State Seizes Control of County Pension: What It Means for You

Starting January 1, a monumental shift is on the horizon for the Milwaukee County pension system as it gears up to be integrated into the State of Wisconsin framework. This pivotal transition means that all new hires will join the state pension system, marking a historic remedy to one of the nation’s most problematic government pension systems. Much of the credit for this game-changing move belongs to County Executive David Crowley.

Crowley’s political journey began over a decade ago as an aide to then-County Supervisor Nikiya Harris Dodd, where he first encountered the convoluted pension issue. “It was a hot topic at the county,” he reflects. “Everyone knew it was a colossal problem.”

The county’s pension woes gained notoriety after extravagant perks were approved between 2000 and 2001, leading some employees to pocket lump-sum payouts exceeding $1 million. This scandal drew national attention, highlighting the staggering long-term liabilities estimated at a whopping $1.35 billion. Legal rulings made it clear that once these benefits were granted, they were untouchable, leaving the county reeling under an unsustainable financial burden that stifled funding for essential services like parks and public transportation, as previously reported.

Upon taking office as county executive in April 2020, Crowley faced the daunting legacy of these financial troubles head-on. “We couldn’t invest in county services without addressing the pension crisis,” he stated. “Our system was upside down, with more retirees collecting benefits than there were current employees contributing.” Recent data shows a staggering ratio of 2.58 retirees for every active employee.

Recognizing that the solution lay in Madison, Crowley spent over two years passionately lobbying Republican leaders to enact a dual proposal: increasing the county sales tax to support pension costs and allowing the state to take over the county pension system. When Cavalier Johnson stepped into the mayoral role in December 2021, he aligned his objectives with Crowley’s vision, advocating for a similar sales tax increase for the city and a state takeover of its pension system, which was also facing unsustainable deficits.

While the push for sales tax adjustments garnered significant attention, the proposed overhaul of the pension systems was arguably the most transformative aspect. Both the county and city pension plans, established in 1937, predate the state pension system, which kicked off in 1943.

Over the years, the state system expanded significantly, absorbing various local retirement funds, including those for police, firefighters, and educators. By 1967, all government pension funds in Wisconsin, except those in Milwaukee, were consolidated into the Wisconsin Retirement System (WRS). Today, WRS ranks as the 25th largest in the world and the ninth largest in the U.S., surpassed only by larger states like California and New York.

Not only is the state pension system recognized as one of the best-managed government pension systems in the country, but Milwaukee County’s system has become notorious for its mismanagement and underfunding over the past three decades.

The complexity of the county’s pension regulations, with over 400 classifications of employees, has made reform nearly impossible. “The system is so convoluted that payment errors are frequent,” Crowley admits. Previous audits revealed staggering discrepancies, including $11 million in underpayments dating back to 2002 and $26 million in overpayments.

A 2018 task force on the pension suggested exploring a state takeover, a proposal supported by Supervisor Sheldon Wasserman. However, state officials were hesitant, viewing it as too much of a risk. “They were adamant: ‘We don’t want you guys,’” he recounted.

Yet, through persistent negotiations, Crowley and Johnson struck a deal with Republican legislators: the state would assume the pension obligations for all future city and county employees, transferring them to the state system along with its rules and benefits. This move not only simplified the situation for state officials but also allowed Milwaukee’s pension systems to escape their convoluted past.

This solution, initially recommended by the county pension task force in 2018, still left a pressing concern: how to fund the existing pension obligations. This is where the proposed sales tax increases come into play, enabling both the county and city to meet their current pension liabilities while transitioning to the state system.

It’s crucial to note that a significant factor contributing to the county and city’s funding shortfall has been the drastic reduction in state revenue sharing over the years. City and county officials have been vocal about this issue, but their pleas have often fallen on deaf ears with Republican legislators.

However, Crowley and Johnson’s approach emphasized a dual focus: “We presented a plan not just for new funding, but for comprehensive pension reform,” Crowley explains.

This strategy captured lawmakers’ attention, as both the county and city represent extensions of the state, making their unresolved pension issues a considerable liability for the Legislature. “Given that we are extensions of the state and the financial stakes were high, it had to be addressed to prevent an impending crisis,” Crowley notes.

Moreover, Crowley and Johnson were tackling a problem they did not create, which further strengthened their case for urgent action.

Eventually, a transformative deal was reached, receiving approval from the Legislature, the City of Milwaukee, and Milwaukee County in separate votes.

For Milwaukee County, this agreement staved off the threat of fiscal disaster and a potential state takeover. It also signals the likely conclusion of the county’s 87-year-old pension system.

As Crowley states, “This is a critical moment. The sales tax will enable us to bolster our pension contributions, reducing the county’s $100 million deficit to $30 million. This flexibility allows us to invest in parks, public transit, and community safety. While we haven’t resolved every issue, we’re certainly in a much stronger position now.”

The county board still needs to pass legislation to start enrolling new employees in the state pension system by January 1, but since the board has already greenlit the deal with the state, approval is virtually assured.

Currently, there are no immediate savings for the county’s pension system, which will still require management for its 12,400 members and over $1.7 billion in assets. Among these, 3,480 members are current employees, while over 8,900 are retirees. “We’re committed to preserving this system for those who dedicated years of service to earn their pensions,” Crowley emphasizes.

Considering some future retirees are now just in their thirties, the full phase-out of the county’s pension system could take another 70 years, reflecting the enduring legacy of the long-standing pension scandal.