Minor property tax cut = bigger hurt in future budgets

One of the attributes of Scott Walker’s proposed budget is another provision that could cut property taxes, estimated at about $5 a year on a median-valued Wisconsin home. Like what was done last year with technical colleges, this will be done by increasing a state aid provision that goes directly to reducing levies on schools. And just like last year, it’s being done in a cynical, gimmicky way that will not help school services, and drives up the state’s deficit.

This time, the “property tax relief” mechanism is done through the state’s School Levy Credit. According to Walker’s budget, the School Levy Credit is increased for 2016, but the way it’s paid out is quite intriguing. This language comes from page 1030 of the 2015-17 budget bill.

In the 2016−17 fiscal year, the department of administration shall distribute $853,000,000 on the 4th Monday in July, 2016, related to the 2015 property tax levies, and $105,600,000 on the 4th Monday in June, 2017, related to the 2016 property tax levies.

SECTION 2535. 79.10 (7m) (a) 1. b. of the statutes is created to read:
79.10 (7m) (a) 1. b. In the 2017−18 fiscal year, and in each fiscal year thereafter, the department of administration shall distribute $747,400,000 on the 4th Monday in July, related to property taxes levied in the prior calendar year, and $105,600,000 on the following 4th Monday in June, related to property taxes levied in the most recent calendar year.

Having those extra payments come in July 2016 is noteworthy, as it means that the higher payments that go to the local governments as part of the school levy credit are delayed until the following fiscal year (2016-17). Then they backload the permanent increase of $105.6 million starting with June 2017 (also in the 2016-17 fiscal year), so the books balance in future years. This is done to try to make the 2015-16 budget seem balanced, but it also causes a larger-than-usual increases in expenses for 2016-17 ($958.6 millon), before settling at $853 million starting with the next budget. So that extra $105.6 million in payments help could well lead to yet another budget deficit that have to be repaired in early 2017, but Scotty’s planning to be out of town by then, so he can dump it on the next legislature and governor to clean up.

And a UW professor hit on an interesting point with this proposed school levy increase- some of the biggest beneficiaries of it won’t even be Wisconsinites. Andrew Reschovsky is the go-to guy in this state when it comes to analyzing the state and local taxation, and has studied the school levy credit and who pays it. He notes that Walker’s proposal would give much of its breaks to people such as FIBs with cabins up North, and other rich people with property in Wisconsin.

However, only about half of any increase in the credit would provide Wisconsin homeowners reduced property taxes on their primary residences, according to a study of the School Levy Credit by La Follette School economist Andrew Reschovsky.

"The School Levy Credit provides property tax relief to all owners of property located in Wisconsin, regardless of whether they are residents of the state," says Reschovsky, who is a professor emeritus at the University of Wisconsin–Madison and a fellow at the Lincoln Institute of Land Policy. "In practical terms, this means that under the governor's proposal, a large part of the property tax break goes to owners of commercial and industrial property and out-of-state owners of vacation homes."

"While these individuals and businesses might welcome a tax break," Reschovsky notes, "providing non-homeowners with property tax relief comes at the cost of less spending on public education."

In his study, which was published in State Tax Notes in February 2010 and as a La Follette School working paper, Reschovsky also found that "on a per student basis, the benefits of the School Levy Credit are much greater in property-wealthy school districts than in property-poor school districts."

So if you’re in a rural Wisconsin school district without a lot of those vacation homes or an urban district, you get basically nothing out of this levy cut. Actually, you might end up with less than nothing, because the $126.975 million in per-pupil aid adjustments to schools that’s going out this year drops to ZERO, with only $60 million in regular school aids added back for 2015-16 (by comparison, voucher schools and charter schools would see a $4.5 million increase in funding for next year- no favoritism there, noooo). Interestingly, this per-pupil aid resumes in 2016-17, and at a higher level of $141.9 million. These extra expenses indicate to me that the 2016-17 budget may be structurally out of whack in future years, especially if there is some kind of economic downturn or other reason causing the projected 4.2% growth in revenues to not pan out.

And I don’t see much leeway in the tight revenue limits on schools districts, so that will cap any potential property tax increase that may need to be imposed to make up the difference, meaning significant cuts for public schools next Fall. This is similar to the $406 million giveaway Walker and the WisGOP Legislature did for technical colleges, where the extra money was limited to property tax relief, and could not generally be used for other purposes such as instruction or reducing tuition. And just like with those tax cuts, this levy credit is also not paid for with extra taxes, raising the state’s deficit for this budget and future ones.

So this increase in the School Levy tax credit is yet another cynical Walker shell game, which gives a one-time small drop in property taxes at the expense of better services and a stronger bottom line in the state budget. I guess Scotty’s counting on the rubes to continue to be bought off, and to ignore the fact that their community’s quality of life and the state’s economic competitiveness goes down the drain.