Monday, April 18, 2011

Budget Bill Holds Down Property Taxes; Should We Celebrate?

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). The LFB paper is being touted by the Governor’s office and supporters of his budget proposals as evidence of the bill’s effectiveness.

Of course, little or no increase in residential property taxes would be a welcome development for us in our capacity as property taxpayers, but is it good news for us as consumers and beneficiaries of local services, and is it good news for the health of our communities and for our state’s future economic competitiveness?

The LFB paper calculates that the combined effects of the Governor’s proposals would result in a net increase in property tax levies of about $136 million or 1.5 percent in 2011(12) and $137 million or 1.4 percent in 2012(13). However, new construction accounts for some of the increase, and taking that into account brings the increases for a median valued home to 0.8 percent and 0.4 percent over each of the next two years.

The Walker Administration argues that the ability of local governments to cut spending on employee benefits will more than offset the aid cuts. However, as Tamarine Cornelius noted in a Budget Project blog post last week, the League of Municipalities found in a poll of their members that the reduced spending for benefits would only cover 61 percent of the reduced state aid, and other types of local governments have been making similar complaints. Tamarine’s post explains why the Governor’s “tools” won’t suffice for many communities.

The combination of deep aid cuts and property tax freezes will almost certainly impair the ability of schools and other local entities to provide the education resources and infrastructure that in the past have made Wisconsin a great place to live and work. The cuts will be especially hard on poorer districts, increasing the growing divide between rich and poor districts – particularly since wealthier districts are more likely to be able to approve referenda that allow for property tax increases, notwithstanding the levy caps in the bill.

Ultimately, the budget measures raise the question of how far Wisconsin wants to go in a smaller government direction that prioritizes reduced taxes and smaller government over strong educational institutions and a well educated workforce. In a recent op-ed column in the Journal Sentinel, Chandler McKelvey – a Department of Development Secretary under Governor Dreyfus – contends that the Walker agenda will weaken education, hurt the quality of life in Wisconsin and undermine job growth.

“The things that create the conditions that lead to the growth of good jobs are a skilled, educated, stable and dedicated workforce, a substantial group of highly educated and motivated entrepreneurs, above-average infrastructure and government services, a high overall quality of life and a sufficient pool of investment capital. Low tax rates, lax regulations and enfeebled employees come in way down the list of factors that create a positive business environment.”
The news that property tax bills will hold pretty steady over the next two years would be much more welcome if that wasn’t coming at the cost of aid cuts and policy changes that McKelvey says are “totally alien to Wisconsin's cherished traditions and culture and surely will lead to a degradation of our quality of life.”

Jon Peacock

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