Madison’s Budget Challenge, Part 4: We should do a City of Madison budget referendum. Here’s how.
Madison’s Budget Challenge, Part 4: We should do a City of Madison budget referendum. Here’s how.
The final post of the series, let’s look ahead to a potential operating referendum.
This is the fourth and final post in a series. Catch up on the others here.
The system for funding local governments in Wisconsin is broken. The current majority in the legislature is not interested in fixing it. A future legislature may change that, but we do not know when or if that might happen. It will not happen in time to create the 2025 City of Madison budget.
The current broken state system means that Madison is not able to adequately fund its core government services. This is not the fault of any Mayor or Common Council since 2011, when the state legislature broke the funding system for good.
The way forward is to go to referendum. It will not be the solution in the 2030s and 2040s, but we cannot cut our way to a solution. We need to put in place a plan that can get us through the rest of the 2020s, and a referendum is a necessary component of any such plan.
Calendar review: the 2026 budget calendar is awful
Under current state law, referenda for the budget can only happen on these dates:
August 13th 2024 (It’s already too late to get on the ballot)
November 5th 2024
February 18th 2025
April 1 2025
February 17th 2026
April 7th 2026
August 11th 2026
November 3rd 2026
We are cutting it close for 2025. With a referendum, the City will have to develop two versions of the 2025 budget, one if it passes and one if it doesn’t.
Planning for the 2026 budget is harder. If the referendum on November 2024 doesn’t pass or doesn’t do enough to solve the projected gap for 2026, the only options for another referendum are in the spring of 2025, 8 months before the start of the 2026 budget and long before we’ll know what the state or even local numbers look like.
Will the new legislature help Madison?
Under the new maps, the Democrats could take control of the State Assembly starting in January of 2025, but there’s an equally good chance they won’t. Because only half the seats are up in the State Senate, it is unlikely that Democrats will control the State Senate in 2025-2026. Governor Evers will be in office through at least 2026.
It is safe to say that the Democrats are more likely to increase shared revenue than Republicans. I am a Democrat and won’t hide my bias, but for whatever reason, the Republicans have not shown any interest in reforming shared revenue to help Madison. If Republicans maintain control of both houses, Madison should assume there will be no substantial change to shared revenue in the 2025-2027 state budget.
If there is split control in the legislature, then there is a chance that shared revenue could increase for Madison, but it’s a big maybe. Split control means that there will have to be a deal with the Republican Senate, and Assembly Democrats will have multiple priorities - Medicaid expansion, reforming the school funding system, rolling back parts of Act 10. Who can say if the formula and money for municipal aid will be part of the final deal?
(Also, the budget won’t be done until July of 2025 at the earliest, and the last time there was a split legislature it took them until October to pass a budget. All of that is after the last referendum opportunity on April 1 2025)
Anything is possible with the state government, of course. Governor Evers could veto any budget that doesn’t increase shared revenue for cities. A split control legislature could not increase funding overall but could fix the distribution formula which would be big for Madison, or could just grant more flexibility on how cities manage their government or how they can use referenda. Republicans could have their hearts grow three sizes one day, and control both houses but still put in more money for shared revenue.
The referendum Madison puts out for 2025 has to assume there will be little shared revenue increase in 2025. If Madison wants to put an additional referendum on the ballot in the spring of 2025 for the 2026 budget, it will almost certainly be too early to know if there will be any shared revenue increase and so the referendum for 2026 will have to assume no increase as well.
2027 and 2028 are a different story, because there could be a change in control of the Senate, and we will have more opportunity to go to referendum before passing the 2027 budget.
If the Democrats take back control of the State Senate, hold or take the Assembly, and a Democrat holds the governorship in November of 2026, then under a normal calendar, a Democratic trifecta could pass a budget in July of 2027 that would dramatically alter local government funding, most likely taking effect in time for the 2028 city budget.
This was a long way of saying the future is hazy but there are reasons to hope, if we can hold on and get there.
The referendum we should pass: $28M but use the rainy-day fund to help
We should close the budget gaps in 2025 and 2026 with a property tax boost of $28M. A reminder, the 2025 gap is now $22M (revised down from $27M) and the 2026 gap is an additional $6M, so $28M in for 2026. There is also a projected gap of an additional $8M for 2027, so a total gap of $36M in 2027.
We need the base levy to catch up. We have used too many one-time funding sources over the past decade and the $22M gap is too hard to keep up with. The extra $6M in the referendum gives us enough space to close the gap in 2026. We can reevaluate in 2027, but a $8-ish million gap is manageable, even if we did nothing else.
However, we should have at least $24M of one-time money available between now and 2026. Adding $28M in property tax in a quick go is a bitter pill to vote for, so to help out, the Common Council should pass a resolution declaring its intention to use a combination of cuts, revenue increases, and part of the fund balance (the “rainy day fund”) in 2025 and 2026, and ease in the changes.
State law on budget referenda for cities is very prescriptive about how the language of the referendum question is worded. Cities can literally only fill in the blanks with a few numbers. Our question has to look exactly like this:
"Under state law, the increase in the levy of the City of _____ for the tax to be imposed for the next fiscal year, ___, is limited to ___%, which results in a levy of $__. Shall the City of Madison be allowed to exceed this limit and increase the levy for the next fiscal year, ___, for the purpose of __________, by a total of ____%, which results in a levy of $______, and on an ongoing basis, include the increase of $________ for each fiscal year going forward?"
(I filled in an example version at the bottom of the post)
That wording makes it impossible to do anything like having different amounts in different years or increasing each year by a percentage.
With these constraints, I think there are two ways to go forward
Option 1: More short term risk, more long term benefit
My preferred option, we should maximize the amount of revenue authority the city has and increase the levy by $28M in the November of 2024 referendum, which would close the budget gap for both 2025 and 2026, and leave a $8 million gap for 2027.
To ease in the levy increase and to close the gap through 2027, the Common Council would commit to using $11M in one-time funds in 2025 and $5M in 2026 to reduce the levy impact. This means that for taxpayers, rather than a $28M extra increase landing all in 2025, there would be an extra $11M levy increase in 2025, an additional $12M increase in 2026, and an additional $5M increase in 2027. The remaining $8M in one-time funds can close the 2027 budget gap.
(We can do this without impacting our future levy. I explain how and show the math of the overall increase at the bottom of this post in the “nerdy details” appendix)
This option has the obvious downsides of:
Having a big number ($28M) actually on the ballot, making it less likely to pass
Being very difficult to explain
Option 2: Less short-term risk, less long term benefit
We could put a $16M levy increase on the ballot in November of 2024. That would leave a $6M gap to fill in 2025, a $12M gap to fill in 2026, and a $20M gap in 2027. We could fill $24M of that with one-time funds, and so close the gap completely for 2025 and 2026 and leave a $14M gap for 2027. We will need a new plan for the $14M gap in 2027 but we can wait and see what happens in the legislature before then.
This option has the upsides of:
Being a much smaller number on the ballot
Being easy to explain
With the obvious downside of:
Leaving a big gap in 2027
Both of these options let us put another referendum on the ballot in the spring of 2025 if the November ballot fails or we want to re-strategize after the November legislature election.
The Madison political environment in 2024
Soon this will turn into a political campaign for the referendum question. I think there will be a group that tries to organize a “vote no” campaign, but I don’t think they’ll matter much.
The real political problem the referendum will have on getting “yes” votes is that it has to carry out a campaign while there is a Presidential and Senate campaign happening at the same time, not to mention a Dane County Executive campaign and school referenda. Getting information to the public that can stand out will be very, very hard.
This is why I think any ‘vote no’ group is going to be basically pointless - Madisonians are in their hearts open to passing this referendum if they can hear good reasons to do so and some will seek out that ‘Yes’ information. People aren’t going to look for ‘Vote No’ information. And proactively getting the word out - with this much other activity happening - is just not likely to stick. I don’t think any group of the groups that could fund anything big enough to cut through - the Chamber of Commerce, the Realtors, maybe the Unions - are interested in getting involved or would side with ‘no’.
But getting ‘Yes’ information out is also going to be very hard, especially if you have to tell a complicated story. People are going to confuse the City referendum with the school referenda and the wording on the ballot is confusing. That’s part of why while I prefer option #1 of asking for $28M in one question, option #2 of only asking for $16M is safer. They actually both affect taxpayers about the same, but option #2 tells a much simpler story.
Speaking of school referenda, the Madison Metropolitan School District is likely to put two referenda on the ballot in November, and they are gigantic. The operating referendum they are discussing would add $100M to the levy by 2028. Whereas my plan is saying “let’s ease in $28M over a few years”, the MMSD referendum is “let’s ease in $100M over 4 years” - so an increase of $30M in 2025, $30M in 2026, $20M in 2027, and $20M in 2028. (In comparison, with the 2020 referendum, MMSD eased in $33M over 4 years - $6M year 1, $8M in year 2, $9M in year 3, and then $10M in year 4.) By 2028, this will be over $1000 more for taxes on the average home than what’s currently expected.
MMSD is also likely to propose a second capital referendum for $507M to rebuild 5 middle schools, Shabazz high school, and a couple of elementary schools. This will add another $326 a year starting in 2026 for the next 20 years.
Frankly, I am not sure the MMSD referenda are going to pass, and I worry that they are going to take the City referendum down with them. In 2020, the school referenda passed with 76% of the vote, but MMSD has burned through a lot of goodwill since then - the school bus debacle, the school lunch debacle - it used to be a fringe opinion that MMSD can’t execute on basic operations, and now a lot more folks in town have that viewpoint. Combine that with sticker shock from the numbers - a $100M referendum, $1000 tax increase on the average home, a half a billion on new facilities - this is going to be a tough sell for the school district. Goodwill for Joe Gothard isn’t going to be enough.
One thing is that Madison won’t be alone in cities with a referendum on the ballot. Fitchburg and Monona are both heading towards a referendum this fall. Sun Prairie expects to need one in 2027. Middleton has already gone to referendum (2022), as has Shorewood Hills (2022), the Village of Cambridge (2021), and Maple Bluff (2020).
(And those were all just cities. The list of school districts is much, much longer. The state legislature should be embarrassed by how badly they’ve bungled local funding in Wisconsin)
Cuts would help: let’s pause the Imagination Center
Alder Sabrina Madison is probably going to punch me so hard for saying this that she’ll knock me clear over to the west side, but the Imagination Center is about to finish the design phase. The city should pause it there and not go to bids, put the plans on the shelf for a few years, and claim a $16M cut.
To win a vote you just have to get to 50%+1, and Madison is a very referendum-friendly town. The 2020 school referenda passed with 76% of the vote, but there’s no way a full gap amount of $22M or $28M city referendum passes by that much in 2024. I think a full gap referendum probably passes this fall, but is that a good risk to take?
If the city can say “we’re pairing this funding increase with some cuts to make it easier” I think you sway a lot of voters securely into the ‘Yes’ column, especially if you use option #2 and have a smaller overall amount.
(Folks will rightfully object that cutting the Imagination Center is mostly a capital project and not an operating expense for 2025, which means the $22M gap is still there, which is partially true. However, staffing a whole additional library is an enormous new operating expense, it’s going to be a $2M new increase in the 2026 budget and contribute to the gap. Pausing the Imagination Center also does cut down on the amount of new taxes to pay back that capital expense and would save about $2M on the overall levy in 2026 in addition to avoiding the $2M increase on the operating budget, even though that capital part of the savings doesn’t help on the budget gap. Anyway, that’s yet another reason why option #2 is probably better - the trouble with having had so many ‘$27M funding gap’ or ‘$22M funding gap’ stories is that it’s hard to say “Vote Yes, because the City has already made some cuts” and then see that same $22M or more on the ballot - voters are going to say “Wait, what?”)
Politically the better choice for a visible cut would be the Public Market, but since it’s in the middle of construction it’s no longer a practical choice. Cutting some of the John Nolen lakefront projects might be another “big enough” alternative. That said, the Imagination Center is at a good point, project-wise, to pause it, is a “big enough” project to be very visible, and is legitimately a painful cut to make. It is also easy for us to restart in 2028 or 2029, or maybe even earlier if a federal funding source comes along. It’ll be a ‘shovel ready’ project, with the plans on the shelf and property already acquired. This would be a pause, not a cancellation.
No one is excited to cut libraries, and there’s no guarantee that cutting it would ensure a referendum passage, but to help prevent laying off 10% of City staff, I’d support cutting the Imagination Center.
This post is already long so briefly about a few other things
Trading fees for taxes
People hate the wheel tax. If property taxes had gone up by $40 no one would have batted an eye, but the wheel tax makes everyone mad. You could imagine a plan where the property tax went up even more than $28M but the wheel tax was abolished. It could work.
Let’s not raise Metro fares
At first glance, it might be a reasonable time to raise Metro fares. The base cash fare has been $2 since April of 2009, and other fares were last changed in 2016. We could raise another million or two from fares and reduce the general fund subsidy and close the gap a bit. However, we just went through a study on not changing them for BRT, so we’d have to repeat that study and it would almost certainly tell us that harm is going to disproportionally fall on a minority population. Best to leave the fares as they are for a while.
MadCAP is an excellent program but it misses people.
MadCAP, the program that gives low-income folks a break on their water and other city services bill, is a great program and provides a pathway to reducing the burden of any new property taxes. It’s a clunky way to do it, but you could also imagine a scenario where we increased the property tax by more than $28M but then used MadCAP to “hold harmless” low-income folks.
The drawback of MadCAP is that it only helps people who get the city services/water bill in their name. For many if not most renters, this isn’t true. This opens a whole can of worms, but if the City of Madison government had a billing relationship with all of the residents of the city and not all of the property owners of the city, then there could be a good path forward here, but that’s a major rethinking of municipal finance and isn’t likely anytime soon.
A sales tax
A sales tax option before 2027 seems incredibly unlikely. The Milwaukee sales tax was a combination of the Milwaukee financial situation being so bad that bankruptcy was a real possibility, and the prospect of the Republican National Convention happening in a city that was going bankrupt. If the RNC had gone somewhere else for 2024, I (and others) doubt Milwaukee would have gotten the sales tax. Also, Milwaukee is going to lose the power to use a sales tax once their pension system is fully transferred over to the State.
A sales tax might be part of the solution in a few years but for now it’s a not an option.
And in conclusion (audience starts applauding)
If you’ve read all four posts, thanks for sticking with me.
The way local governments are financed in Wisconsin does not work, and Madison has reached its breaking point. I believe there’s a good chance we’ll see a better system emerge in a few years with changes in the state legislature, but we have to hang on for a few more years before that happens.
A referendum now is the part of the solution. Let’s do it.
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!
APPENDIX: Additional Information
Using less than the full levy
The 2024 referendum could expand the levy limit by $28M but then not levy that much. Madison can do this because cities are allowed to levy less than their full amount without affecting their ability to fully levy the next year. Cities are limited in how much they can move between years: if the levy limit was $100 and never increased, we could levy $100 in 2025 and $100 in 2026, or we could levy $96 in 2025 and still be able to levy $100 in 2026. We could actually levy $98.5 in 2025 and then $101.5 in 2026, but there’s no way to be able to grow beyond $200 in 2 years, and cities can only “bank” 1.5%, so if we levied $96 in 2025, we could still only levy $101.5 in 2026, not $104.
What the actual referendum language would look like
Our question has to look exactly like this:
“Under state law, the increase in the levy of the City of Madison for the tax to be imposed for the next fiscal year, 2025, is limited to 2.2%, which results in a levy of $292,816,060. Shall the City of Madison be allowed to exceed this limit and increase the levy for the next fiscal year, 2025, for the purpose of continued support of municipal services, by a total of 10.85%, which results in a levy of $320,816,060, and on an ongoing basis, include the increase of $28,000,000 for each fiscal year going forward?”
(Actually I’m not sure if it’s the adjusted or unadjusted levy used, but whatever)
Maddeningly, you can’t say “$22M in the first year and $6M in the second year”. You can change one number only and you can only have the change start the next year. The language is also terribly confusing.
Doing the math on a $28M referendum
The original gap analysis that the City Finance staff did assumed that a $27M referendum would add $284 in taxes on the average home (TOAH), or about $10.51 a year on each home for every million dollars in the levy.
A $28M referendum would turn that into $294 on an average home.
If Madison passed a $28M levy increase referendum in 2024 and did not use any onetime money to offset it, it would look like this:
2025 $28M $294
2026 $28M $294
2027 $28M $294
In my “option #1” plan that expands the levy authority but doesn’t use the whole thing and instead offsets part of it one-time funds
A reminder the projected gaps are
2025 $22M
2026 $28M (22+6)
2027 $36M (28+8)
2028 $46M (36+10)
How the plan would look each year:
2025 $11M levy, $11M one-time, $22M total, $0 gap
2026 $23M levy ($11M + $12M new), $5M one-time, $28M total, $0 gap
2027 $28M levy ($11M + $12M + $5M new), $8M one-time, $36M total, $0 gap
2028 $28M levy, $0 one-time, $28M total, $18M gap
Additional taxes on average home (total)
2025 $115
2026 $241 ($115 + $126)
2027 $294 ($115 + $126 + $53)
My option number 2 is much simpler:
2025: $16M levy, $6M one-time funds, $22M total, $0 gap
2026: $16M levy, $12M one-time funds, $28M total, $0M gap
2027: $16M levy, $6M one-time funds, $22M total, $14M gap
2028: $16M levy, $0M one-time funds, $16M total, $30M gap
Additional taxes on average home
2025 $168
2026 $168
2027 $168