It's nearly impossible to find any bright spots for Milwaukee in Gov. Scott Walker's proposed budget and the recently passed—although legally challenged—budget repair bill.

While Walker is promising that local governments and school districts would save more money from increased employee health care and pension contributions than they would lose in state support, that isn't calming those who fear for the area's future.

In addition to the fiscal changes in the governor's budget proposals, the policy changes in those bills will do harm to the area's economic health and quality of life. Since Walker's collective bargaining changes exempt fire and police unions, the city won't be able to reduce approximately two-thirds of its salary and retiree costs. Opening up the voucher system—which only affects Milwaukee—to more students and schools will compound the "funding flaw," which penalizes city homeowners, at the same time MPS will take an estimated $200 million hit.

Republicans also hope to eliminate the residency requirement for teachers, law enforcement and firefighters, which could lead to lower home values, destabilized city neighborhoods, the loss of property taxes and fewer jobs for city residents.

If there's a bright spot in the budget for Milwaukee, it's certainly quite dim and very far out on the horizon.

"I thought that it would hurt the city," Milwaukee Mayor Tom Barrett said of his initial view of the budget. "And our analysis shows that it will hurt the city of Milwaukee and the residents of Milwaukee."

City Questions Walker's Calculations

On Tuesday, Milwaukee Mayor Tom Barrett sent a letter to Department of Administration Secretary Mike Huebsch and Bob Lang, the director of the nonpartisan state Legislative Fiscal Bureau, questioning the state's estimate that the city would save $19.53 million if the health and pension concessions are enacted. The city's budget office found that the city would save $14.24 million in employee concessions, or $5.3 million less than the state's estimates.

Why is that so significant? Because the state is cutting aid to Milwaukee by $17.7 million. Included in that figure is the elimination of $3.3 million for recycling, reduction of support for fixing and maintaining local roads and general shared revenue cuts.

If the city's estimates are correct, Milwaukee will be a net loser to the tune of $3.5 million if the budget is enacted as is. That would increase the city's structural deficit from $30 million to about $33 million, according to the city's calculations.

"All departments are going to be affected by this," Barrett said.

Walker, of course, is capping local property tax increases at the net amount of new construction in the area. According to Dennis Yaccarino of the city's budget office, that was 0.7% last year, or about $1.7 million—not enough to cover the cuts in state aid.

Barrett won't be able to increase fees to close that gap, either, since fees cannot exceed the cost of providing services such as snowplowing or garbage removal.

"It's difficult for us to deal with the budget concerns when Walker is telling us that we can't have a levy increase, which is something that I don't want to do, but would have to do if our hands are tied in every other way," Barrett said.

Legal Challenges Could Radically Alter Local Budgets

All of these figures, of course, hinge on whether Walker's budget repair bill, which eliminates collective bargaining rights for most public employee unions, is upheld in the courts. The Dane County district attorney won a temporary restraining order last week, preventing the bill from being published for now. State Attorney General J.B. Van Hollen is appealing that decision, but other legal challenges are pending. Even Milwaukee City Attorney Grant Langley has questioned the constitutionality of the law because it violates the municipal home rule provision in the state Constitution.

It's sort of a damned-if-you-do, damned-if-you-don't situation. Walker is cutting state aid, but says those cuts can be filled through the mandated employee concessions. But if the employee concessions are not upheld in the courts, then Walker's budget doesn't work. That would mean that the city—as well as other local governments and the state itself—will be in very dire straits.

Specifically, if the bill to destroy collective bargaining rights survives, then the city would have an additional $3.5 million hole next year from the imbalance between the state aid cut in the budget and the collective bargaining changes in the stand-alone budget repair bill.

But if the collective bargaining law doesn't survive those legal challenges, then Milwaukee will be in an even worse financial situation, since the non-public-safety employee unions wouldn't be forced to make health and pension concessions. The budget office's Yaccarino estimated that the city's structural budget gap would likely grow from $30 million—half of which is increased costs for fire and police compensation—to $48 million or $50 million next year. The cuts in city services would be crippling.

The Cost of the Cuts to Education

Walker is eliminating roughly $900 million from public education statewide, or about 9% of current funding. That would result in a $74 million hit to MPS—and the cuts don't end there. Once the loss of categorical aids provided by the state—such as funds for preschool, math experts, advanced placement programs and school breakfast—are figured in, as well as the loss of federal stimulus funds, MPS predicts that it will have to absorb a $200 million loss next year. And that's a conservative estimate.

But MPS faces other challenges, which also spill over into the city's troubles. At the same time Walker is decreasing funds for public education, he's expanding the Milwaukee Parental Choice Program (MPCP), failing to fix the program's "funding flaw" and eliminating the requirement that teachers live in the city.

MPS is the only school district in the state that has to compete with and raise property taxes for another school district, the one made up of the largely unregulated voucher schools. As a result of a complicated funding formula, city of Milwaukee residents pay extra property taxes for the voucher program. The average homeowner currently pays an additional $166 to support the voucher program, or roughly $36.5 million citywide, according to the city budget office's Yaccarino.

Barrett said that voucher enrollment is expected to rise 2,500 students per school year, although he said that's a conservative estimate. And, as Yaccarino explained, the more students who use vouchers, the worse the program's funding flaw becomes. Therefore, city property taxpayers will likely pay more than the extra $166 to fund the expanded voucher program next year.

Walker's budget isn't helping the city's tax base, either, since he and his Republican allies would like to eliminate the residency requirement for teachers, law enforcement and firefighters. Barrett has claimed that the city could lose more than half of the city's police officers and teachers to surrounding suburbs, a huge blow to the city's property tax base.

Barrett said he wasn't aware of any budget items that would ultimately help Milwaukee grow its economy. But he's hopeful that recent talks with Department of Commerce Secretary Paul Jadin and Department of Workforce Development Secretary Manuel Perez could result in something positive. He said the budget, as it stands now, deals a big blow to the city, where 73% of the region's low-income residents live.

"When you take into consideration the cuts to the city, the schools, transit and BadgerCare, this will have a huge impact on the city and the state," Barrett said.