Milwaukee sales tax increase approved; what it means for city budget
MILWAUKEE - The Milwaukee Common Council voted Tuesday, July 11 to create a 2% city sales tax – approved 12-3.
The now-approved tax could take effect as early as Jan. 1, 2024. Mayor Cavalier Johnson still needs to sign the ordinance, which is all but certain.
"This is the most important vote of our careers, I think," said Ald. JoCasta Zamarripa.
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The sales tax to date is 5.5%, with 5% for the state and 0.5% for the county. None of that money goes directly to the city, because the state does not have municipal sales taxes. A new state law, passed by the Wisconsin Legislature and signed by Gov. Tony Evers, gave the Milwaukee Common Council the power to vote on the issue.
"Today, the Common Council took a very important and extraordinary vote. A vote that is probably on par with the vote to adopt the city charter back in 1846," Johnson said.
With the approved ordinance, the sales tax in Milwaukee would rise to 7.5%. Ten of the 15 Common Council members – or two-thirds of the body – were needed to enact the tax. Some members did not reach their final decision until Tuesday.
"It was up to the very last minute, I know that people were struggling and walking into the building, I did not know we had the votes," said Common Council President Jose Perez.
Debate was even delayed. After 40 seconds of silence, Ald. Russell Stamper requested a recess. Fifty minutes later, they were ready to vote. Three members voted no: Andrea Pratt, Mark Chambers and Milele Coggs.
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"I choose not to build a city on the back of elders who are on a fixed income, I choose not to have struggling families foot the bill, while they are simultaneously targeted by poison policy," Pratt said.
"I voted no because that’s what my constituents wanted me to do," said Chambers.
"Those who are impoverished are very concerned with any money coming out of their household, particularly for those on fixed income, and who are at or below the poverty level," Coggs said.
Ald. Michael Murphy was out of state, but the city rented a satellite phone for him to use in case his cellphone didn't have reception – another sign of how every vote could have mattered on the historic issue.
"The wolf is at the door. We can’t chase the wolf away anymore. And we are dealing with some serious challenges, which have to be addressed. We did get a solution," said Ald. Robert Bauman.
The tax hike will expire after 30 years or when the pension is fully funded, whichever comes first.
What does it mean for the budget?
City Budget Director Nik Kovac said Milwaukee faces a $183 million budget game in 2024, which federal funds will help cover, and a $193 million gap in 2025. That gap is caused by two things, Kovac said: frozen shared revenue and the city's ballooning pension bill.
With those budget gaps, and without a city sales tax, Novac said the following cuts would be imminent:
- 700 of 1,600 police officers
- 250 of 700 firefighters
- 400 general city employees
"The only door that we had to go through was this. And it was either do this, stay on the status quo, or have something that was worse," Johnson said.
The nonpartisan Legislative Fiscal Bureau estimated the city sales tax would generate $194 million a year. Almost all the money must be spent on the ballooning pension problem. Extra money in future years would need to go to hiring more police officers and firefighters.
"I am pleased that we can now add capacity back. And we can now get out there and serve more neighborhoods, in the area were the stations have been shuttered, we have chance finally of opening these things back up," said Milwaukee Fire Chief Aaron Lipski.
Right now, Wisconsin law would need to be changed to allow a city to go through bankruptcy. Even if the city were able to declare bankruptcy, the pension hole would still be an obligatory payment on the city's books.
What is taxed?
The Wisconsin Department of Revenue breaks down sales taxable purchases into four categories: tangible personal property, U.S. coins/stamps, some digital goods and some services. Examples of taxable purchases include:
- Clothing
- Computers
- Electricity
- Gas
- Steam
- Water
- Computer software
- Admission to sports/entertainment events
- Landscaping
- Parking for motor vehicles
- Photography services
As to what's not subject to the sales tax, some exemptions include:
- Food/groceries intended for home consumption
- Bottled water
- Motor fuels (gasoline)
- Newspapers
- Caskets
- American and state flags
- Laundry/dry cleaning
- Prescription drugs (excluding insulin)
- Medical devices and equipment
Is Milwaukee County next?
The city of Milwaukee could have a double-dip of sales tax increases. County leaders, too, are considering a sales tax increase of their own – and held a hearing Tuesday.
"I’m testifying today to urge you to vote yes," said VISIT Milwaukee's Peggy Williams-Smith.
"You should not approve this regressive tax policy," said Stephanie Lohman. "Why would you even run for office just to sit up there and make justifications for a system that we long know have benefits for the rich at the expense of the poor."
The Milwaukee County Board of Supervisors is considering adding a 0.4% sales tax, which would generate an additional estimated $80 million per year.
"At a time where people are having extreme difficulty in providing for their families, here we are considering adding to those woes. Inflation, price gouging, utility cost increases and so many other increasing costs are draining county residents," said Ron Jansen.
"We understand that this legislation is not perfect. I don’t think anyone is 100% satisfied with it, but we respectfully request that the county board approve the sales tax," Dan Steele said.
According to VISIT Milwaukee, visitor spending in 2022 provided $2 billion to the city – a larger sales tax would increase that.
"We will not be able to attract the number of visitors to our community that we enjoy today if we do not maintain funding for the county’s essential services like public safety and the parks," Williams-Smith said.
Small business owners, though, said they're stressed about the idea of a price increase.
"People already believe they are spending more, for a business owner to then raise prices when they have to because vendors raise prices on them. It just becomes a very difficult situation for a business owner," said Brent Holmes. "I hope you make the right decision for us all."
Bus riders advocated for county transit funding.
"We have to fund transit. It means jobs, it means school, it means everything," said Terri King.
The earliest the county board can vote on the proposed sales tax will be at their next meeting, July 27.
Official statements
Mayor Cavalier Johnson:
"I applaud today’s vote by the Milwaukee Common Council to enact a 2% city sales tax. In taking this action, the Council has protected Milwaukee and its residents from unimaginable cuts to library and public safety services.
"We have reached a turning point in the history of Milwaukee’s municipal finances. This is certainly the most significant change in how city services are funded in more than a century.
"I thank the Milwaukee Common Council members who supported this ordinance change. In particular, I offer my appreciation to Council President José Pérez who joined me on multiple occasions, in both public and private discussions with elected officials, as this state legislation was crafted. In addition, I want to thank every member of the Common Council that considered this difficult generational opportunity.
"With the new revenue, Milwaukee will be positioned to improve emergency service response times. We will also be able to continue the innovative work of the Milwaukee Public Library.
"I anticipate signing the sales tax ordinance, file number 230357, in the coming days."
Common Council President Jose Perez:
"Today, members of the Common Council voted in favor of implementing a 2% City sales tax. This will avert drastic cuts and take us from the path to insolvency.
"With this vote behind us, it’s time to look to the future and strategize how best we can utilize our revenues to improve the lives of all Milwaukeeans.
"We look forward to working on a City of Milwaukee budget that doesn’t begin with a deficit and we can conclude with a major investment."
Milwaukee Alliance Against Racist and Political Repression:
Earlier today, Milwaukee’s Common Council voted in favor of adopting a 2% increase to the city’s sales tax - approved 12-3. Due to provisions in Wisconsin Act 12, the revenue generated by this sales tax increase can only be spent on paying off the fire and police pension. In future years, the revenue would need to go to hiring more police officers and firefighters.
The Milwaukee Alliance Against Racist and Political Repression recognizes Alderwoman Coggs, Alderwoman Pratt, and Alderman Chambers for voting against this measure. We also recognize the difficult position the Milwaukee Fire Department and general city employees were placed into. The Milwaukee Alliance continues to stand in solidarity with general city employees, who are supposed to benefit from this increase, though the presentations offered in the town halls failed to explain how.
However, we cannot, in good faith, agree with this sales tax increase. We attended the town halls held last week and last night and spoke with the people who attended. It is clear to us that the situation we are facing today was avoidable. The city officials presented a lot of information about how the sales tax would unfreeze certain funds that would cover the ballooning pension costs. City officials suggested the tax would save Milwaukee from jumping over the "fiscal cliff." Despite being told there aren’t any "apples to apples'' comparisons, we listened to fear mongering anecdotes about Detroit. It was used as a warning of things to come in Milwaukee should the sales tax increase be rejected.
What we didn’t hear, which participants in the town halls called attention to, was how it is largely due to the city’s mismanagement of the budget that brought Milwaukee to fiscal trouble. It has been this mismanagement that made Milwaukee vulnerable to the vulture demands of state officials, who were licking their lips at the opportunity to force Milwaukee into this lose-lose situation. This sales tax increase will, according to city officials, buy time and give Milwaukee the chance to fight another day. How are the people of Milwaukee to trust their words if for the past several decades, they have been slashing funds from important public services in order to expand the funding for the police department?
The sales tax increase is a band-aid solution, and it will not stop the bleeding. If Milwaukee is serious about moving the city away from this fiscal cliff, city officials must take a stand against the ever-increasing police budget and their pension. A lawsuit against the Milwaukee specific provision in Act 12 is a good step forward. Furthermore, to save Milwaukee from future situations like this, we will need to drastically reduce the spending on the police and increase funding for city services, public education, safe recreational opportunities, and other initiatives that keep Milwaukee communities safe. We can no longer afford to be at the whim of politicians who refuse to fund the needs of our people.