Madison’s Budget Challenge, Part 1: The most important budget number is not actually in the budget
The first in a multipart series, getting into the weeds of the upcoming 2025 City of Madison budget and the structural deficit.
Over the next four posts, I am going to dig into the Madison budget with an eye towards the 2025 budget challenge - the looming $27M structural deficit. This budget challenge is not unexpected - it has been clear for nearly 15 years that there would be a year where the structural deficit overtakes the budget, and the only thing that is a bit surprising is COVID pushed it back a few years.
The 2025 budget is the most important issue facing the City of Madison at the moment. All of the other challenges we face - housing, equity, climate adaptation, public health and safety - how those will be addressed by the City Government in 2025 and beyond depend on how we as a City decide to handle the structural deficit in years to come.
For the first entry in the series, I want to tackle what seems like an easy question: What is the top-line number for the City of Madison’s 2024 operating budget? The answer actually depends on what you consider the top-line number, and we’ll take a look at a couple of different plausible numbers.
The number I want to highlight is $170,062,113, which is the “before adjustments” payable-2024 property tax levy. This number has historically been so uninteresting that we don’t even have a spot for it in the budget documents the City prepares, but how that number changes year to year is the crux of the structural deficit, so it’s important that we know what it is and how it fits into the rest of the budget.
The City’s Finance Department has been putting together an excellent “2025 Budget Outlook” website that I cannot say enough good things about. Over the past few months they’ve put out 4 deep-dives into the budget, held 2 briefings for the Common Council, and hosted a series of meetings around the City along with the Common Council for community members to learn more about the budget process. (There’s still one more - Wed June 5th at 6pm at Black Hawk Middle School) City finance staff is doing an amazing job of helping educate Madison about the budget and I think once we get past our budget challenges, we’ll be better off as a city going forward with more people knowing more about how City government works.
This post digs a little deeper into ‘Budget Foundations’ material that the https://www.cityofmadison.com/finance/documents/budget/2025/Part1Powerpoint.pdf. (Video) (memo) If you haven’t seen that material yet, you’ll want to take a look.
How much does the City of Madison actually spend?
I asked ChatGPT what the City of Madison’s operating budget is and here is what it told me:
But here’s the thing: that’s not really true.
In fairness, ChatGPT isn’t hallucinating a totally made-up number, $405.4M is what most of the reporting says is Madison’s 2024 budget. However, the City of Madison’s 2024 adopted budget is 685 pages long and has a LOT of information in it. Much of that information is important to share but ultimately not needed for the community to share its priorities and the Mayor and Common Council to debate and set a direction for the next year. So, to keep the discussion relevant, the budget document and debate includes some numbers and leaves out others. Specifically, when most folks talk about Madison’s “operating budget”, what they’re describing is the “General Fund” plus the “Libraries Fund”, which comes up to $405.4M for 2024. Those two funds cover things like firefighters and snowplowing and zoning administrators and the Mayor and leaves out other things like the supplies of chicken we buy to resell as part of Monona Terrace wedding dinners.
So no one is trying to pull a fast one in the budget, it’s just that a very sensible organization of the core budget is to focus on the general fund, which is where most of the policy decisions the Council could make will end up in the numbers. The general fund number is a fair number to report as the ‘budget’, and probably the most useful number, but there are other important numbers for the overall budget that are important to understand.
What is in the budget but not in the “General Fund” budget?
It turns out, a lot.
If you go through the budget and add up the different funds, you get a $775M operating budget, not $405M. This slide from the “Budget Foundations” presentation gets to the details:
There’s a lot of money flowing through the City, but much of it is self-contained: The City established the Water Utility because it met a civic need, but what it spends this year is largely determined by how much water people use and the utility bills customers directly to generate the revenue to cover what the utility spends.
(If you do go through the different funds and add them up, you have to be careful not to double-count, because money is moving in and out of different funds - which is yet another reason to just focus on the general fund)
Let’s dig into Madison Metro as an example. Metro Transit’s 2024 budget is $72M, which if the entire thing was part of our $405M budget it’d be 17% of the budget, but thankfully there is other funding for Metro.
Metro’s main funding is a mix of federal and some bus-specific state aid ($28M), payments from other local governments and the UW for their share of the service ($9.5M), and then money it takes in from fares and other revenue like advertising (11.8M). All those sources together give Metro $49.5M.
(For the UW contributions, I think the ASM student bus pass is part of the Metro fare revenue line item, and the contract to run the route 80/81/82 buses is part of the local government share item. The UW wants to dump more of the 80 on UW students, by the way - via the Daily Cardinal)
Of the remaining $22.5M, $15.75M comes from the General Fund. (The last $6.8M comes from the “wheel tax”, all of which goes to Metro.) It doesn’t fund anything specifically, it’s just combined with the money from bus passes and state aid and the like, and is spent on driver salaries and fuel and other things to make Metro go.
So, out of the “$405M operating budget”, only $15.75M goes to Metro.
An aside about BRT and the structural deficit
You often see people in letters to the editor or commenting on social media that the cause of the budget deficit is Bus Rapid Transit, but that’s simply not true. In the 2019 budget, the last one passed in the Soglin Administration and before COVID blew everything up, Metro got $14.2M in support from the general fund. If you adjust that 2019 figure for inflation, you get $17.4M.
For comparison purposes, I think it’s fair to include the vehicle registration fee as though it was General Fund support, which means, inflation adjusted, with $22.5M the current budget supports Metro at only $5.1M more than the last Soglin/pre-COVID budget did.
This $5.1M is an inconvenient number for people who want to blame the entire $27M structural deficit on Metro and BRT. Even if all of the increased subsidy was going to pay for BRT, it just does not get anywhere close to addressing the full structural deficit.
You said $170M, let’s get to the point already.
The $405M general fund budget includes funding sources like state aid and building permit revenue, but the bulk of the funding - and what most residents are worried about when the Council passes a budget - is the $286M in the property tax levy. That’s what (nearly all) Madisonians pay - either directly if they own their home or indirectly through their rent. (There’s a small number of folks who don’t pay - UW dorm residents, people who rent from tax-exempt organizations, but it’s a small enough number that we can ignore it)
So it’d be sensible for newspapers to write headlines like “Madison Common Council passes $286M budget” since that tells me what my taxes are going to be, and in nearly all years up until now most budget nerds could stop looking there, but this year we have to look one level deeper.
Of that $286M, $116M is tied to debt service, either directly or indirectly. The details of debt service and the tax levy are for another post, but the takeaway for today is that any increase in that part of the levy is tied to issuing new debt, and as a policy choice and best budgeting practice, we want to avoid linking our operating costs like public health nurses and snow plow drivers to debt issuance.
So with our Matryoshka of a budget, going from $775M to $405M to $286M, we finally arrive at our innermost doll at $170M. This is the base property tax levy.
And by state law, the base levy is very constrained by how much it can grow each year. For Madison, it only went up by about $3.6M between 2023 and 2024. The growth in that number is limited to “net new construction”, e.g. percentage-wise of the city, how much worth of new houses and hotels and shopping malls were built in Madison last year? If nothing new gets built, the base of the property tax levy from one year to the next doesn’t go up.
The State Legislature’s idea is that if you have new things built in your city, your city will need to spend more money next year to accommodate it. You’ll need more cops because there are more people, you’ll need more snowplow drivers because there are more miles of roads to plow etc. If your city doesn’t grow, you don’t need to expand any services, and so your city doesn’t need to increase its property tax levy.
Of course, anyone with half a brain cell (i.e., not the Legislature) will immediately see the problem: if any of your existing costs go up because of inflation, your city is screwed. If you have new construction in your city, your city is expected to pay for both increased existing costs and any new costs out of the same bucket of money.
And that right there is the cause of Madison’s structural deficit. Wisconsin local governments are not allowed to increase their property tax to cover any cost-to-continue expenses. They are only allowed to increase their property tax to pay for new expenses.
It really is that simple, and that stupid.
In theory, state aid is supposed to help, but as is well documented, the legislature consistently screws Madison when it comes to state aid. As State representative Mike Bare points out, this is intentional by the legislature.
As I mentioned at the beginning, historically the base levy has been so uninteresting that in many years it’s actually never mentioned in the full operating budget document. The full property tax levy of $286M (or the equivalent for that budget year) has been a good enough number, and it’s what’s projected on the screen on budget night as the budget is amended and each amendment moves the operating budget closer to that year’s levy limit. But everyone has always known that somewhere in the late 2010s or early 2020s, it was going to catch up to us. And here we are.
So, we’ll keep using $405M as the 2024 Madison operating budget. But as you read the next several posts, remember the $170M figure, and remember how much less that number is allowed to change relative to the rest of the budget.
Coming tomorrow, in the next post in the series, we’ll look in more detail at how the structural deficit hurts Madison badly in the 2020s, and absolutely destroys Madison in the 2030s and 2040s.
I’m supporting Regina Vidaver for Dane County Executive and you should too! She’s a public health expert and has done big things on the Madison Common Council - CARES mental health response, the Building Energy Savings plan (which is a huge deal!) and Transportation Demand Management, among others. When I was on the Council with her she asked the best questions that always got at the heart of the issue, and I know she’ll be an excellent leader for Dane County!