New State Aid Favors Rural Areas

Cash. (CC0 Creative Commons).

The first in-depth analysis of last year’s historic change that raised state aid to cities, towns and villages and promised them one-fifth of future sales tax revenues says the shift was much kinder to rural communities than urban areas.

The Wisconsin Policy Forum (WPF) report has election-year implications, since Republican legislators seeking re-election in November will remind voters in their new districts of their role in increasing state aid to local governments..

WPF found that, in one year, local governments got an 8.2% increase in revenues from their two largest sources of funds – property taxes and state shared-revenue aid. That jump in total revenues was “the most in at least three decades and likely much longer,” since records only go back to 1995, the nonpartisan research organization reported.

Property taxes that pay for municipal governments went up 3.7% – a jump homeowners noticed when those bills were mailed in December. It was less than the 4.5% increase in the previous year but still “larger than any other year since 2009,” the Policy Forum noted.

Meanwhile, because of the 2023 deal between Gov. Tony Evers and Republican legislators, state shared-revenue aid to those local governments went up by 30.5% – from $674.2 million to $879.5 million.

That reversed a decades-long trend of stagnant or decreasing state aid; it totaled $761.5 million in 1995, and was as low as $665.2 million in 2012.

As a result, cities, towns and villages squeezed by taxing limits and inflation had increasingly asked residents to pass referendums that often raised their property taxes to pay for emergency services, streets and other quality-of-life services.

The Policy Forum report documented how much better small communities made out under last year’s change, which local officials had sought for years. “Across all communities with under 1,000 residents, the combined 81.3% increase in [state] aid and 4.9% rise in property taxes will raise the total amount from these two largest sources of revenue by 20.3%,” WPF found.

But, it added, “The state’s largest municipalities – those with populations above 20,000 –  will also benefit, but not by nearly as much. Their [state] aid will rise by 19% and taken together with a 3.7% increase in property taxes, they will have an additional 6.4% in revenue on average compared to what they received last year.”

That disparity – increased revenues of 20.3% for communities with less than 1,000 residents and only 6.4% for communities with more than 20,000 residents – will have the attention of legislators from urban areas when the Legislature reconvenes in 2025.

WPF analysts focused on how new state aid to three communities – Milwaukee, Madison and the village of Big Falls in Waupaca County, the smallest incorporated municipality with a population of 58 – varied.

The revenue-sharing deal guaranteed Milwaukee and Madison a 10% increase in state aid, while all other municipalities were guaranteed 20% increases.

-Milwaukee’s 10% increase in new state aid amounts to $38 per resident – the smallest per-capita increase in the state. But last year’s change also allowed the city to implement a 2% local sales tax, which is projected to bring in $205.7 million more this year.

-Because of Madison’s “relatively high property values,” its additional state aid amounts to $28 per capita, which the Policy Forum called “the third-lowest amount of any municipality in the state.” Madison officials have called how that new state aid is distributed unfair, saying the state’s second largest city faces a budget shortfall of $27 million. “Madison was really shortchanged in the formula that distributed that new money,” says City Budget Director David Schmiedicke.

-Big Falls will receive state aid that totals $1,040 per capita this year – “the largest in the state by more than $100,” WPF reported. “There are 31 municipalities – Big Falls included – that will receive at least 20 times more per capita in [state aid] than Madison.”

“Larger cities in the state received much less per capita, particularly in areas with high property values.” the Policy Forum concluded. “That may put pressure on those communities moving forward to make spending cuts or continue the trend of higher local tax increases.”

All of which means state aid to local governments will surely be revisited when the next state budget is debated in the Capitol next year.

Steven Walters started covering the Capitol in 1988. Contact him at stevenscotwalters@gmail.com