The Act 12 local government funding law is shaping Milwaukee's 2024 budget. Here's how.

Milwaukee's 2024 budget is taking shape in a landscape different than any before.

City leaders have an influx of new revenue to work with.

They are contending with steeply increased new costs.

And it's all due to this year's landmark local government funding law, known as Act 12, that helped the city avoid deep service cuts in the immediately approaching years.

Milwaukee's change of fortune is a "paradigm shift," the nonpartisan Wisconsin Policy Forum said in its new budget analysis. An infusion of new funding is enabling the city to generally maintain existing services and make some key investments in 2024, the report notes.

Policy Forum President Rob Henken described the law as a "lifesaver" because it allows the city's new 2% sales tax to go into effect on Jan. 1, 2024, when officials still have time to use remaining federal pandemic aid before an end-of-year deadline.

That overlap in new and dwindling funding "allows the 2024 budget to really be a bridge that can help prepare the city for what still are going to be relatively tough times ahead," he told the Journal Sentinel.

Here are the key ways Act 12 is shaping the 2024 City of Milwaukee budget.

Act 12 offers Milwaukee new sales tax and shared revenue

Act 12 not only allowed the Common Council and Mayor Cavalier Johnson to put in place a 2% city sales tax, which they did in July.

It also provided a boost in the money that returns to local governments from the state, known as shared revenue.

"With more than $200 million in projected new revenue now at their disposal, city leaders are able to consider how to invest ― instead of where to cut ― for the first time in a generation," the Policy Forum report states.

Milwaukee Comptroller Aycha Sawa believes the new tax will bring in about $184 million for the city next year.

Shared revenue will increase by $21.7 million.

That means city leaders anticipate a total boost of just over $200 million, assuming the sales tax earns as much as predicted. (The state previously estimated the city would see $193.6 million in additional revenue from a 2% sales tax.)

The new funds cannot be used however the city chooses.

The shared revenue must be used for law enforcement, fire protection, emergency medical services, emergency response communications, public works, courts and transportation, except for administrative services, the law states.

The sales tax revenue must be used for pension costs; maintaining police, fire protection and emergency medical services at April 1, 2023, levels; and growing police and fire staffing over a decade to levels mandated in the new law.

Increased Milwaukee police, fire staffing in response to Act 12

Johnson has also proposed increases in police and fire staffing, a reversal from previous years of cuts.

Under Act 12, Milwaukee will lose 15% of its shared revenue if it does not maintain the number of police officers and the daily staffing level in the fire department minimally at the numbers from the previous year, excluding any who are in state- or grant-funded positions.

The city also must increase its police and fire personnel until it has at least 1,725 officers, including 175 detectives, and a daily staffing level of at least 218 members in the fire department. It must reach those benchmarks by the end of the 10th year after a sales tax goes into effect.

Johnson's proposed budget would boost police staffing by a total of about 15 officers next year, after retirements are taken into account. That would increase the department's average sworn strength to 1,645 over the course of 2024, according to the Budget Office.

Fire department staffing would also increase from 192 daily staffing to 198, allowing the city to put a fire engine back into service and start a new paramedic unit.

Fire Chief Aaron Lipski said the department would need 21 more firefighters total to staff the new positions in the three 24-hour shifts that take place in a row and to ensure there are sufficient backup personnel.

Exactly how much those additional members would cost each department is difficult to pinpoint, but the city estimates the figure to be at least $5.6 million total next year. That number is likely to be more in future years, when all of those new hires will be on the city payroll for an entire 12 months, according to the Policy Forum report.

"It also should be noted that both maintaining and enhancing police and fire staffing levels will be abigger financial challenge than they would be for other city functions," the report states. "That is because annual salary increases for unionized public safety workers must be collectively bargained without the caps on increases that apply to other city workers under the provisions of 2011 Wisconsin Act 10."

Act 10 limited collective bargaining for most public workers and sparked massive protests at the Capitol more than a decade ago.

Act 12 means higher pension costs for Milwaukee

The new law also comes with significantly increased costs and the potential for volatility in the amount the city has to pay into the pension annually.

In all, the annual pension contribution will have increased from about $71 million in recent years to more than $180 million in 2024.

It's also important to note that a previous decision to decrease the anticipated future earnings on the city's pension fund from 8.24% to 7.5% drove a spike in the annual pension contribution in 2023, long before Act 12 became law.

Simply put: If you assume you'll make less in interest on your savings but will still have bills to pay down the road, you have to put in more money now to make up for that anticipated gap.

On top of the 2024 payments, the city still owes $25.5 million toward its 2023 pension contribution over the $100 million already paid. That catch-up payment is necessary because the 2023 budget was adopted before actuaries were able to determine what the city's total pension contribution would be for the year, and the city put in $100 million assuming it would ultimately have to pay more, according to the Policy Forum.

Here's how Act 12 changes the city's pension system and the costs associated with those changes in 2024:

• The city had to further reduce its assumed rate of return on its pension fund from 7.5% to at most the assumption used by the Wisconsin Retirement System, currently 6.8%. That increased the unfunded liability, and, in turn, the city's annual pension contribution rose to $175 million in 2024.

• The new sales tax dollars that go to the pension must also offset the increased costs from the reduced assumed rate of return for other employers in the city pension system, such as the Milwaukee Metropolitan Sewerage District. That is expected to produce a $6.3 million addition to the city's pension contribution next year, according to the Policy Forum.

• The city must move its new employees into the Wisconsin Retirement System. The city’s first contribution as a member of that system is $1.3 million, according to the Policy Forum.

• The city is no longer allowed to use a mechanism that "resets" the amount of its annual pension contribution every five years to avoid annual swings that can make budgeting more difficult. This change requires the city to determine its pension contribution annually.

What is the schedule for budget deliberations?

Budget hearings take place before the council's Finance and Personnel Committee from Sept. 29 through Oct. 16, when the committee will hold a public hearing.

The first and primary public hearing will take place Monday at 6:30 p.m. in the Common Council Chambers at City Hall.

The committee will take up budget amendments on Oct. 26, with budget adoption by the full 15-member council scheduled for Nov. 3.

Alison Dirr can be reached at [email protected].

This article originally appeared on Milwaukee Journal Sentinel: Act 12 local government funding law is shaping Milwaukee's 2024 budget