It seems that there is some cause for increased optimism as the county moves forward. A labor agreement with the county's largest union is a positive development, for example. It ensures that no one will be eligible for another lump sum backdrop pension payment, thus controlling a key cost in previous budgets.

Additionally, the county has made progress with one of the most significant cost issues facing both governments and private sector businesses throughout Southeastern Wisconsin: ever increasing health care costs. Although there is still much room for improvement, administrative changes to the county's health care plan and agreements with the labor unions have saved some money. In addition, the 2008 recommended budget includes a Wellness and Disease Management program, which is projected to decrease costs in the future.

Strategic Planning

One key sign of hope for the future is the inclusion of a strategic planning process in the recommended budget. The inherent problem with annual budgeting is that it encourages government officials to think short-term and to concentrate only on balancing the coming year's budget. This is often achieved with quick fixes such as withdrawals from reserves, deferment of annual maintenance, or dependence on one-time revenues for ongoing expenses. Such actions might balance the yearly budget, but they cause structural deficits (the gap between likely ongoing costs and dependable long-term revenues).

A carefully constructed strategic plan is a good step toward solving structural imbalances. A strategic plan allows a government to identify both reliable revenues and a realistic cost-to-continue budget, and to develop its funding priorities. The government can then use this plan in its yearly budget process to make spending decisions as part of an overall goal, rather than just to balance the budget.

In the past, the Public Policy Forum has encouraged the City of Milwaukee to be more strategic in its budgeting process. We have not been as vocal with the county because in the years since the pension scandal, the fiscal problems have been so immediate that they overshadowed the need for a long-term financial strategy. Now, while the county's fiscal problems are still real, they are not as pressing, and the need for a strategy is clear. We applaud the county for its realization of this need.

However, the county does continue to face some daunting fiscal challenges, although the "gloom and doom" moniker probably overstates the problem. Some of the more challenging problems are evident in the 2008 recommended budget.

"Un-Strategic" Budget Measures

First of all, while the included strategic planning process may go a long way toward establishing fiscal solvency in the future, there are some "un-strategic" proposals in the budget that contribute to the ongoing structural deficit. The County Board staff cites some of these concerns in its analysis of the recommended budget.

Capital spending has been declining over the past few years in an attempt to decrease debt; as a result, there is a real concern that needed infrastructure maintenance is being deferred. The County Board staff exemplifies this concern with its assertion that "major maintenance is virtually non-existent in this budget" in the parks department. While maintenance deferment may save money in the short term, the costs will continue to add up and become an unwieldy structural expense.

Another "un-strategic" measure cited by the County Board staff is the recommended budget's reliance on an increase in federal funds to offset the transit system's maintenance costs. The concern is that, while this covers necessary costs in this year's budget, increased dependence on these funds draws them down for the future. This funding source is projected to be depleted in 2009 or 2010, and there seems to be no plan for an alternate funding source.

Pension Obligation Bonds

One of the reasons for optimism cited by the county executive in his state of the county address was the plan to take out debt to fund the pension liability in the form of pension obligation bonds (POBs). This plan has many advantages: the interest expenses would be reduced, the pension would be funded, and a reserve account would be created to possibly pay off the debt ahead of time.

However, the bonds have not materialized yet. The county executive included this proposal and the related savings in his 2007 budget. The County Board formed a work group to formalize a proposal with the expectation to approve something in 2007. The proposal is now included in the 2008 recommended budget with the hope that something will be finalized next year.

The single greatest opportunity for the county's future fiscal solvency is the strategic planning process presented in the 2008 recommended budget. Strategic planning is about prioritizing. In order to be successful, county officials will need to prioritize spending. In other words, they will have to decide what the county can afford and how to pay for it.

The county is significantly hamstrung by unfunded and underfunded state mandates. This is evident throughout the budget, although the county seems to be at a loss as to what to do about it. County officials have been lobbying the state for years to fund its mandates, without results. In fact, the costs to the county of these mandates continue to rise. In response, cuts have been made to administrative spending and to non-mandated services. This cannot continue; in this budget alone, bus hours are cut more than 9%, and parks maintenance continues to be underfunded.

The reality is that the county is an arm of the state and it has to provide the services required by the state. However, the county should not have to go bankrupt to provide these services. Without a substantial increase in revenues, this may require giving up some non-mandated services. This reality needs to be the starting point of the county's strategic planning process.