by Benjamin Yount
Milwaukee’s looming fiscal cliff and the lack of an agreement on shared revenue at the Wisconsin Capitol have earned the city a credit downgrade.
Fitch Ratings on Wednesday downgraded Milwaukee’s credit from A to Triple-B+, with a negative outlook.
“Fitch’s downgrade … reflects the city’s large and growing structural budgetary imbalance driven by statutory revenue-raising constraints, escalating municipal cost pressures, especially for pensions, and reliance on state shared revenue that has not kept pace with inflation,” Fitch wrote in a report announcing the credit downgrade.
Fitch added that Milwaukee has $90 million in obligations that are due, and there’s no clear plan on how to pay for that debt.
“Fitch believes the city’s flexibility of main expenditure items is limited. Carrying costs for long-term liabilities claim a large and growing percentage of the governmental fund spending. While the city operates within a fairly flexible labor environment, the natural pace of spending is expected to be well above that of stagnant revenue growth, primarily driven by rising pension costs,” Fotch wrote.
Milwaukee’s pension payment is set to spike in the next budget, and city leaders have made it clear that Milwaukee could be bankrupt by 2025 if state lawmakers don’t agree to share more money with them, and allow Milwaukee to raise its local sales tax.
But Fitch said even a deal on shared revenue may not be enough.
“The recently proposed state legislation boosting local funding may not be sufficient to minimize the budgetary imbalances in the near-term, forcing the city to make meaningful cuts to public safety service delivery to close a sizable budget gap estimated at approximately 21% of spending,” Fitch wrote. “Reserves are currently healthy providing some cushion to the city but are largely attributable to non-recurring measures including note proceeds and stimulus that could quickly deteriorate absent significant structural budgetary enhancements.”
That echoes a report from Wisconsin Policy Forum last fall that said Milwaukee was using left-over coronavirus stimulus money to pad-out its budget.
“Johnson’s 2023 budget proposal would tap $81.1 million of the city’s total $394.2 million allotment of ARPA funds. Nearly all would go toward operational costs within the Milwaukee Fire Department, supporting 470 sworn fire department positions,” the Policy Forum report explained. “Once the federal funds are spent, the potential need to cut all of those positions or substitute others across all city departments – as well as perhaps cut hundreds more as inflation and pension payments rise – would produce severe reductions in services that a city with Milwaukee’s vast needs arguably cannot afford to endure.”
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Benjamin Yount is a contributor to The Center Square.
Photo “Milwaukee” by Michael Barera. CC BY-SA 4.0.