Assembly's rural broadband tax cut showcases another WisGOP two-step of BS

Tomorrow the State Assembly is going to have another floor session. And one of the bills being discussed would have generally positive effects on computer speeds in rural Wisconsin, but might indirectly raise property taxes for the customers of that upgraded computer service.

The state’s Legislative Council describes how telecommunications companies would get a write-off on their property taxes for new activities dealing with providing rural broadband.

Under current law, the real and tangible personal property of a telephone company that the Department of Revenue (DOR) determines is used more than 50 percent in the operation of the telephone company is not subject to general property tax. Rather, such property is subject to a specific tax collected by the DOR (“telephone company tax”) unless an exception applies.

2019 Assembly Bill 344 adds “qualified broadband service property” to the current list of telephone company property that is exempt from the telephone company tax. For purposes of the exemption, qualified broadband service property is defined to mean either:

Tangible personal property installed before 2020 that is used to provide internet access to rural areas at speeds of at least 25 megabits per second download and three megabits per second upload.

Tangible personal property installed in 2020 or later that is used to provide internet access to rural or underserved areas at speeds of at least 25 megabits per second download and three megabits per second upload or certain download and upload speed benchmarks designated by the Federal Communications Commission, whichever are higher.

Interestingly, under the amended bill that the Assembly will discuss, new services and infrastructure will get their taxes written off before providers that already are providing this type of broadband service.

In general, the amendment incentivizes new installation in rural and underserved areas by providing a tax exemption on such property four years before the exemption for existing property in rural areas may be claimed. Specifically, the exemption for eligible property installed in 2020 or later in rural and underserved areas first applies to property tax assessments beginning on January 1, 2021. The exemption for eligible property installed before 2020 in rural areas first applies to property tax assessments beginning January 1, 2025.

To back up, the Legislative Fiscal Bureau looked into this bill when it went through the Joint Finance Committee a couple of weeks ago, and noted that under current law, phone companies and other telecommunications businesses don't pay property taxes, but instead pay a tax to the state's Department of Revenue.

Due to their unique nature, most public utility property in Wisconsin is exempt from local property taxation, and instead, public utilities are subject to state taxation. The Department of Revenue (DOR) administers the state public utility taxes. The tax on telephone companies is a state property tax, where the value of telephone company property is determined based on the municipality where it is located and multiplied by the net property tax rate of the corresponding municipality. For tax year 2018, state taxes on telephone companies totaled $67.2 million, based on an assessed value of $3,321.4 million, which included $2,993.1 million in personal property.

As the bill is written today, the LFB said it would lead to a lot more property that not only won't be assessed and taxed by local authorities, but will lead to a few million dollars for the broadband companies.

As noted above, the taxable value of telephone company personal property equaled $2,993.1 million in 2018, and just over half of that value is estimated to be in rural areas. Further, of that property, 67.25% is estimated to be broadband service property, and 33.50% is estimated to be qualifying broadband. Therefore, 11.35% of all telephone company personal property is estimated to qualify for the exemption (50.37% x 67.25% x 33.50% = 11.35%). Between 2018 and 2020, the value of telephone company personal property is estimated to increase by 4.61%, as investments in new equipment exceed depreciation and retirements. Based on these assumptions, the value of property exempted by the proposal is estimated at $416.8 million in 2020 and $454.8 million in 2021, and the corresponding tax reductions are estimated at $8.0 million and $8.7 million. On a state fiscal year basis, general fund tax collections are estimated to decrease by $11.8 million in 2020-21 and $9.1 million in 2021-22. A one-time effect in 2020-21 results from the difference between the tax year and fiscal year.

Fiscal Effect of Substitute Amendments. Based on the preceding analysis, the substitute amendments would reduce telephone company taxes by an estimated $1.5 million in tax year 2021. As more qualifying property is placed in service over the ensuing years, the tax reduction would increase each year and equal an estimated $5.5 million in tax year 2024. After the second exemption takes effect in the ensuing year, the tax reduction is estimated at $10.6 million in tax year 2025 and $11.3 million in tax year 2026. On a fiscal year basis, the decrease in GPR tax collections is estimated at $2.3 million in 2021-22, $3.5 million in 2022-23, $4.9 million in 2023-24, $6.0 million in 2024-25, and $13.0 million in 2025-26.

On a related note, if state plans for broadband expansion are followed, a whole lot of new infrastructure would get this exemption starting next year. As noted by the LFB, Wisconsin is slated to greatly increase the amount of broadband grants for underserved areas over the next 2 years.

You may remember that the broadband grant program came up a couple of weeks ago in Joint Finance because the Evers Administration wanted to add another individual to evaluate and administer the increasing amount of grants.

PSC staff argue an additional 1.0 position remains necessary to adequately complete all tasks associated with grant management, including: (a) monitoring activities under open grants; and (b) drafting grant amendments to address changes in projects. PSC staff contend additional grant oversight is needed to maintain sufficient fiscal controls of grant expenditures. PSC staff also note the number of grants awarded each cycle has generally increased, particularly as additional funds have been appropriated to the program. Although grant awards have not yet been made for the 2019- 21 biennium, Commission staff expect that the total amount of awards will be larger, and the complexity of projects will be higher, as remaining unserved or underserved areas likely require relatively larger allocations of funding to establish broadband infrastructure.

That request was rejected by Joint Finance co-chairs John Nygren and Alberta Darling, who said Evers needed to find positions to eliminate that would offset the new job dealing with broadband grants. This is despite the fact that the position would have been paid for from money that the Public Service Commission already has, with Wisconsin taxpayers or companies not paying an extra DIME.

Remarkably, both Darling and Nygren voted to expand this property tax write-off for companies that provide rural broadband in the same meeting where they rejected Evers’ request for more people to oversee the rural broadband program. So now rural residents might have to wait longer to get rural broadband, because the grants can’t get processed as fast. At the same time, they pay higher property taxes because the property that the telecom company uses to supply rural broadband is taken off the tax rolls, and now this bill gives those broadband companies an extra tax break!

But small-time insurance salesman John Nygren keeps telling us that Republicans are the party that looks out for small-town Wisconsin.

I call on my democrat colleagues, especially those in rural northwestern WI, to put partisan politics aside and support expanded access to mental health services in their hometowns. Some things are bigger than politics.

— John Nygren (@rep89) November 7, 2019

Surrrre Johnny. Someone needs to call this Mediocrity from Marinette out on the Assembly floor tomorrow for not seeming to make the connection between his poses and the policies he votes for. And this broadband expansion issue along with the tax break he wants to give out to companies is a great example of this disconnect that Nygren and company hope their rural constituents don;t notice.