A new report from the Wisconsin Policy Forum found Mayor Satya Rhodes-Conway’s 2026 budget proposal represents a “financial turnaround” for Madison.
This finding contrasts with city officials’ worries last year about a potential major shortfall. The shift is thanks in large part to property tax dollars from a $22 million referendum approved by voters last November. If the referendum had failed, the Policy Forum said officials faced considering fee increases and cuts to city services.
Instead, the 2026 budget includes plans to increase staffing to city agencies, including the fire department and library system, and increases in service levels to complement Madison’s rapidly growing population.
In addition to the referendum, “an unexpected increase” of almost $5 million in state aid is contributing to the improvement in city finances over last year, said the report’s senior research associate Tyler Byrnes. In order to preserve that aid, the city plans to moderate property tax increases this December to “roughly the present rate of inflation.”
“However, Madison residents and officials should not become complacent,” the report warns. “Despite a solid local economy and strong property values, the city’s long-term finances are still fundamentally unbalanced.”
Byrnes said, over the next five years, city spending is likely to outpace property tax revenue, which accounts for the majority of revenue in the main fund. Byrnes said part of the mayor’s plan to deal with this “mismatch” is using Madison’s reserves, which the report says have “grown to historic levels since the pandemic.” By the end of this year, about 25% to 27% of the city’s annual budget will be in its reserves, Byrnes said. Madison closed 2024 with a total unassigned general fund balance of $110.6 million, an increase of $27.8 million, the report states.
“On one hand, that’s great. That helps ensure that we have a good credit rating and protects us in case there’s any big, unexpected loss in revenue,” Byrnes said. “On the other hand, we did have a big property tax increase (with the referendum) last year … so, some might question, ‘Did we really need to increase revenues given that we already have all this money in the bank?’”
The Policy Forum credits Madison officials with taking a “proactive step” by sharing a public six-year plan for helping the city address the ongoing imbalance.
“This plan seeks to keep the budget balanced using the current tools available to the city while they lobby lawmakers for new options such as a city sales tax that would be similar to the one recently approved for … Milwaukee,” the Policy Forum said in a news release.
Four key takeaways
The Policy Forum highlighted four takeaways from the 2026 budget proposal.
1. City would limit property tax increase to preserve state aid
After the largest property tax increase in “more than a generation” after the referendum, Madisonians would see a more modest increase in December 2025 because the mission of preserving state aid incentivizes the city to limit spending increases.
The Policy Forum outlined in its news release that, “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.”
The city will get another $2.1 million boost from the state’s Expenditure Restraint Incentive Program, which Byrnes describes as “a bonus that cities and local governments get for not expanding their spending by too much.”
The city plans to limit its 2026 property tax increase to 2.7% to continue receiving aid in 2027, although state law would permit an increase of as much as 4.2%. Despite the recent major property tax increase, Byrnes said the coming year’s will be “one of the smaller ones” in the last two decades.
2. Madison Metro turns to general tax funding
Madison Metro Transit revenue has not grown as quickly as costs, Byrnes said. Despite the rollout of the city’s new east-west bus rapid transit (BRT) line, the report said official data shows that the transit system has had fewer passengers than before the pandemic. Meanwhile, city officials said a new ridership tracking system not yet approved by federal authorities shows an increase in riders.
The budget projects a 9.2% annual spending increase for Madison Metro Transit to $84.6 million, the Policy Forum states. Twenty-five million of that would come from the city’s general fund — a $6.5 million increase.
“That puts substantial pressure on Madison’s overall budget,” the Policy Forum report said. “Going forward, the city will likely need to consider additional options for balancing its transit system budget.”
3. Room tax and parking funds returning to normal
Parking fees and room taxes (taxes on lodging rentals like hotels and Airbnbs) have fully rebounded before adjusting for inflation since taking a major hit during the pandemic, according to the report. Both the room tax fund and the parking division are projected to collect enough revenue to cover their basic expenses and contribute to the general fund, which the report calls a “welcome change” from previous budgets.
However, it points out that 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.”
4. Referendum was no permanent fix
The Policy Forum said the one-time increase on property taxes that accompanied last year’s referendum has not changed what led 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 would be 4.6% in 2026, Byrnes said. The Policy Forum said 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 because 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.”
The Policy Forum said the six-year plan, which mainly relies on new and one-time revenues rather than cuts to spending, provides a promising alternative. However, it explains that any permanent fix would come with tradeoffs such as a greater tax burden on residents, reduced city services or smaller raises for city employees.
“This (2026) budget was able to be balanced without massive cuts or new revenue sources,” Byrnes said. “The proposal has a strong position, has strong reserves, but going forward … future budgets may be more difficult without changes to what sort of revenues they can bring in and what sort of aid they get from the state.”
