukee and Washington counties are doing well with the higher-end houses," she says.

The taxes on two just-sold houses explain why:

• A Milwaukee County house that sold for $1.05 million had a 2005 tax bill of $22,000.
• A Mequon house that sold for $1.15 million had a 2005 tax bill of $14,000.”

I have a similar story. While living in Washington DC, my wife and I were looking at homes much cheaper than this. When we ended up moving to Wisconsin, we found that our Milwaukee County home that cost $100,000 less than what we were looking at in Virginia and D.C. had property taxes twice as high.

Aren’t Executives and people like me the type that Milwaukee County should try to attract?

‘Nuff said.

Strategic Planning vs. Credit Card Government

The gargantuan deficits coupled with massive tax cuts tend to show that Jonathan Chait at the New Republic is right when he recalls a 1964 psychological study that suggested,

“Americans are ideological conservatives and operational liberals. Everybody's for less spending and regulation in the abstract. When you try to translate that into specifics--say, lower Medicare benefits or looser standards on pollution--voters run screaming in the other direction.”

This phenomenon is further backed up by William Niskanen’s work at the Cato institute. In two papers from 2002 and 2004, he stated that “Starve the Beast” fiscal policy- that is cutting tax revenues in order to force a reduction in programs due to deficits – does not work because conservatives don't have the political will to cut programs.

In a nation saturated with credit card debt and zero-principal mortgages, our approval of government that spends more than it takes in should not be surprising. The consequences of individuals’ desire to “have it now but not have to pay for it” are bad enough – millions of people get in over their heads with debt and face bankruptcy and the emotional stress that comes with it.

But these consequences pale in comparison to what could happen if we continue to apply this same attitude to government. We have a local example here in Milwaukee, as the County careens towards insolvency thanks to exorbitant long-term fringe benefit costs. Daily the public is bombarded with stories about how it is going to lose access to pools, cultural amenities, 911 service, and who-knows-what-else-is-next. Worse, our federal government faces the same problem. As Washington Post columnist C. Fred Bergsten points out on Monday , our federal fiscal situation is close to being Milwaukee County magnified a few hundred times. The difference of course is that Milwaukee County’s insolvency probably would have little effect on anyone not reliant on its services; while the federal government going insolvent would have ruinous effects on our economy.

A movement is underway in public-sector budgeting, however, that just might pull governments back from the brink. It involves coupling taxing and spending with strategic planning.

It works much like strategic planning in the private sector, but instead of income growth the goal is practical and sustainable use of taxpayer resources. In the hands of intrepid and dedicated politicians and public administrators, it has the opportunity to give the public the ability to – maybe for the first time – have a real debate where it will decide which government services it wants and how to pay for them.

The short story on how it works is this: Elected officials poll the public to determine which service areas it thinks are most important. They then determine, based on current political dynamics, how much tax revenue they think they want to raise. If they are fiscally conservative, they will keep tax revenue increases low or perhaps cut revenues. If they are liberal, they may propose significant increases. Next, the elected officials determine how much each program and service in their government will cost to provide. Once this information has been estimated as accurately as possible, it becomes an exercise in shopping. With X number of dollars available, the elected officials can choose which services they will fund based on their estimated costs, prioritized according to the polling information gathered. Really thoughtful officials will seek to provide high-priority services as efficiently as possible, because reduced costs for higher priority programs means more resources remain for lower-priority services.

This system is not easy to implement. Obviously low-cost should not be the primary criteria for choosing how a high-priority service will be provided. The Governor for instance would find himself in the unemployment line for replacing State Patrol officers with a rented security force. This process will also create winners and losers: lower-priority programs will see their funding reduced or eliminated altogether, while higher-priority programs could receive a greater share of resources than they already get.

The good news is that the public knows what it is going to get with its money. A good budget will explicitly and simply inform the electorate how their money is being spent. Elected officials in passing a budget will make clear to the public what their priorities are. In a County Government that may mean choosing to fund the Sheriff and Human Services over parks and recreation.

This gives the public an opportunity to demand reprioritization either in next year’s polling or in next year’s elections. If the elected officials are too stingy and don’t fully fund the public’s priorities, or likewise if the elected officials choose to fund too many low-priority programs with too much tax money, the public has the opportunity to make that very clear come election time.

Naturally government acceptance of strategic budgeting is going to be slow. Unions and fans of social spending will be loathe to adopt this process if their programs are deemed low-priority by the public and subsequently funded appropriately. Constituent groups will apply pressure to keep the flow of resources going. Turf battles will become more intense.

If successful however, widespread and competent acceptance of these principles can hopefully make the public’s choice between taxes and services an easier one. It is then up to the electorate to finally accept that they have to pay for what they want.

Milwaukee County's $59 Million Pension Problem

When the news broke this week of the need for Milwaukee County to contribute a whopping $59 million to fund its pension system, the liberal blogosphere predictably blamed County Executive Scott Walker for the problem.

Seth Zlotocha and Jim McGuigan suggest that Walker shorted the pension fund in the 2006 budget because, while running for governor, fewer people would care about pension funding than they would about funding for programs from which citizens actually benefit. They suggest that Walker should have set priorities and cut programs in the 2006 budget instead of underfunding the pension.

The motive that these bloggers assign to Walker is misguided. Walker proposed underfunding the pension in his 2006 budget because he wanted to send a message to the County Board that to this day has not been heard: The County does not have the money to fund employee fringe benefits (including the pension) and maintain services at present levels.

Walker has made no secret of his desire to scrap the current unsustainable defined-benefit pension system for a less expensive defined-contribution, 401(K) style system. The Board, supported by County Employee unions, has not been perceptive to this idea. Walker proposed Pension Obligation Bonds to at least attempt to reduce the cost of the current system. The Board and the community were not perceptive to that idea either.

The liberal bloggers have merit in their complaint that Walker, prior to this year, has not set priorities and not gotten serious about cutting programs. But when it comes to the budget, Walker can only propose such a plan. It is up to the County Board to actually approve them.

Herein lies the problem: even if Walker had done this by proposing a substantial reduction in services based on an in-depth strategic plan, the Board has not shown that it would accept any cuts. The Executive did propose several smaller cuts in his 2006 budget. For the most part they were not adopted. For instance, the Board overruled a proposal to eliminate the obsolete and ineffective County Farm during the 2006 budget process – a program that amounts to only $180,000 of the County’s $80 million problem. They further approved increases in contract services for human services providers and approved phantom state revenues to cover proposed cuts to Circuit Court Services.

If they did not have the stomach to cut a $180,000 program, will they have temerity to eliminate the Zoo or the General Assistance Medical Program?

This mentality, not the Governor’s office, was the target of the Executive’s proposal in 2006. The Budget laid the choice before the Board: If you are not interested in cutting services, then the pension contribution has to be cut - you cannot keep both. The Board responded by restoring most of the cuts actually proposed and adding what little phony revenues it could find to the pension contribution and other programs. If Walker deserves to be chastised for being to gentle – and he does – the Board deserves outright scorn for not even accepting Walker’s minimal cuts.

This is the reason the County is literally going bankrupt. The County Board will not make any choices that involve prioritizing how resources are allocated. They and the liberal bloggers will try to blame Walker’s zero tax levy-increase. Increasing the tax levy, due to state-mandated caps, would provide a proverbial drop of revenue in the expense bucket. They will blame Walker’s lack of support for a sales tax increase. A sales tax increase is not realistic due to its certain death in Madison. Worse, it lets policy-makers off the hook by simply continuing on their present path instead of prioritizing and finding efficiencies.

The sad fact is that Milwaukee County has enough money to provide every single service it currently offers, and it could provide it with better quality if it were not under the weight of a $59 million pension bill. Consider this: if Milwaukee County employees participated in the State retirement system, with roughly a 10% contribution based on employee salaries the County’s pension bill would be around $26 million in 2007.

Imagine how many pools you could keep open with an extra $23 million.

If the County were not spending $60 million on health insurance for 57-year old retirees who are leaving with $300,000 lump sum payments, imagine the housing it might be able to find for its mentally ill.

Eventually the choice is going to have to be made.