RACINE — The 2020 budget discussion kicked off on a grim note, with a presentation by Finance Director David Brown and City Administrator Jim Palenick about the city’s financial state and the challenges ahead.
Palenick and Brown’s general thesis was that while the city’s expenses, predominantly in the form of staff wages and benefits, continue to rise, revenues remain stagnant, which puts the city in a tight spot planning for 2020.
“It won’t be easy,” said Palenick. “We’ll have difficult decisions to make but we have to face them. We don’t have a choice.”
Where does the money go?
Fifty percent of the city’s budget is allocated to public safety salaries and benefits, namely police and fire, which will receive a 1.25% salary increase on Jan. 1 and July 1 as laid out by their contracts.
All other city staff salaries and benefits comprise 29% of the budget. Other than the steps and pay grades laid out by the city, any other increase—such as for cost-of-living—would need to be approved by the City Council. But both sets of employees, public safety or not, are going to cost the city more in 2020.
In 2020, the Wisconsin retirement system is raising the employer contribution rates from 6.55% to 6.75% for general employees, from 11.72% to 12.25% for police and from 16.12% to 16.85% for fire.
Health care costs will also probably rise. The City of Racine is self-funded for employee healthcare costs and unless changes are made to city employees’ healthcare plans, Brown estimated that expenditure will increase by $2 million in 2020.
The city has maintained a health care reserve fund but over the years, as costs have risen, those funds have been depleted. For 2020, the reserve fund is down to $1.6 million.
One solution Palenick suggested is a change in the health care plan to a higher deductible with health care savings accounts so employees will have to cover more of their health care costs.
The rest of the general fund’s expenditures makes up 21% of the city’s budget.
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Palenick stressed that year after year city staff has tried to find ways to cut costs but that he fears they’ve run out of easy fixes.
“At this point there’s very few low-hanging fruit left,” said Palenick.
Need for growth
Forty-one percent, the lion’s share, of the city’s revenue comes from shared revenue and aide from the state. State aide to the city dropped precipitously in 2012 and has remained relatively flat since.
Alderman Trevor Jung of the 13th District asked if this year’s budget was any different. Palenick said there were some changes, such as a slight increase in transportation aide, but Palenick said they would have “a very limited impact on our budget.”
What the city desperately needs is growth. According to state calculations of net new growth, the City of Racine had the second-lowest percentage (0.14%) of net new growth in Racine County, just above the Village of North Bay which had 0% net new growth.
Palenick said valuations haven’t even bounced back to pre-2008 levels; residential valuations have made some recovery, but there’s been very little growth in commercial and industrial valuations. If property owners have felt they’re bearing the bulk of the city’s tax burden, that’s because, they’re right.
That low growth inhibits how much the city can raise tax rates according to the state law, though raising property taxes in an already high municipality could further inhibit growth.
“Bleak is the word,” said Jung, describing the overall situation.
Jung, who serves on the Racine Redevelopment Authority, pointed to the city’s “pro-growth strategy” which has focused on redevelopment. Palenick said their plan is to focus on the lakefront and riverfront, which the city sees as the areas with the most development potential.
But those projects are in the pipeline and Palenick said they’ll require incentives to counter the high tax rate in “an unproven market.”
In the meantime, Palenick said, the City Council will have to make some difficult decisions.