More property taxes, more wheel taxes, not enough state aid. Changes needed in Wis local govt

It's mid-December, which in Wisconsin means it's time for property tax bills and other payments to local governments. And just in time, the Wisconsin Policy Forum is out with a report that says property taxes being paid to Wisconsin schools are up by the most in 10 years.

Wisconsin school districts levied $5.21 billion in 2019-20 property taxes, a 4.5% increase over a $4.99 billion levy in 2018-19. This represents the first time school taxes rose by more than 2% since 2015-2016, and is the highest since a 6% increase in 2009-10. The K-12 increase was two percentage points greater than the 2.5% growth projected in July by the Legislative Fiscal Bureau (county and tech college levies were in line with LFB estimates).

This level of increase, though absent in recent years, is not new to Wisconsin. School district levies increased by more than 4.5% in eight out of the 10 years from 2000 to 2009. (see Figure 1).

After a decade of relatively tight funding, education advocates may cheer the 2019-20 increase in resources for schools and point out that recent economic gains mean Wisconsin residents are better able to pay for it. Critics may see the increase as contributing to higher taxes overall and Wisconsin’s reliance on property taxes to fund local services.

Some of this is a reflection of new building growth in the economy, which raises the revenue limits that schools can impose, but it also reflects somewhat higher revenue limits that were part of the newly signed state budget.

In addition, the significant uptick of students attending voucher schools this year may be having an effect, as vouchers take away state aids from schools, and force them to replace the funding with property taxes. Lastly, the Policy Forum notes that recent years of school referenda to get around tight GOP-imposed property tax limits are having a cumulative effect, raising taxes across more schools.

While school levy increases have been smaller over the past decade, recent years have also seen a record amount of school referenda to fund construction projects or increases in districts’ operating budgets. Of the 19 districts with a $3 million or larger increase in property taxes this year, 14 have approved at least one referendum since 2016.

One of those districts is the Madison Metropolitan School District, which my wife and I live in. And that referendum, combined with a sizable cut in state aids this year due to Madison's booming property values, meant that our school taxes made up a large amount of our $210 tax increase for this year.

One other culprit behind the runup in property taxes and referenda for schools was mentioned as part of a great report by the Wisconsin Budget Project this week. The report discussed how state lawmakers have consistently and significantly cut shared revenues to local governments over the last 20+ years in Wisconsin.

The largest and most flexible source of state support to local governments, referred to as “Shared Revenue,” is used by county and municipal governments to pay for a variety of critical services. The amount of Shared Revenue that the state provides to county and municipal governments has sharply declined in recent decades, with a decrease of 47% between 1996 and 2020, after adjusting for inflation. In dollar amounts, Shared Revenue fell from nearly $1.6 billion in 1996 to $830 million in 2020, a drop of $760 million. Meanwhile, local communities were responsible for providing services to a growing number of state residents, driving up costs.

The decline in general support for counties and municipalities is especially notable given the increase in the overall size of the state budget during this period. These two trends – less support for counties and municipalities, and more spending in general – mean that the state is spending a much smaller share of each dollar on supporting local communities than it did in previous years. In 1996, the state spent 11.5¢ out of every dollar in the budget on Shared Revenue, an amount that dropped to 4.5¢ out of every dollar by 2020.

If the amount of state support for local communities grew at the same rate as the rest of the state budget, the state would be investing $2.1 billion in counties and municipalities in 2020 in the form of Shared Revenue, instead of the $830 million it is actually spending. That’s a difference of $1.3 billion in resources that aren’t available for Wisconsin communities to use to improve the lives of their residents.

But as you'll notice above, in the 2000s, it was assumed that property taxes could be raised to make up the difference. That ended in the 2010s, and instead was replaced with a GOP mentality of tax cuts at all levels. Which the Budget Project notes made the cycle of less shared revenues even worse, because the tax cuts prevented some of that money being available to be sent to local communities.

At the same time that lawmakers were reducing state support for communities, they were also passing billions in new tax cuts, many of which created or expanded tax loopholes for the rich and powerful. In 2021 alone, the new tax cuts will add up to $2.3 billion, dwarfing the cuts to Shared Revenue. State lawmakers could make up for the cuts in Shared Revenue by redirecting some of the recent tax cuts to communities, if they wished.

The decline in Shared Revenue puts a severe squeeze on local government budgets. The state caps the amount of money that local governments can raise through the property tax, their main source of revenue. The state allows local governments only a few other sources of revenue, most of which fall most heavily on people with the lowest incomes. One of these alternate sources of revenue is a local vehicle registration fee, also called a wheel tax, which requires owners of vehicles to pay a set amount for each vehicle they own. The number of communities levying a vehicle registration fee has increased sharply in recent years, from two in 2014 to 36 in 2019. Additional vehicle registration fees are slated to go into effect in 2020, including a $40 fee in the City of Madison, the highest in the state.

Yeah, tell us about the new wheel tax. Granted, this includes my wife's personalized plate, but it would still be $153 for a regular plate vs $75 a few years ago.

The current way we fund local government isn't working any more. Even with these extra wheel taxes and higher property taxes, it's still not enough. Milwaukee had to cut police positions in this current budget because it was so limited in resources, as the city continues to receive less in less in shared revenue while being the state's largest attractor of tourism dollars.

Look, if we've broken the link that used to exist in Wisconsin where the state used sizable amounts of shared revenue to take burdens off of local governments, then shouldn't we allow local communities more ways to raise funds beyond just the property taxes and wheel taxes? Seems like a "reform" that both parties should get behind.