Milwaukee County greenlights sales tax hike in bid to dodge bankruptcy

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The Milwaukee County board voted Thursday to nearly double the county's sales tax, two weeks after the city of Milwaukee approved a local sales tax increase as part of a bipartisan plan to avoid bankruptcy.

Both the city and county, which make up the state's largest metropolitan areas, faced running out of money without additional revenue to pay for basic services such as police and fire protection, park maintenance and libraries.

Milwaukee leaders, together with a broad statewide coalition, successfully lobbied the Republican-controlled Legislature to increase funding for all local governments in the state by $275 million and tie future increases to state sales tax revenue under a plan signed into law by Democratic Gov. Tony Evers.

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Under that plan, Milwaukee County and the city were allowed to raise additional money through local sales taxes. The Milwaukee Common Council earlier this month approved a 2% sales tax. And on Thursday, the county board voted to approve a 0.4% sales tax increase, nearly doubling the current rate of 0.5%. Combined with the state sales tax rate of 5%, the total tax rate in the city of Milwaukee will be 7.9%.

The higher rates will take effect in January.

Both city and county leaders warned of dire consequences without the additional money that the higher sales taxes will generate.

The Milwaukee skyline as seen on the night of Sept. 6, 2022. (AP Photo/Morry Gash, File)

The additional money will allow the city and county to make additional payments to their underfunded pension systems. Milwaukee County alone faces a $760 million pension liability. City and county leaders also warned of reduced services, such as fewer bus routes, selling off public parks, less snow removal and potential library closures, and hundreds of layoffs of police and firefighters.

"Simply put, revenues fund public services," Milwaukee County Board Chairwoman Marcelia Nicholson said before the vote. "Without revenue, we cannot fund public services. ... Failure is simply not an option in my mind."

The higher county sales tax rate is expected to bring an additional $82 million a year to the county in the first year. That will allow the county to have a budget surplus instead of a projected $18 million deficit. But even with the additional sales tax revenue, the county is projected to have a $13 million funding gap in 2026.

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Critics of the plan argued it would hurt lower income people. Opponents also objected to strings attached to additional state funding for the city of Milwaukee, including curbing spending on diversity, equity and inclusion efforts.

County Supervisor Ryan Clancy said if the sales tax increase had gone to a vote of the people, it would have failed in the face of opposition from the poorest and working class residents. He pushed unsuccessfully for delaying a vote until a more detailed plan for how the money is spent could be prepared.

The county board voted 15-3 to approve the sales tax increase. It required a two-thirds majority, or 12 of the 18 supervisors, to succeed.

The law requires the money raised from the sales tax to go toward paying off the pension debt and public safety. The additional sales tax would end after the pension liability is paid off.

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Wisconsin state law does not allow for cities to declare bankruptcy, which means the Legislature would have to vote to allow the city or county to take that step if the city were to run out of money.