Referendums Show Local Government Funding Challenges

The system of funding local government in Wisconsin is broken and the signs are everywhere.

A new report from the Wisconsin Policy Forum shows a dramatic increase in the number of local referendums approving increases in property taxes. During the most recent election alone there were more than 20 such referendums on ballots across the state.

In Milwaukee, leaders of both the city and the county have been campaigning in recent years for a sales tax and an increase in shared revenue from the state to ease the fiscal crisis both governments face. An increase to the local sales tax, specifically, has been a top priority for County Executive David Crowley in his dealings with the Republican-controlled state Legislature. County officials needs legislative approval to hold a binding-referendum on the question.

State law limits the amount local governments can increase property taxes to a formula based on “net-new-construction” and this has not kept up with inflation. On top of that, state aid has been frozen for more than a decade. For the county, the frozen state revenue has translated to a loss of about $455 million un-inflated dollars through 2021, as Urban Milwaukee has reported.

“When combined with the impacts of skyrocketing inflation, these policies have resulted in the largest number of referenda to increase local property taxes in our data going back to the implementation of levy limits in 2006,” the policy forum report notes.

Between 2006 and 2017, voters approved fewer than seven referenda raising property taxes annually. Then in 2018, that number was suddenly 14. “Since 2018, voters have approved an additional $39.1 million in annual property taxes, compared to just $14.0 million authorized from 2006 until 2017,” the report notes.

In total, there were 18 referenda in 2022 that approve property tax increases. The $14.4 million in new annual levy authority approved in 2022 “is by far the most in a single year and nearly double the amount of the next highest year,” the report noted. “Though still a modest part of overall municipal and county levies, which typically grow by $120 million to $150 million per year, these referenda could have much greater effects if taken up by more large communities.”

In the November election, 21 out 23 municipal referendums were seeking an increase in property taxes to pay for public safety services like police, fire and emergency medical services (EMS), the report notes. These services make up a significant chunk of local spending for municipalities, and their unions were exempted from Act 10 limits on collective bargaining for higher wages. The report does note that, “The popularity of these services among voters may also play a role in both the crafting of referendum questions and the high rates of passage.”

Washington County had the largest property tax increase in the ballot, $3.6 million annually, and it failed. But, the forum noted, approval of the referendum outpaced votes for Democratic candidates Gov. Tony Evers and Lt. Gov. Mandela Barnes, who ran for U.S. Senate., suggesting there was bipartisan support.

It’s Not Just Property Tax Referendums

The dramatic increase in referendums seeking property tax hikes is not the only sign that Wisconsin’s system for funding for local governments is not working.

The limits on property tax increases include one notable exemption which allows counties and municipalities to exceed the state’s statutory levy limits: if they are using the funding to make payments on debt. Increasingly, they are falling back on this mechanism. “Over the past decade, the use of this exemption to make payments on debt issued after levy limits took effect has more than tripled from $172.2 million in 2010-11,” the policy forum noted in 2021 report on property tax increases.

Another sign the funding system is broken: Over the past 13 years, the implementation of vehicle registration fees (VRF), or a “wheel tax” as it’s often, called has exploded. In 2009, according to a report by the Milwaukee County Comptroller, just one county and three cities in the entire state had a wheel tax; that included the City of Milwaukee with a $20 wheel tax. As of 2021, there were 13 counties and 43 municipalities with a wheel tax.

In the city of Milwaukee, residents are paying $30 to the city and $30 to the county for the wheel tax. The county uses the funds from the wheel tax for the transit system and highway projects, and that tax might have been higher. In 2017, former county executive Chris Abele sought a doubling of the VRF to $60 just for the county to fill a budget hole, but the proposal was rejected by the county board.