Mayor’s plan would boost staff, slow growth in taxes; but long-term imbalance still warrants solutions
Madison’s proposed budget for 2026 highlights the city’s financial turnaround, as the plan would increase staffing and service levels while limiting the city’s property tax increase to roughly the rate of inflation.
A key contributor to this newfound stability is an infusion of new revenue, including property tax dollars from a successful $22 million referendum approved by voters last November. An unexpected increase in state aid is another factor that gives the city of Madison a brighter budgetary picture than a year ago, when city officials were contemplating fee increases and cuts to city services if the referendum had failed.
Instead, Mayor Satya Rhodes-Conway’s proposal calls for increasing funding for services in key areas, such as library and paramedic staffing, to match Madison’s growing population. However, Madison residents and officials should not become complacent, our annual brief on the city budget finds. Madison Metro Transit is encountering financial challenges that have spurred a proposed increase in support from the city’s general fund. Meanwhile, overall spending continues to rise at a rate that outpaces both core city revenues and the pace of inflation.
“Despite a solid local economy and strong property values,” the report finds, “the city’s long-term finances are still fundamentally unbalanced.”
A key question for city leaders moving forward will be how to best use Madison’s reserves, which have grown to historic levels since the pandemic. The city closed 2024 with a total unassigned general fund balance of $110.6 million, an increase of $27.8 million that leaves the balance at more than 27% of the city’s general fund spending – well above its 15% target. Given this, some taxpayers in hindsight might question whether the $22 million referendum was larger than necessary.
Below are four keys the budget brief offers to understand the mayor’s 2026 budget proposal.
Key #1: City Would Limit Property Tax Increase to Preserve State Aid: After a property tax increase on December 2024 bills that was the largest in more than a generation, Madison home and business owners would see a more manageable increase on December 2025 bills. Last year’s referendum triggered a series of events that will deliver more state aid to the city in 2026 but also incentivize the city to limit spending increases to retain that aid. In 2026, thanks to a measure approved in the 2025-27 state budget, the city will see $2.4 million in additional payments from the state to help reimburse the city for services to state offices and University of Wisconsin-Madison buildings. Another boost will come from an unexpected $2.1 million increase from a state program that provides aid to municipalities that limit their spending growth. To continue receiving this aid in the subsequent (2027) budget, this year’s proposal would limit the city’s property tax increase to 2.7%, or about 1.5 percentage points lower than would be allowed under state limits.
Key #2: Madison Metro Turns to General Tax Funding: Current official ridership data show that Madison’s Metro Transit carries fewer passengers than before the pandemic, despite the rollout of the city’s new East-West Bus Rapid Transit (BRT) Line. However, city officials have implemented a new system for tracking ridership – not yet approved by federal authorities — which they say is more accurate and shows an increase in riders. In the meantime, the next city budget projects a 9.2% annual spending increase for Metro Transit to $84.6 million. Of that, $25.0 million would come from the city’s general fund — a $6.5 million increase that puts substantial pressure on Madison’s overall budget. Going forward, the city will likely need to consider additional options for balancing its transit system budget.
Key #3: Room Tax and Parking Funds Returning to Normal: Room taxes and parking fees were some of the most heavily impacted public revenues during the pandemic. Five years later, revenue from these sources has fully rebounded before adjusting for inflation. Both the room tax fund and the parking division in Madison are projected to collect enough revenue to cover their basic expenses and contribute to the city’s general fund, a welcome change from previous budgets. However, since revenues have not kept up with inflation, there is tension between the goals of promoting tourism and conventions in the city and using some revenues to pay for core city services such as public safety.
Key #4: Referendum Was No Permanent Fix: The November 2024 referendum made a permanent increase of $22 million over the state’s cap on city property taxes that were levied on December 2024 bills. Yet this large one-time levy increase has not changed the basic situation that led Madison officials to seek the referendum in the first place: the pressure on the city’s operating costs. Since 2011, annual growth in Madison’s general fund spending has averaged 4.5% — and the city simply cannot wring the same amount of growth out of its property tax levy, which accounts for 72.2% of its general fund revenues. The state limits yearly growth in the city’s operating levy to the annual percentage increase in its property values due to net new construction, which has averaged just under 2% in Madison since 2011. Notably, city officials can impose an additional increase in the levy to cover debt payments, but even accounting for these added amounts, a mismatch remains.
City officials deserve recognition for acknowledging this divide and putting forward a plan for addressing it over the next six years. Rather than cuts to spending, this plan would rely mainly on new and one-time revenues. It calls for using current tools available to the city – such as withdrawals from reserves — while lobbying state lawmakers for new options such as a city sales tax that would be similar to the one recently approved for the city of Milwaukee.
Whatever a permanent fix might ultimately be, it would come with real tradeoffs such as a greater tax burden on residents, reduced city services, or smaller raises for city employees. Even some of the most attractive options, such as working with other local governments to deliver services more efficiently, would be only partial solutions and still would involve some measure of compromise and accommodation.
Click here to read the full report.
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