Governing.com Article Raises Questions about Who Should Set Property Tax Rates
Schools in Wisconsin are caught in a very difficult position because their budgets get squeezed by rising costs, cuts or freezes in state aid, and state-imposed revenue caps that are increasingly tightening the state’s grip on local property taxes. Governing.com examines the fiscal challenges of Wisconsin schools in a very good article today.
“A 20-year-old cap on how much property tax revenue Wisconsin public school districts can earn has become a thorn in the sides of local officials as shrinking home values and dwindling state funding have put a squeeze on their budgets. As the provision comes under increased scrutiny in that state in the wake of the Great Recession, larger questions are being raised [about] whether limiting local public education revenue is a sustainable policy for the future.”
I’d like to think that the 2013-15 budget will provide some relief for schools, but I’m not very optimistic. Although I think many legislators in both parties understand the need to loosen the current constraints, I suspect that the general framework of the governor’s budget will make it very challenging to make the changes that are needed. Read more
What Sorts of Tax Changes Does Wisconsin Need?
In his State of the State message this evening, Governor Walker reiterated his intent to cut the state income tax for “middle class” Wisconsinites. We won’t learn any details until the Governor’s 2013-15 budget is introduced next month, so it’s hard to critique the plan now. However, it’s not too soon to raise the sorts of questions and concerns that state policymakers should be considering in the months ahead, as they debate the budget bill.
Can the state afford a significant cut in the income tax?
Policymakers need to carefully consider whether cutting income tax revenue would undermine the state’s ability to maintain support for state investments that are critically important to the state’s workforce, quality of life, and economic competitiveness – such as support for K-12 and higher education. They will need to take into account that new or phased-in tax cuts already on the books are going to reduce state General Fund revenue by $262 million in the 2013-15 budget, and even more in the following biennium. (See our 2-page issue brief.)
In addition, the fiscal cliff bill prevents the automatic restoration of Wisconsin’s estate tax, which erases $219 million of revenue the Walker Administration had included in their 2013-15 budget projections. (See my Jan. Read more
State School Superintendent Tony Evers has unveiled a budget proposal called “Fair Funding for our Future,” which would fix a number of shortcomings of the current school finance system. The plan would significantly improve the distribution of school aids by making two fundamental changes.
The Legislative Fiscal Bureau has released an estimate of property tax levels and tax bills as affected by the budget proposed by the Governor, and as approved by the Legislature.
Under the Governor’s budget, gross statewide property tax levels were estimated to increase by 1.2% in tax year 2011and 1.3% in 2012. Due to changes in values of homes and other properties, the actual tax bill for a median-valued home taxed at statewide average tax rates was expected to increase by 0.8% (or $23) in 2011 and 0.4% ($13) in 2012, compared to the previous year.
The Legislature made some changes to the Governor’s budget that had an effect on property tax levels. These changes include adjustments to school revenue limits and the Milwaukee/Racine charter school program, as well as limits on the ability of technical college districts to levy. In addition, a re-estimate of the lottery fund meant there was additional money for property tax relief. Read more
The Governor used his veto pen to prevent a slight loosening of the restrictions on levy limits for counties and municipalities.
In his executive budget, the Governor proposed extending the time frame for levy limits for counties and municipalities through 2012 (with the taxes payable in 2013). He also proposed holding municipal or county tax levies to a zero percent increase, or to take into account the value of new construction, whichever is greater. Local governments would be able to exceed the levy increase limit by going to referendum.
When the budget moved to Joint Finance, that committee made some modifications to the ability of local governments to raise revenue from the property tax. Joint Finance allowed for municipalities and counties to carry forward a small amount of their unused levy capacity, under specific circumstances. Joint Finance also made the levy limit permanent, and allowed local governments to increase their levies by at least 1.5% in 2013(14) and thereafter. Read more
Yesterday, we highlighted a new paper by UW Professor Andrew Reschovsky (link updated 7/26/11 — see note at end of post) that described how and why the proposed state budget would both cut state aid to schools sharply and force most districts to reduce property taxes.
You can read yesterday’s post for a more thorough explanation, but here’s a quick summary, expressed in an equation:
Revenue limits = General state aid + Property Taxes
The biennial budget proposes decreasing revenue limits by 5.5 percent between fiscal year 2011 and 2012. The budget also reduces general aid to schools by $390.5 million in FY 2012 and $358.8 million in FY 2013. For many schools, the reduction in aid is less than the decrease in the revenue limit. This means most districts – more than 75 percent – will have to cut property taxes to stay under the revenue limits.
Professor Reschovsky’s paper includes interesting information about how schools will fare under the proposed budget. Read more
We already know that Governor Walker’s proposed budget would result in deep cuts to state aid to public schools. A new study by University of Wisconsin professor Andrew Reschovsky (link updated as of July 2011; see note at end of this post) gives a more complete picture about how school funding will change if the Governor’s recommendations are enacted. Not only will schools receive less in aid from the state, but more than three-quarters of school districts will have to reduce the amount of revenue they raise at the local level as well, unless the voters approve a referendum increasing the revenue limit.
In addition to a decrease in state aid, the proposed budget calls for reducing each school district’s revenue limit, which restricts the amount of money schools can raise from the sum of general school aids and property taxes. The average per-student reduction in state general aid is $455, which is less than the average revenue limit reduction of $541. Read more
The Joint Finance Committee will next be meeting on Thursday, May 12th at 11 AM. That executive session will begin at 11:00 a.m., in the JFC meeting room (412 East, State Capitol).
On the JFC agenda are 28 budget papers, 12 of which are related to the Justice Information System Surcharge. The remaining papers include items related to the Child Abuse and Neglect Prevention Board, Department of Financial Institutions, Secretary of State, Department of Veterans Affairs, levy limits, and property tax relief. Also being considered are papers related to the Government Accountability Board and the Office of Commissioner of Insurance, which were held over from previous sessions.
From our perspective, the most interesting of these issues are the First Dollar Credit (Paper #606), the levy limit for counties and municipalities (Paper #610), and the repeal of indexing for the Homestead Credit (Paper # 605).
Although today is income tax day, I’ve been thinking about the tax that many people dislike paying even more – the property tax. Its unpopularity helps explain one of the things that makes addressing a large hole in the state budget a very challenging task – i.e., the fact that 55 percent of state General Fund spending is for local aid and property tax relief. Substantial cuts in state spending will almost certainly reduce local aid, which typically pushes up property taxes.
Governor Walker has proposed a three-step solution to address that fiscal challenge: 1) cutting local aid by about $1.27 billion, 2) freezing property taxes and reducing school spending caps, and 3) sharply curtailing public sector collective bargaining, to give local governments a “tool” for cutting spending on employee benefits. An April 15 paper by the Legislative Fiscal Bureau (LFB) concludes that the Governor’s budget would hold the property tax increase for a median valued home to 0.8 percent in 2011 (due in 2012) and to 0.4 percent in 2012(13). Read more
The cornerstone of Governor Scott Walker’s proposed budget is a steep cut in aid to local governments, including counties, municipalities, and school districts. Wisconsin is among several states taking this approach to balancing the budget, according to an article in this week’s New York Times. Governors or Legislatures in Ohio, Nebraska, Michigan, New York, and Massachusetts, and Minnesota are also looking to make ends meet by reducing support for local governments.
The article likens reducing local aid to “squeezing a balloon,” with states able to reduce their spending by passing the brunt of the budget cuts down to cities and other localities, which may have to raise property taxes to make up for aid cuts. Governor Walker’s budget, however, would prohibit increases in property taxes by limiting municipal and county levy limits to be increased only to allow for new construction. Schools would be required to reduce their revenue limits by 5.5% in fiscal year 2012 compared to 2011. Read more