Milwaukee council approves sales tax hike as part of plan to avoid bankruptcy

The sales tax in Milwaukee will go up 2 cents per dollar next year after the Common Council voted Tuesday to raise the rate as part of a bipartisan plan to avoid bankruptcy.

City leaders who pushed for approval of the higher sales tax warned of looming deep cuts to core services, including police and fire protection. Opponents objected to strings attached to additional state funding, including curbing spending on diversity, equity and inclusion efforts.

“The wolf is at the door,” Milwaukee Alderman Robert Bauman argued in support of the sales tax. “You can’t chase the wolf away anymore, and we are dealing with some serious challenges that have to be addressed.”

Milwaukee is struggling with an underfunded pension system and not enough money to maintain essential police, fire and emergency services. Milwaukee has increasingly become reliant on federal pandemic aid to fund its essential services, which city leaders have said cost $150 million more per year to maintain.

The state Legislature and Gov. Tony Evers negotiated for months over a deal signed into law last month that gave the city the option to raise the local sales tax to help it avoid insolvency in 2025. The bill signed by the Democrat Evers, and passed by the Republican-controlled Legislature, boosts state aid to local governments by $275 million and ties future aid payments to the state sales tax.

Leaders, including Milwaukee Mayor Cavalier Johnson and U.S. Rep. Gwen Moore, who represents Milwaukee, urged adoption of the higher local sales tax to avoid bankruptcy like Detroit in 2013. They warned of catastrophic cuts including laying off 700 police officers, 250 firefighters and 400 other city workers. They also warned of possible library closures and reductions in other basic services like trash pickup and snow removal.

The Milwaukee Common Council voted 12-3 on Tuesday to approve the higher sales tax. That was two more than the two-thirds majority needed to succeed.

Alderwoman Andrea Pratt argued against raising sales taxes, saying it would disproportionately affect those on fixed income.

“I do not want to see us fail,” she said. “I also do not want to save a city by rejecting citizens.”

The state sales tax is 5%. If the county goes along with the city and approves the higher sales tax rate, sales taxes in the city of Milwaukee would be 7.9%.

The additional sales tax in the city of Milwaukee will bring in nearly $200 million more in revenue next year, which the city has to use to pay for its pension and to increase the number of police officers and firefighters.

Milwaukee was the only city of its size in the country without the power to raise its own sales tax before the Legislature granted it the power to raise the rate by 2%. However, many Democrats and city leaders complained that the plan came with too many strings attached, keeping the success of Tuesday's vote in doubt until the last minute.

Those include limiting funding for diversity, equity and inclusion efforts and Milwaukee's streetcar, requiring police officers to return to Milwaukee Public Schools and requiring a minimum level of police and firefighter staffing.

Council members criticized those provisions, which took effect regardless of whether the sales tax increase won approval.

Bauman called the mandates imposed by the Republican-controlled Legislature “outrageous,” and had “an air of racism about them.”

“They caused many of us to have a sense of anger, sadness and even depression," he said.

Milwaukee County, which also faces the potential of deep cuts, was also given the power to nearly double the current 0.5% countywide sales tax to 0.9%. The county board was expected to vote on that this summer.

Detroit's bankruptcy loomed over the debate about what to do in Milwaukee.

Detroit was the largest municipal bankruptcy filing in U.S. history. The city emerged from bankruptcy in December 2014, having restructured or wiped out $7 billion in debt. Detroit was forced to follow a state-monitored spending plan and has been able to build cash surpluses.

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