From the Journal Sentinel
Posted: January 27, 2010

Fixing Milwaukee County's threadbare finances starts with facing up to the county's enormous pension and health benefit costs, according to a report issued Wednesday by the nonpartisan Public Policy Forum.

Those costs - a combined $179 million for 2008 alone and rising - destabilize the rickety budget and help push the county "closer to a full-blown financial crisis," the report says. The county's combined long-term pension and health care debt stands at a staggering $2 billion.

The report calls for consideration of some far-reaching reforms, including spinning off a number of major county programs and a possible merger of the county with the City of Milwaukee. But the study of county government - titled "Should it Stay or Should it Go?" - warns of major political and financial obstacles to any major shakeup. The report stops short of endorsing a particular path.

Inaction should not be an option, says the report by forum President Rob Henken and researchers Vanessa Allen, Doug Day and David Helpap. The report was commissioned by the Greater Milwaukee Committee, which will determine later which reforms to champion, said GMC President Julia Taylor.

"The urgency of this matter cannot be overstated," the report says. The county's structural deficit - the gap between costs and available revenue - is projected to rise to $106 million by 2014. The figure would be even higher if cuts in recent years, including wage and benefit concessions built into the 2010 budget, had not been enacted.

The county's fringe benefit bill won't disappear but can be tamed, the report says. Officials should consider further benefit reductions and merging the county pension system with the state's or switching to a 401(k)-style plan for new employees, the report says.

Blame for the county's high fringe benefit costs in the report goes to the lucrative 2000 pension enhancements; rapidly rising health care costs; the recession; and a dive in the value of the county pension fund.

Pension merger

Merging the county pension system with the state's "could enable the county to finally get past its 2000-2001 pension scandal," the report says. News accounts of fat potential "backdrop" lump-sum payments made possible by those changes led to the forced resignation of then-County Executive F. Thomas Ament, the recall of seven county supervisors and the election of Ament's successor, Scott Walker.

A pension system merger also "might make it easier for taxpayers to understand and accept the notion of paying off" the county pension fund's liabilities, the report says. Such a merger might cover new county workers only. Walker said the report lent support to his push to privatize county services and to "cap" the county pension system.

The pension ideas are acknowledged to pose steep hurdles, including bargaining with the county's eight unions for the change. The political complications shouldn't be an excuse for inaction, said Henken, a former county administrator.

"We have to acknowledge these costs exist," he said. "Efforts should be taken to isolate those costs and potentially cap them going forward."

Burying retiree fringe benefit costs in each department budget has hindered reforms, the report says.

Much of the 159-page report lays out pro/con analyses for particular changes.

• Leasing the airport to a private company or creating a new airport authority to operate it could save some money if retiree costs were lifted, the report says. That's because airport workers would likely no longer be in the county pension system. It might also free the airport of any drag from the county's financial woes. On the other hand, the airport already runs efficiently and has clear accountability through the elected County Board.

• Mental health and other human services could be returned to the state, which might be able to spend more and protect those services from county budget problems. On the down side, the state has its own budget woes and has had its own problems after taking over the county's child welfare and public assistance programs.

• Creating a park district with its own dedicated funding source might be more efficient, remove parks from funding competition with other county services and better leverage private donations. But that change also could drive up park spending while adding another layer of government.

The easier cost-cutting steps have been done, such as deferring bus purchases and park maintenance, the report says. That leaves the county in the unhappy position of being unable to accommodate residents' service expectations without resorting to some dramatic tax increase.

Proposals to increase the county sales tax by 0.5% for parks and by the same amount for transit would raise as much as another $130 million a year, the report notes without endorsing those moves. The report says, however, that devoting a portion of increased sales tax revenue to paying off retiree costs and debt on park projects "might represent the optimal scenario" for whittling the county's structural deficit.