Madison - Gov. Scott Walker's two-year budget would take the unprecedented step of eliminating a state requirement that communities operate recycling programs.

Walker's budget proposal also would eliminate all state subsidies to local units of government to pay for recycling and instead use those proceeds to finance a state economic development fund.

The proposal is the biggest change to the state's recycling program since items like aluminum cans and newspapers were prohibited from being thrown in the garbage starting in 1995.

The budget also would chop deeply into aid to local governments while preventing local officials from raising property taxes to compensate for the loss in aid - a combination that Milwaukee Mayor Tom Barrett and aldermen said could bring devastating cuts to city services.

Suburban county officials, meanwhile, were cautiously optimistic that cuts in aid would be offset by increased benefit payments from public employees.

As for recycling, local communities could still operate their programs under Walker's plan. But they would be running them without a state subsidy at a time of sharp cuts in state aid.

Milwaukee would lose $3.3 million a year in recycling aid, with no relief on tipping fees to landfills, said city economist Dennis Yaccarino and Ald. Michael Murphy, chairman of the Common Council's Finance & Personnel Committee.

At a City Hall news conference, Barrett said Walker "has continued his assault on any environmental program he can see," slicing into recycling aid just as he blocked funding of a high-speed rail line from Milwaukee to Madison and tried to restrict wind farms. "He doesn't want us to recycle."

The city's landfill costs could rise $2.5 million a year under this budget, Barrett said.

Lynn Morgan, a spokeswoman for Waste Management, also was sharply critical of the proposal.

"Wisconsin needs to grow recycling - and not gut it," she said.

Waste Management has invested $30 million to $35 million in recent years on a recycling infrastructure, including $24 million on a recycling plant in Germantown that opened in 2007.

The investment, she said, is recognition that garbage is a marketable product but needs mandates and state subsidies to flourish.

Mayor Mike Neitzke of Greenfield said that curbside recycling pickup is an "extremely popular program."

The city received about $200,000 a year from the state as a recycling subsidy. That money funds 2 to 2.5 public-works positions for curbside leaf pickup.

Recycling is part of a garbage pickup contract the city has with Veolia. Residents pay about $155 each for a single-family home for that service. If the $200,000 for recycling goes away, that could affect leaf pickup or other waste services, Neitzke said.

Walker spokesman Cullen Werwie said the cuts are part of the governor's efforts to reduce mandates on local governments to help local officials reduce costs.

It also helps Walker balance the state's budget deficit, he said.

Waukesha County would lose about $1.1 million it receives and distributes in the form of grants to 25 municipalities to help pay for recycling programs and state landfill fees, said Norm Cummings, the county's director of administration.

Although it will be a blow, Cummings said, the loss of the state money will not be the death of recycling in Waukesha County. Cummings said high prices for metals had enabled the county to build up some reserve funds.

"We understand there's a huge budget hole, and we've got to be part of the solution," Cummings said.

In 2010, local units of government spent about $110 million on recycling, state figures show. Grants from the state totaled $29.3 million, or about 27% of the cost.

Walker's budget also would cap county and municipal levy increases at 0% or the gain in property value from net new construction.

In Milwaukee, new construction boosted property values less than 1% last year, a figure that has changed little in recent years, Yaccarino said. And while the city held its levy flat for 2011, previous tax increases have been in the 3% or 4% range since Barrett took office in 2004.

At the same time, Milwaukee and other local governments have been bracing for big cuts in shared revenue and other aid.

With less state aid and little room to boost taxes, big cuts in services could be unavoidable, Barrett and Murphy said.

Barrett said Walker was pitting police officers and firefighters against other public workers. And by moving transit aid from the transportation fund to the general fund, he's pitting bus riders against BadgerCare users, Barrett said.

Although Walker said he would give local governments the tools to deal with the aid cuts by sharply limiting collective bargaining by public employees and requiring them to pay more for their pensions and health care, he exempted police and firefighters from those changes.

Because police and firefighters account for two-thirds of Milwaukee's pension and health care costs, "the tools he's providing are inadequate" to compensate for the aid cuts without slashing deeply into such other services as libraries, public works and public health, Murphy said.

Washington County imposed a 0% levy increase on its 2011 budget, although former Gov. Jim Doyle's levy cap would have allowed up to a 3% increase, Administrative Coordinator Doug Johnson said.

Johnson expects the impact of other major budget initiatives - specifically, boosting public employee contributions to pension and health care benefits, and cutting state aid payments - will offset each other.

Washington County will be able to cut its spending by as much as $1 million a year when county workers pay more for their benefits but it is likely to lose that much or more by cuts in state aid programs, Johnson said.

Additional retirement system contributions from Ozaukee County employees will reduce county spending by $1 million a year, Ozaukee County Board Chairman Robert Brooks said.

Brooks acknowledged the county will not be able to save that money since the state budget will trim aid payments to counties.

"We're hoping the budget bills will be revenue neutral over time," he said.

In Waukesha, where the Common Council passed a budget without a tax levy increase for this year, Walker's budget would mean another year of a tax freeze and difficult choices, officials said.

"We've been anticipating significant losses of state aid," City Administrator Lori Curtis Luther said. "As a parent I'm concerned about the impact (of Walker's proposal) on education. As a city administrator, we'll do the best we can to maintain service levels, but some difficult policy decisions are on the horizon here and across the state."

Journal Sentinel reporters Don Behm, Mike Johnson, Tom Tolan and Laurel Walker contributed to this report.