Outdated Wis funding system is screwing communities big and small

A recent report from the Wisconsin Policy Forum reiterates that Wisconsin's traditional method of having local governments run on a combination of state aid and property taxes isn't sustainable, and it's gotten worse in the 2010s.

The Policy Forum report notes that Wisconsin communities have had their hands tied by not being able to raise property taxes much in recent years. This is despite costs and prices continuing to go up.

Given that Wisconsin relies heavily on the property tax to fund local government, it matters that the state also has relatively tight limits on its growth. The link between levy limits and net new construction was first established in 2005, when the rate of net new construction statewide was 2.82%; the rate has not reached 2005 levels since, and has been below 1.75% in every year since 2008.

In addition, state officials initially included a “floor” for the property tax limits that allowed local governments to increase their levies each year by the greater of their rate of new construction or a specified percentage, which was never lower than 2%. The floor was removed in 2011, however, tying increases—with some exceptions—to new construction alone.

In 2018, the statewide rate of net new construction (1.60%) barely surpassed the relatively low rate of inflation from January 2018 to January 2019 (1.55% as measured by the Consumer Price Index). Less than a quarter of all municipalities had rates of net new construction above the rate of inflation, including only seven of the 20 most populous cities and villages (Madison, Kenosha, Eau Claire, Janesville, Wauwatosa, Wausau, and Menomonee Falls).

The Policy Forum notes that the problem is especially acute in Northern Wisconsin, where there hasn’t been a lot of new construction in recent years.

Since 2014, the south central portion of Wisconsin—which includes Madison, Janesville, and Beloit—has had the highest rate of net new construction of any part of the state; 2019 was the third straight year that the region enjoyed a rate above 2%. The west central region of the state (Eau Claire, La Crosse, and Wausau) had a rate of 1.85% in 2019, its highest since 2008 and the only other regional rate to beat inflation. The northern region (Superior, Minocqua, and the Northwoods) had a rate of just 0.85% and remained under 1% net new construction for the 11th straight year….

A similar story can be told at the county level. Clark, St. Croix, and Dane counties had the highest rates of net new construction, and represented three of just 22 counties that outpaced inflation. Meanwhile, none of the 20 counties located north of Wausau had net new construction rates above 1.5%.

Graph courtesy of the Wisconsin Policy Forum

Governor Evers tried to restore the 2% floor for property tax limits in his first state budget, but that was removed along with a number of other items in May by the GOP-controlled Joint Finance Committee. So Wisconsin communities will have to deal with these constraints in the coming months as they debate their budgets for 2020.

Another complication that the Policy Forum notes is that Wisconsin’s system is set up in such a way that increased property values do next to nothing in terms of adding flexibility to those local governments. As a result, this requires a cut in property tax rates, despite the property being more valuable and theoretically in need of higher levels of service and protection.

What results is a flawed system that can increase the divide between have and have-not communities in Wisconsin, especially ones that can’t sprawl any further and/or have reasons for construction. Which makes the Policy Forum ask for a better way for Wisconsin to fund its local governments.

Statewide equalized values have increased for six straight years, and the majority of the state’s population now lives in a municipality or county where land is valued higher than ever before, at least in nominal dollars. That said, even in a strong period of economic growth, the increase in property values from net new construction remains below pre-recession levels.

The slow and uneven growth in new construction raises the question of whether the state should reconsider its use as the sole factor in limiting the growth in property taxes. Tying tax increases to net new construction has slowed the growth of municipal and county levies to the benefit of property owners. However, linking increases year after year to a factor that lags inflation for many Wisconsin communities makes it difficult for them to maintain service levels over time.

In addition to stagnation in our smaller, rural communities, we also see stories like this out of our state’s largest city.

For months now transit officials have been warning that the system faces a $5.9 million budget deficit for 2019. Unless the fiscal reality changes, MCTS says the following route cuts and service changes will likely occur in 2020:

· 6 Freeway Flyer routes – 40, 43, 44, 46, 48, 49
· 4 UBUS Routes – 40U, 42U, 44U, 49U
· 5 Shuttles – 17, 137, 219, 223, 276
· Route 52 Clement – 15th Avenue

In addition, two lines would be shortened: Route 55 along Layton Ave. would no longer have service west of S.76th St. and Route 80 along 6th St. would no longer have service south of MATC South Campus.

Look, maybe these are scare tactics during a Milwaukee County budget cycle that happens to fall at the same time as the County’s contract negotiations with the union that represents MCTS workers reach a decision point.

But it’s worth mentioning that MCTS had its state aid cut by 10% in Scott Walker’s first budget, and didn’t get any more aid until this current budget – a tepid 2% increase of $1.28 million that leaves it well below what it was getting nearly a decade ago. And MCTS points directly to that lack of support from the State Capitol in Madison as a reason behind the possible cuts, and asks for that to change.

In its statement Tuesday, MCTS included language supporting the county’s ‘Fair Deal’ initiative.

. It noted that funding for transit services has stagnated while costs have risen due to annual inflation. This is the general impetus for the ‘Fair Deal’. Each year, the sales and income tax revenue flowing from Milwaukee County to the state grows greater and yet the state’s “shared revenue” formula to send back some of this money to local governments has declined for the last two decades or so.

Right now, Milwaukee County has an ongoing annual structural deficit of $12 million. It has a projected budget deficit for 2019 of $28 million. By 2023, that deficit will be nearly $80 million. By that time, the capital backlog will be nearly half a billion.

This Fair Deal proposal came out of Milwaukee County in January, and if you look at it, it includes proposals such as :

1. Allowing the County to levy its own sales tax and/or get state aid returned to it more proportionally to what it takes in.

2. Asks for the state to share more of the costs of the Sheriff’s Department’s patrols of interstate highways. Milwaukee County also warns against the state pawning off the costs of the new regional juvenile facilities that will replace Lincoln Hills (which the state is reportedly $55 million short on).

3. Not cut off state aid in other areas to make up for this extra flexibility and/or state funding. This would be similar to something GOPs in the Legislature tried to do in this budget by increasing funds for Milwaukee’s child welfare program but cutting $14 million in state aid to the County as a result (Governor Evers vetoed that absurdity).

This is especially true because Milwaukee County was by far the largest attractor of tourism dollars in the state last year (surpassing $2.1 billion in direct visitor spending). And that was without 12 full months of the FiServ Forum being open, and before Milwaukee grabs massive amounts of visitors due to the 2020 Democratic National Convention.

It seems like a logical time to let Milwaukee keep more of that money, and use it to put in needed upgrades in infrastructure and quality of life in other parts of the City and County.

And it's not like our Legislature couldn't allow this to happen. There are already 7 communities in Wisconsin that have a Premier Resort Tax, all located in smaller, tourist-based communities that require more services than full-time residents can deliver. And bills have already been introduced this session to allow the Western Wisconsin communities of Prescott and Pepin, and the tourist towns of Minocqua, Tomahawk and Sturgeon Bay to put in their own Premier Resort Tax.

Look WisGOP, if you want Milwaukee and other parts of the state to have less state funding and have to take up more of the cost of services, then you have to allow Milwaukee and these other communities be able to make up the difference. Otherwise, it is a recipe for dysfunction and decline.

And if you think it’s bad now, wait until the recession comes and limits tax dollars even more. If this state is stupid enough to ever give power back to the Republicans, you know they will look to handcuff Milwaukee even more than it already does, while continuing to try to give their dying, red-voting communities more tax dollars and additional freedom to come up with funds.

Why not put us all in the same boat, and allow ALL local governments to have more flexibility in raising revenues to allow them to provide for services? Might as well do it now before the disasters strike.