Madison projects $18 million budget shortfall for 2022

“We need to ask ourselves serious questions about whether or not we should be in the business of providing certain services,” the mayor said in her message as managers begin to craft budget proposals for 2022.

“We need to ask ourselves what changes we made during the pandemic should become permanent. I am calling on all of you to do what families in our community do every day — focus on the essentials.”

The city, which has a $349.5 million operating budget for 2021, projects $346.5 million in revenue but $364.4 million in expenses to continue services and meet commitments in 2022, leaving the $18 million shortfall, city finance director David Schmiedicke told the Finance Committee on Monday.

More than half of the gap is due to one-time measures used to balance the 2021 budget — $8 million from the city’s “rainy day fund” and $1.2 million in one-time compensation reductions, temporary delays in filling vacant positions, and other short-term strategies, the mayor said in her budget message.

“In other words, because we addressed so much of last year’s budget gap with temporary measures, we must readdress that gap plus the additional gap arising each year from our structural deficit challenge,” she said.

In her message, Rhodes-Conway said agencies will receive budget targets consistent with cost-to-continue funding levels and that agencies can reallocate funding across services so long as the overall agency amount is in line with the target.

All enterprise agencies — such as the Water Utility or the city’s golf courses that are generally expected to cover their costs from the revenue they generate — must submit operating budget plans consistent with current revenue projections for 2022, she said. Agencies projecting revenue shortfalls for 2022 will need to present a base budget that includes spending reductions to meet available revenue.

All General and Library Fund agencies, which include the vast majority of city services, are being asked to present budget reductions of 5%. Public Health Madison and Dane County, which has been responsible for the local coronavirus response, is exempt from submitting a reduction scenario.

Enterprise agencies that don’t receive a subsidy from the city do not need to submit a budget reduction, Rhodes-Conway said.

Schmiedicke said the cuts need to be “ongoing, permanent reductions” rather than one-time cuts for just 2022.

Managers should prioritize services and consider ending those of limited value or effectiveness, Rhodes-Conway said.

The mayor said racial equity and social justice “should be at the forefront of everything we do” in the 2022 budget and that managers should consider how reducing the city’s impact on the environment could also save money.

Agencies are being told not to account for costs related to absorbing much of the town of Madison in November 2022, because those will be part of the mayor’s proposed budget.

Federal relief

The $47.2 million that the city will be receiving as part of the federal American Rescue Plan, or ARP, should help make the city’s budget situation less dire, but doesn’t solve all the problems. The funding can go toward costs — including making up for revenue losses — from March 3 through Dec. 31, 2024.

Areas the money can go to include containing and mitigating COVID-19, mental health needs, bonuses for public-facing employees who have been responding to the pandemic, and addressing negative economic impacts, such as the losses seen in the tourism and hospitality sector, Schmiedicke said.

The federal relief money can’t be put into the city’s “rainy day fund” or used to pay off the city’s debt, Schmiedicke said.

Challenges ahead

The Finance Department calculated that Madison has lost so much revenue that the entire $47.2 million could be spent on maintaining government services over the next three years, if the City Council and mayor choose.

Rhodes-Conway said it’s going to be challenging to determine how to spend it. She said it would be “irresponsible” to not use some of the funds to address revenue losses because portions of the city budget are “in pretty dire straits.” But she also said there are “deep needs in our community that we need to address as well.”

She emphasized that the federal relief is “one-time funding” and can’t go toward establishing new ongoing programs or hiring new permanent staff. Those kinds of moves would set up even more of a budget gap in future years.

“It’s going to be a difficult balance for us to strike,” she said.