At a public meeting to discuss raising the sales and use tax in Kewaunee County by 0.5 percent, the financial outlook presented by County Administrator Scott Feldt was bleak.
“As time goes on we get deeper and deeper into the hole. The gap keeps getting wider. Part of the reason why is because our revenues are flat and our health insurance costs continue to expand,” said Feldt. “If we don’t address the issue, [the reserve fund balance] will continue to go down where by 2020, the county would be out of money.”
Finance Committee Chair Lee Luft echoed these sentiments.
“Faced with shrinking revenues and higher cost for health care, we need to formulate a budget that will maintain the county services that residents depend upon, while keeping the tax burden reasonable and fair,” said Luft, reading a statement at the beginning of the meeting.
Luft explained that, in order to balance the budget in 2015, the county had to take $600,000 from the highway department fund and that will not be an option moving forward. Measures to reduce expenses, including reducing county staff from 176 to 145 employees and budget cuts in every county department in 2015 and 2016, have already been taken. County administrators laid out other possible budget cuts to consider in the future, but the list was not well received.
The state mandates that counties fund certain programs, leaving those budget items untouched. But other programming, such as the park system and UW-Extension, is not required, leaving them as options to be downsized or eliminated. Feldt stressed that these were only options and not recommendations, but the list of possible cuts impressed the idea that the county could not simply budget-cut its way to fiscal strength.
“We have reached the end of that ability to make substantial cuts and still maintain all of the services people come to expect,” said Luft.
Many residents agreed that budget cuts would not solve the issue, rejecting the thought of eliminating the park system and calling for better road conditions.
“When you’re talking about cutting costs, I would like you to all reflect on the three jewels in Kewaunee County, you have West Alaska Lake, Krohns Lake and East Alaska Lake,” said one resident. “I put in strong support for the Promotion and Recreation Department. They really help bring in tourism.”
It’s the push for tourism and economic development that contributes to the case for the increase in sales tax.
The State of Wisconsin implements a five percent sales and use tax in every county. The state also gives each county the ability to increase that tax to 5.5 percent, with the additional 0.5 percent returning directly to the county’s coffers. Kewaunee is one of nine counties that has not implemented that increased sales tax (though some counties have implemented other sales tax hikes for certain special projects like paying for Lambeau Field). Proponents of the tax increase claim that any visitors to the county would help in paying the tax.
“As we build that tourism base, they will help pay the taxes,” said Luft. “For the very first time, your county board set aside just under one percent of the total county budget to start down the road to building the economic base that we desperately need if we’re going to grow this county.”
But the county is in a bind by trying to promote tourism and homebuilding while considering cuts to the very things that contribute to the quality of life. How do you abandon the parks, leave roads unmaintained, cut health services and county staff salary and still expect people to come to Kewaunee County?
Why Kewaunee can’t find more money
The revenues coming into Kewaunee County are not enough to cover expenditures. While the county maintains it will continue seeking ways to reduce expenditures, most members of the Finance Committee and the county administrator see increasing revenues as the only option. For government, increasing revenue typically means increasing taxes.
The state limits how much a county can raise property taxes, the county’s main source of revenue. In order to increase the tax levy, there must be new construction in the county in the form of a new house, business, warehouse or addition. If walls go up, the tax levy can too.
But Kewaunee County is stagnant.
“Our land is not gaining any value. Our net new construction, five-year average, is 1.22 percent, which is fairly flat,” said Feldt. “When you have flat population growth, when you have flat land values, when you have flat new construction, that causes some real pressures on county government to be able to maintain and be able to provide current services.”
Kewaunee County’s rural towns are seeing more population and development growth than the population hubs of Kewaunee – Algoma and Luxemburg – an anomaly according to Feldt.
One funding lifeline, the Kewaunee Power Station operated by Dominion Resources Inc., is slowly drying up. As a utility, the plant didn’t pay property taxes, but did pay a utility fee that was tied to how much power it generated. When the plant closed in 2013, it stopped producing power and it stopped paying the utility fee. While the utility payments will be phased out over the next three years, Kewaunee County loses an annual check for nearly a million dollars from the power plant.
The Town of Carlton, where the power plant sits, felt the dormant building should start paying property taxes now that it wasn’t paying a utility fee. Carlton assessed the property at $457 million and many Kewaunee County residents saw their property taxes decrease in 2015 as Dominion paid a portion of their bill, even though the total dollars collected by the county did not change.
Dominion is challenging that assessment in court and if the power plant wins, their tax payment will be reimbursed, forcing Kewaunee County residents to pay more. Meanwhile, the state is not compensating Kewaunee despite this blow in the utility tax revenue.
“The state legislature has not shown its willingness to provide that same level of utility aid funding that we were receiving in the past,” said Feldt. Even though the power plant was not considered for property tax purposes before, the state doesn’t consider the building new construction, meaning the county cannot increase its tax levy.”
“We did actually make the trek down to the Department of Revenue, spoke to the head of that department and his team and made the case,” said Luft. “The feedback we got was the current legislature is in no mood to consider anything that talks of a tax increase.”
Another struggle facing Kewaunee County is the limitations on how property taxes are applied to farmland.
A 1974 amendment to the Wisconsin Constitution and the subsequent Act 27 in 1995 permitted agricultural land to be assessed differently when it came to property taxes. Property taxes on farmland are tied to the use value of the land rather than the market value. That means a farmer pays property taxes based on how much the land is producing rather than how much the land is worth on the market. This has led to a dramatic decrease in property tax assessment when it comes to municipal revenues.
A 2010 report from the state Legislative Audit Bureau determined that farmers in Wisconsin saved $4.7 million in property tax breaks, the cost of which was picked up by other residents in those counties.
In places with big urban development, those taxes are spread out significantly. But in rural counties such as Kewaunee, which has a population of around 20,800 and more than 60 percent of its land under the tax credited agriculture use, that tax burden falls heavily on those who are not farmers.
John Pagel of Pagel’s Ponderosa Dairy thinks that the dairy industry is a strong industry within Kewaunee County that pays its share of taxes.
“Some people agree and some people disagree, but I know they provide over $300 million of revenue for our county and a lot of it gets spent within our county. I think that’s a good thing,” said Pagel.
A 2011 report from UW-Extension determined that Kewaunee’s agriculture industry pays $3.5 million in property taxes and adds nearly $148 million to the county’s total income.
Since the state sets property tax values for farmland instead of townships, county administration has talked to legislators about changing the way farmland is assessed for property tax purposes. With more than 60 percent of the county’s land in the tax-credited agriculture use, that leaves little room for development to increase property taxes elsewhere. But to tax farmland at market value, a tenfold increase in some cases, could drive one of Kewaunee County’s biggest industries out of business.
Meanwhile, the state reminded county officials that change on the state level that would reflect tax increases were not happening.
“Our former county board chair actually went to the Republican convention earlier this year and tried to garner support for a change in farmland valuations and he was told, in no uncertain terms, it’s not happening,” said Luft. “Farming is a way of life, it’s part of our community, people value it, and there’s feeling on the part of the legislature that says we will not consider anything that looks like a tax increase.”
Sales tax is just a Band-Aid
“I love this place. I’ll pay the stupid sales tax,” said one woman in the audience.
But the 0.5 percent increase in sales tax will only draw out the pending deficit for two or three more years.
“The sales tax itself is not the perfect answer, but for today, it will get us by for a couple of years. We still have a lot of work to do because we cannot rely on the sales tax to do it all,” said Finance Committee member John Mastalir, who opposed the sales tax when he first joined the committee. “Before the county instituted a sales tax, I felt they needed to cut their expenses and deal with what they had. I continued to fight [the] sales tax issues but I could see the beginning of the end. My thoughts on that sales tax were turned only because I could see that there was no way we could do it.”
But committee member Chris Rassmussen, the newest member on the Finance Committee, thinks there is still more work to be done in identifying reckless spending and other types of revenue.
“I’ve been one of the most outspoken against the sales tax,” said Rassmussen. “I don’t think we’ve done our due diligence. When you look at this, if that sales tax collects $1.2 million, what are we going to do in two years? It seems like a false narrative. The tax is a short-term fix.”
The meeting was informational, with no action taken. The county board will continue to consider the raise in sales tax along with fees assessed for land conservation purposes to seek financial solvency before the county bank account runs out.