Ten Key Questions for Candidates in 2018 State Elections: Part 3

On Nov. 6, voters will select Wisconsin’s governor, all 99 members of the state Assembly, and 17 of the 33 members of the state Senate. When they take office in January, they will face pressing issues ranging from a looming worker shortage to pressures on state, local, and school finances. Drawing on our recent research, we provide a guide to these topics to help voters make informed decisions.

To help voters sort through the noise, we have identified 10 questions that candidates should be addressing regarding six key issues facing the state:  transportation, economy and workforce, education, state-local relations, taxes and Wisconsin’s fiscal health.

These questions emanate from recent research conducted by the Wisconsin Policy Forum on these topics.

To help inform the discussion, we provide background data from our research. Some of these issues may seem complex, but they have important consequences, whether it is the condition of the streets and highways on which Wisconsin residents drive or the condition of the state’s finances.

STATE-LOCAL RELATIONS

The relationship between the state and local governments in Wisconsin is complex. For example, local governments here operate many programs that other states provide themselves, such as highway maintenance and human services. In addition, service levels provided by municipalities and counties are impacted significantly by state laws or regulations.

As part of this relationship, the state provides financial assistance to local governments through various aid programs. Among these programs, the largest is shared revenue, which distributes roughly $1 billion annually to municipalities and counties. In recent years, shared revenues have been flat or have declined, prompting local officials to look to other revenue sources to help fill the gap.

State aids to local governments in Wisconsin are relatively robust when compared to other states, but local revenue options are limited. Unlike many states, Wisconsin allows local governments one main source – the property tax – while largely prohibiting the use of local sales or income taxes. (Counties are allowed to levy a 0.5 percent sales tax.)

Since 2005, however, the state has limited how much counties and municipalities may increase their total property tax collections, or levies. Those limits are linked to the percentage increase in property values caused by new construction.

From 2005 to 2010, the levy limit had a “floor,” which was roughly about the rate of inflation, allowing communities that were experiencing little to no growth to increase their levies on an inflationary basis. In 2011, the state eliminated the floor, which means slow-growth communities have little ability to increase their levies.

This policy achieved its goal of slowing the growth in municipal property tax levies, which had increased annually by an average 3.7 percent between 2005 and 2011 and slowed to 2.1 percent between 2012 and 2016.

Yet, because of the link between property taxes and new construction, rates of property tax growth among communities vary widely. Our research has found that during the latter period, only about 1 of every 10 Wisconsin cities and villages averaged annual new construction rates above 2 percent, while nearly a third averaged growth of 0.5 percent or less; under levy limits, these development increases set how much municipalities can increase their property tax collections.

This gap may be creating a new dynamic in which fast-growing cities and villages have the financial resources to invest in services and infrastructure that help accelerate their growth, while slower-growing communities continue to lag further behind.

As discussed in our section on Wisconsin’s economy, location, overall economic strength and the robustness of the local workforce tend to drive local development. In this case, those factors also play a primary role in determining the property tax revenues available to fund local governments and invest in future growth.

In many parts of the state, property values are just beginning to rise above their pre-2008 levels, and in many more, new construction has been slow to recover to pre-recession levels.

Other local revenue options include the 0.5 percent sales tax for counties noted previously, which has been adopted by 66 of Wisconsin’s 72 counties; and local hotel room taxes for municipalities.

As also noted, both counties and municipalities can also charge vehicle registration fees to help pay local transportation costs; the number of communities charging wheel taxes has risen from four in 2011 to 27 in 2017.

Our research has also identified particularly acute fiscal challenges for both the city of Milwaukee and Milwaukee County. In the city’s case, rising health care and pension costs for current and retired employees and increasing public safety demands are exacerbating the strains of limited revenue growth.

In Milwaukee County, funding for ongoing operations is threatened by past pension obligations as well as a large infrastructure repair backlog and major new capital projects (most notably a $300 million justice center). In both cases, the Forum has cautioned that the present course is unsustainable and changes must be considered.

Questions for candidates:

7) Would you support modifications to existing levy limits to give municipalities and counties greater flexibility, or do you support them in their current form to curb growth in property taxes?

8) What, if any, additional revenue options should be available to the city and county of Milwaukee and other local governments in Wisconsin? If no new revenue sources are allowed, should the state help Milwaukee manage its public safety costs and Milwaukee County its infrastructure needs?

Next week, tax issues.