Wisconsin is Over-Reliant on the Property Tax

This week’s Local Perspective blog post is by Sharon Eveland, City Administrator, City of Clintonville

If you ask someone in my community what they think about their local government, one of the first things they will likely say is “our property taxes are too high” and they would be right. When I first moved here from Georgia, I was shocked by how high property taxes were here, and by here, I mean all over the state.  The house I currently live in is assessed at about $10,000 higher than the house I owned in Georgia and yet my property tax is twice as high!  I got curious and started looking in to why that might be and I quickly realized how local governments in Wisconsin are forced to rely almost exclusively on the property tax for raising revenue.  Well of course our property taxes are high! When you throw in the fact that the second largest portion of many municipalities’ revenue is state aid and consider that municipalities have no control over that revenue stream, it’s a recipe for disaster.  If the State decides to decrease what it gives us, we are left with one of two options: reduce services or increase our property tax levy.

And let’s be clear.  Increasing our levy is not as easy as it sounds because the State restricts our ability to do that as well.  Under current State law, we can only increase our levy be the rate at which we experience new development, specifically our net new construction rate.  What this means is that if you are a municipality that doesn’t experience growth, as is the case in Clintonville, you cannot increase your levy unless you meet one of the allowance requirements.  The most common of those allowances is for debt, which allows a municipality to increase its levy by the amount it needs for its debt payment.  Seems legit, right?  Wrong.  What this structure has done is forced municipalities to rely on borrowing for its major capital projects, rather than levy for them year to year.  As Appleton Mayor Tim Hanna has said, “Levy limits are making us debt junkies.”  It’s great for the banks and investors, but not so much for the taxpayers.  We are making future generations pay for the purchases of today, and even worse, making them pay more for it because of interest.  And to cap it all off, the State limits a municipality’s ability to borrow by restricting its debt capacity to five percent of its assessed value.  For the City of Clintonville, that’s roughly $10 million and we are currently at approximately $6 million.  Now, I want our taxpayers to know that the Council is firmly committed to reducing its debt and we have been working very hard to secure grant funds and find creative ways to make do with what we have, but it is a long process and one that is constrained in many ways by the State.

Recently, the Wisconsin Policy Forum, a non-profit engaged in nonpartisan, independent research on fiscal and policy issues affecting governments in Wisconsin, issued a report called Dollars and Sense: Is it time for a new municipal financing framework in Wisconsin?WPF Midwest reliance on prop tax chart 2019, which was funded by the League of Wisconsin Municipalities, Wisconsin REALTORS Association, and Greater Milwaukee Committee, to look at Wisconsin’s reliance on the property tax and whether a different revenue generation structure was needed.  The report found that of the twelve states in the Midwest region, Wisconsin had the highest reliance on the property tax of all twelve states and was ranked seventh nationally.  Wisconsin also has the lowest sales tax average of all twelve Midwest region states.  In Georgia, I lived in a county with a sales tax rate of 8% and according to the Georgia Department of Revenue, only two counties in the entire state have a rate of less than 7% as of April 1, 2019 and a couple were just shy of 9%.  The State sales and use tax is only 4%, meaning anything above that stayed in the county where the purchase was made and is apportioned between the municipalities and the county government based on an agreed upon formula.  So the money stayed where it was spent.  More importantly, the residents have to vote to approve these sale tax increases so it’s not forced upon them.  In addition, the sales tax is able to help offset the cost providing services to visitors and commuters who do not reside in a particular municipality but utilizes its services.

On average, Wisconsin municipalities receive about 42% of their revenue from the property tax and in Georgia it’s about 27%.  This is why my property tax bill in Georgia was significantly less than my tax bill here for a home of roughly the same assessed value.  While some would argue that the State should just increase its state aid, which, by the way, when it was originally implemented was supposed to have 90% disbursement to local governments, I don’t believe that’s the right move.  Yes, I think there should be more distribution to local governments but I don’t want Clintonville to be any more reliant on the what the State decides to dole out than it has to be.  And just like an investment advisor would say, we need to diversify.  Municipalities and county governments shouldn’t be forced to put all their eggs in one proverbial basket.  The voters should have a say and by not even allowing that option, the State is telling the people it doesn’t matter if you want this, we’re not going to let you decide for yourselves.

Waupaca County, which has the half percent sales tax, collected a little more than $3.7 million in sales tax revenue in 2018 and has averaged $3.5 million over the last five years.  Just half a percent!  Assuming the sales tax revenue trends here continue, an 8% sales tax would generate about $22 million a year.  I’m not saying we should jump straight to that rate but I think it’s important to understand the potential financial benefit that could be derived from a sales tax, which could include property tax relief.  The total 2018 tax rate for a parcel in Clintonville is $27.13 and the City’s portion of that is $10.08, but we’re not alone.  What we are doing to raise revenue at the local level clearly isn’t working and we can’t continue.  Wouldn’t it be nice if we could finally find a way forward that doesn’t put so much emphasis on the property tax and puts more control in the hands of the voters?

 

Sharon Eveland
Clintonville City Administrator

Budgeting in Eden is No Paradise

Eden

Imagine being faced with a $460,000 tab for street repairs knowing your tax levy will total just $34,000? Welcome to budgeting in the Village of Eden.

Wisconsin’s small villages are often caught in this financial trap, with levy limits on one side and old infrastructure on the other. Communities that for years prided themselves on keeping property taxes low now find that when it’s time to replace main street or a sewer main, the levy limit law is a barrier. The only way around the barrier is to borrow money; effectively putting today’s problems in the laps of tomorrow’s residents.

The Village of Eden is a small community just Southeast of Fond du Lac with a population of around 900. According to Census bureau estimates, it’s growing, which is unusual for a small village in rural Wisconsin. In fact, the village’s slogan is “A place to grow.” Unfortunately, that “growth” doesn’t extend to the village budget. Under Wisconsin levy limits, Eden will see an allowable levy increase in 2019 of zero. According to the Wisconsin Department of Revenue, Eden’s “net new construction” growth in 2018 was a negative 0.26-percent, meaning it would not be allowed to increase its tax levy in 2019. The village will rely on borrowing and a small wheel tax for any funding increases. Efforts to attract grants have failed, due in significant part to the village’s small population.

Unfortunately for Eden, costs will not remain at zero. The state is rebuilding Highway 45 and village must pay $460,000 for its share of the work (Highway 45 is one of Eden’s main streets). In addition, for the past two years, Eden has been forced to borrow money to operate. The village has over $1.7 million in outstanding debt and will be required to pay for the replacement of a seventy-year-old water main. There is no money to pay for new hiring or other costs. The village’s sole computer was ten years old before it finally acted up once too often and had to be replaced.

Eden is a typical small Wisconsin community. It serves an area that is primarily agricultural, with some suburban influences owing to the short 20-minute drive to Fond du Lac or 30-minute drive to West Bend. You can rent the village park for a family reunion and the village president has been known to shovel sidewalks in the winter when needed. It embodies the values that Wisconsin points to with pride: small town, strong work ethic, conservative when it comes to spending. But there are limits.

In a report submitted to the League and posted on our website, the village pleads with state policy makers to, “PLEASE FIND A WAY TO HELP THE SMALL COMMUNITIES THAT HAVE BEEN TRYING TO KEEP TAXES LOW.”

Columbus makes the levy limit case

The City of Columbus is a typical Wisconsin community. It’s an attractive, small-but-not-too-small city of 5,000 people straddling the Columbia-Dodge county line. They have an interesting downtown, a great library, an Amtrak station, the Christopher Columbus Museum, an aquatic center and a river (the Crawfish). They’re also being strangled slowly by state-imposed levy limits.

In 2018, the state granted Columbus permission to increase its levy by the percentage of “net new construction” that took place the year before. In this case, the allowable increase was 1.861 percent (inflation in 2018 was 2.44%). That translates into an additional $45,000 in spending authority for the City’s $4 million budget. Put another way, it’s almost enough to pay just about half of the increased health insurance premium for city staff and nothing more. And 2018 was a typical year.

Columbus, like most Wisconsin cities, villages and towns, has not seen a levy increase equal to inflation in over six years. As a result, the city has been slowly but surely reducing its long-term maintenance and services to residents. The changes have been subtle, but they’re starting to show.

“We are running our Public Works Department with equipment we purchased in the 1990’s,” says Kim Manley, the City’s Director of Finance and Treasurer. “It should be replaced, but there’s just no budget for that. We are, however, spending thousands of dollars each year on maintenance to keep that out-of-date equipment working.”

The city’s street repair budget is almost non-existent, and the roof over the Senior Center should have been replaced years ago. As for personnel, the city hasn’t been able to offer meaningful raises to its employees for years, and all of its salary ranges are lagging behind the already-competitive labor market.

“In the real world, we should be setting aside a little money each year so that larger purchases or projects can be funded, or at least partially funded without the city going deeper into debt. But with levy limits, I can’t set aside any dollars for needed new police squad cars, the roof or that old equipment. We scrimp and save every penny.”

Manley told us that the problem is building on itself. “Every year we have to say we can’t afford to do something or maintain something – then another year goes by and we are still trying to maintain the core services at our minimum levels. Our debt continues to grow and it’s concerning to me as a Finance Director to know that we’re putting our community in this type of situation.”

In the Governor’s proposed budget, cities, villages, towns and counties would be able to come closer to keeping up with inflation. The budget proposes restoring a 2% “floor” for property tax levies.  The League supports that change for the sake of cities like Columbus.

You can read more stories about the many communities in Wisconsin that are in Columbus’s shoes (or worse) on our web site https://www.lwm-info.org/1552/Levy-Limits-Time-for-a-Change.

#LWM2018 Comes to an End

Well that is a wrap. The 2018 League conference has come and gone. We wrapped up the day with some breakout sessions and we got to hear for the keynote speaker, Jason Kotecki. Jason’s inspired us to step out of our comfort zone and try new things. As local leader we need to enact change. However, that is easier said than done. That is why we need to tinker around when we have an idea, even if it just means starting small. Not all innovative changes have to be Earth-shattering. He also reminded us to not let the “adultitis” set in. In life we do not have to be serious and uptight all the time. If we take ourselves too seriously all the time, then we might miss out on a lot of opportunities in life. If we have a similar mentality when we are governing our municipalities and say things such as “we can’t do that, that’s too impossible,” then we are setting up ourselves to possibly passing up an opportunity. The saying that comes to my mind is, “you’ll never know until you try.”

After the keynote speaker, we had the Just Fix It, Turn Out for Transportation Luncheon. Thanks to the Transportation Development Association for allowing us to have this space to discuss what needs to be done to solve the State’s transportation funding challenges. It was great to hear from current assembly representatives when they reiterated that solving the transportation issues is a not a partisan issue. So, we will have to see what is in store for the future state budget after the November elections. Hopefully, the outcome will have a positive impact on our local communities.

I have done a lot of self-reflection over the past few days. I have been rejuvenated with new energy and I have a lot of new ideas that I want to share with my fellow council members and city staff. I hope that the ideas that I gained throughout the conference will make Sheboygan a better place. All of us that have a passion for our communities are making Wisconsin a better place, because we all share a common vision to move our communities forward.

I want to give Jerry Deschane a shot out and thank him for letting me take over his blog for the week. Also, I want to thank the League staff and all their hard work to make this conference a success.

I hope that you enjoyed this conference as much as I did. I know that next year will be just as great. We will see you in Green Bay in 2019.

-Ryan Sorenson, Sheboygan City Council

Day 2 of #LWM2018 Finishes Strong

I was up bright and early for the second day of the conference with many others for the WEA Trust run and walk. After the morning run and breakfast, it was time for the conference workshops, and meeting more passionate local leaders. This year there was a great number of session that focused on my issues that are impacting our communities all across Wisconsin. It was difficult for me to narrow down the decision for which sessions to choose. Since we are community leaders we have to make difficult decisions. I started off the morning with learning about managing street construction and the impact on local economies. I decided to attend this one because I am a member of the public works committee and we all face challenges with roads back at home. Securing funding for road repairs is difficult enough, but as local leaders it is imperative that we also mitigate the any negative impacts that construction might have local businesses. Columbus and Waunakee had fantastic solutions to ensure that community members were engaged along the entire process during the presentation.

The second session that I attended looked at how small communities can be cool. I wanted to go to this session because having a “cool” community is one important component for retaining and recruiting talent and people. Many communities across Wisconsin are struggling with a brain drain problem. Finding new and creative ways to develop stronger connection with people, and celebrating entrepreneurship are some things that need to be done to grow a community. Dr. Ivan did this session and I was able to draw connections between this session, this talk over lunch, and his session on regionalism. As leaders we need to think about the future and develop creative partnerships that are driven by community members and stakeholders.

During lunch it was great to have Tony Evers swing by and hear what he had to say about his race for Governor. It is vital that after this election, state lawmakers listen to local leaders because we are on the front lines every day and see the direct impact that so many issues have on people. My hope is that in next legislative session that state lawmakers, figure out a sustainable solution for infrastructure and road funding, restore local autonomy, and of course eliminate the dark store loopholes.

Later today, Tammy Bockhorst and I sat down and did a Facebook live chat. Tammy shared her thoughts about how day two went. If you have not seen the video yet, go check it out on the League’s Facebook page. Now I am off to happy hour with other young elected officials.

-Ryan Sorenson, Sheboygan City Council

Day 1 Of #LWM2018 Is Starting Strong

The first day of the conference is underway, my bag of vendor items is packed and I have my #LWM2018 buttons. It is truly something special when so many local elected officials travel from all over the State of Wisconsin to attend a three-day conference that focuses on community improvement. This demonstrates to me that there are so many passionate people out there that believe in their communities and want to make their corner of the world a better place. Today, I chatted with city council members from Racine, Kaukauna, and Menasha, and I felt the connection that they all had for their community’s. You name it, we probably talked about it; roads, housing, lead pipes, and TIDs just to name a few. They all expressed so much excitement for the new knowledge that we would all learn at this event and bring those ideas back home.

I always enjoy talking with the many different vendors and sponsors that take the time out of their busy schedules to come to our conference. I think that this is a vital part of learning what different partnerships that we can cultivate to have a positive impact back home. Many of the vendors that I sparked a conversation with saw on my name tag that I was from Sheboygan, and asked me how I have been enjoying my time on the council. Then we usually crack a joke about my young age. A good handful of vendors even knew some of the city staff from Sheboygan by name. I was very impressed by this, but I was even more proud that our city staff has a positive reputation with our partners. When I am back home in Sheboygan, I am going to relay the message to let them know they are doing a fantastic job.

Now my struggle that I need to figure out is which workshops I am going to attend tomorrow. The decision should not be too difficult, after all it is not getting referred to a committee to be discussed. Also, I hope that you were able to check out my first Facebook live interview with my Mayor, Mike Vandersteen. Look out, if you are lucky, Gail and I might interview you to see how your conference experience is going. See you tomorrow!

-Ryan Sorenson, Sheboygan City Council

Taking Over Jerry’s Blog

Hello My name is Ryan Sorenson. I am alderman on the Sheboygan City Council. I was first elected to the city council in April 2017, and I was only 23 at the time. I am excited to share that this week I will be taking over Jerry’s blog for the annual League of Wisconsin Municipalities Conference. Being a millennial in local elected office, I will be sharing my perspective throughout the conference.

A little bit about myself, I was born and raised in Sheboygan. While attending college at UW-Milwaukee, I was very involved in student government all four years, and was elected student body president. After graduating college, I felt a need to get involved and make a difference in my community. My mom instilled in me while growing up to never sit on the sidelines and complain, but get in the game and make a difference, and so that’s what I did. I challenged and defeated a 10-year incumbent. I knew that our council needed a fresh perspective and some new ideas to help move our city forward.

This year will be my second conference. When I attend the conference last year in Appleton, I had no idea what to expect, but I had an open mind. While at the conference I met many local leaders who were passionate about their communities. I learned so much at the workshops and breakout sessions, and enjoyed all the speakers. My favorite session last year was learning about all the unique and positive ways that planting trees can have on a community. One fun fact that I learned was that planting trees correctly can extend the lifetime of a road before it needs to be repaired. Who knew? With all I experienced at my first conference, I became a more effective and knowledgeable council member. I left the conference in 2017 full of new information and I was excited for my next one. I am looking forward to seeing what is in store for this year’s conference. I know it will be a great one.

If you see me at the conference this year, please stop and say hi. I would be happy to connect and meet you. You can also follow me on twitter @ryansorensonwi

2017_Sorenson