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State Budget

State Budget Signed into Law ­ Governor Vetoes Levy Limit Municipal Provisions Summarized

By Curt Witynski, League Assistant Director - The Municipality September 2003, Volume 98, Number9

On July 24th Governor Doyle signed into law the 2003-05 state budget bill, culminating a process that began in January. The biennial budget, known as Act 33, is a relatively thin 425 pages and contains fewer policy items than past budgets. One policy item the Republican controlled Legislature inserted late in the process, which garnered more attention than any other budget provision, was a three-year property tax levy limit on local governments. Fortunately, Governor Doyle vetoed this measure.

The shared revenue program was once again a major focus of debate while the budget was being developed. Governor Doyle initially proposed cutting shared revenue by $90 million in 2004 and distributing the cuts on a per capita basis. The Legislature's budget plan reduced the cut to $70 million but made significant changes to the shared revenue distribution formula. In the end, cities and villages as a whole came out better than anticipated when the Governor vetoed the formula changes but went along with the lesser cut of $70 million.

These and other budget items of interest to municipalities are discussed in more detail below. The budget provisions described in this article took effect on July 26, the day after Act 33 was published, unless otherwise indicated.

1. Municipal Items of Interest in Act 33, the 2003-05 State Budget

Shared Revenue

Under the budget as signed by Governor Doyle, there are no cuts to shared revenue funding the first year of the biennium. Consequently, a municipality's shared revenue payment in 2003 will equal the statement of estimated shared revenue payments it received from DOR in September 2002. In 2004, the budget cuts shared revenue by $50 million. This is on top of a $20 million reduction already scheduled for 2004 which was imposed by last session's budget repair bill, 2001 Wisconsin Act 109. As noted above, the Governor vetoed significant changes to the shared revenue distribution formula the Legislature included in the state budget and reinstated his original proposal to distribute the cuts on a per capita basis.

The Governor went along with the Legislature's decision to reduce the cuts to shared revenue by $20 million. As a result of the Governor's vetoes, the total shared revenue cut of $70 million scheduled for 2004 will be accomplished on a per capita basis. The Governor used the $20 million that the Legislature restored to the shared revenue appropriation as a hold harmless to reduce the cuts on communities hit hardest by a straight per capita cut.

The Governor's per capita distribution method is more equalizing than the Legislature's plan. Communities with low equalized tax bases do better under the Governor's plan. The Legislative Fiscal Bureau has prepared a print out comparing each community's shared revenue payments under the Legislature's plan and under the final plan approved by the Governor. The print out is available on the Web at the following address: <http://www.thewheelerreport.com/ releases/Jul03/Jul10/0710gard comparison.pdf>. Copies of the print out are also available from the League.

Cities and villages as a whole were treated better under the final budget approved by Doyle than under any of its earlier versions. Under Governor Doyle's original budget as introduced, cities and villages collectively would have lost $65,206,257 in shared revenues in 2004 compared to 2003. Under the Legislature's plan, cities and villages collectively would have lost $61,141,843 in shared revenues in 2004 compared to 2003. Under the final budget after Governor Doyle's partial vetoes, cities and villages collectively will lose $53,297,861 in shared revenues in 2004 compared to 2003.

Consolidation Incentive Payment Program

The budget repeals the Consolidation Incentive Payment Program created by last session's budget repair bill. Under that program, beginning in 2004, $45 million of shared revenue funding was to be set aside for making payments to counties and municipalities that could demonstrate savings from consolidation of services agreements.

Expenditure Restraint Program

The budget retains the Expenditure Restraint Program at the current funding level, which is $58,145,700.

General Transportation & Mass Transit Aids

The budget bill the Governor introduced in February contained annual inflationary increases of 2.5 percent for both the general transportation aids to municipalities and mass transit operating assistance programs. The budget bill passed by the legislature froze general transportation aid and mass transit operating assistance programs at 2003 levels. The Governor signed the bill with total funding for these transportation programs frozen at 2003 levels. While total funding remains the same, the amount paid to individual municipalities under these programs will vary from last year because of the distribution formulas that are used.

Recycling

The budget funds the recycling grant program for responsible units at $24.5 million each year of the biennium, the same amount as under the previous budget.

Property Tax Break for Agricultural Forest & Swamp Lands

The Governor left intact a GOP budget provision creating a property tax break for owners of "agricultural forest" and "undeveloped land" such as bogs, swamps and marshes. The provision requires assessors to assess such lands at 50% of their full value. The League had requested he veto this extension of the agricultural use value assessment law. The Governor did use his veto pen to ensure that the tax break for agricultural forest land only applies to farmers and is not abused by other landowners. As a result of the veto, only land that is producing or capable of producing commercial forest products and that is contiguous to a parcel owned by the same person that is classified "in whole" as agricultural land receives the tax break.

Assessment of Manufacturing Property

The Governor did not veto, despite our request that he do so, the new requirement in the budget that municipalities pay half the cost of the Department of Revenue's (DOR) assessment of manufacturing property program. As a result, municipalities will be charged by DOR for half of the $4 million biennial cost of the manufacturing assessment program, which amounts to about $1 million per year. Each municipality's charge will depend on the total equalized value of manufacturing property located in the municipality. The charges could be imposed as soon as this calendar year, but the details of the process are still being worked out.

2. Vetoed Municipal Items in Act 33, the 2003-05 State Budget

Property Tax Levy Limit

To the League's great satisfaction, Governor Doyle vetoed the three-year property tax levy limit the legislature had inserted into the budget. Under the levy limit, municipal tax levies for 2003, 2004 and 2005 could be no greater than the 2002 levy except that the levy could increase by the percentage increase in the equalized value of the municipality due to net new construction. The levy "freeze" applied to a municipality's total levy, including property tax levies used to fund debt service, with the exception that municipalities were allowed to increase their levy to pay for debt authorized before July 1, 2003. It also included tax "increment" growth associated with tax incremental financing districts. A municipality was allowed to increase its levy if the electors approved doing so at a referendum.

Governor Doyle explained in his budget veto message that he vetoed the levy limit provisions because "they restrict economic development, limit local government access to capital markets, endanger public health and safety, hinder educational attainment and job training, and foster inequities among local governments." The Governor added the following, which we couldn't have said better ourselves: "Local elected officials are in the best position to make decisions regarding the appropriate level of services to fund and provide for residents of their communities. These officials have continually made difficult decisions regarding these important issues. Local governments and their residents should not be penalized for the state's own fiscal disorder."

On August 12, the State Senate sustained Gov. Doyle's veto of the property tax levy limit by one vote, 21 to 12. A veto override vote requires a 2/3's majority, which translates into 22 votes in the 33 member State Senate. All 18 Republicans in the Senate and three Democrats voted to override the Governor's veto. The three Democrats were Senators Carpenter and George of Milwaukee and Senator Hansen of Green Bay.

It is unlikely that we have heard the last of this issue. As some of you may recall, the levy limit idea is not new. Governor McCallum included it in his budget repair bill last session. It will likely resurface in the future. In fact, on the same day the Senate voted to sustain the Governor's veto, the Assembly introduced and passed a new levy limits bill, AB 466, by a vote of 62 to 31. Both Democrats and Republicans are likely to put forward other property tax proposals in the months ahead.

Health Insurance Collective Bargaining

Governor Doyle vetoed language in the budget bill that the League supported which allowed a municipality to unilaterally choose, without the need to collectively bargain, the state Employee Trust Funds' group health insurance plan or a substantially similar plan for its employees. We had asked the Governor to approve this health insurance flexibility provision but veto language exempting police and fire employees from its application. Instead, the Governor vetoed the entire provision.

Fees Imposed by Municipalities

The Governor vetoed, at the League's request, a new requirement that the Legislature had included in the budget bill relating to municipally imposed fees. The vetoed language required any municipal fee to bear a reasonable relationship to the service for which the fee is imposed. It additionally required that municipal governing bodies issue written findings demonstrating that any new fee bear a reasonable relationship to the service for which it is imposed.

Local Revenue Sharing Boards; Indian Gaming Compacts

The Governor vetoed a provision the Legislature added to the budget requiring the creation of a local revenue sharing board in each city and county in which a gaming facility is located. These boards, consisting of representatives from each municipality, town and county impacted by a gaming facility, would determine the annual cost to each local government of providing public safety services to casinos and enter into cooperative agreements with public safety entities to determine a formula for distributing any payments negotiated and obtained from the Tribal Nations for such services. The Governor vetoed the provision because it created " a new and unnecessary layer of government to deal with matters that existing governmental structures and processes can already address."

3. Conclusion

As we put this budget to bed, the Legislature and the Governor are contemplating the likely need for a budget adjustment bill to address a deficit before the end of the next biennium, which is June 30, 2005. If the Wisconsin economy does not grow at a 5.1% rate of growth from July 1, 2003, to June 30, 2004, and 5.6% in the next fiscal year, as presumed by the crafters of this budget, the state will once again be facing a deficit. This means, of course, that battles over the funding of shared revenue and the need for a property tax freeze will not disappear for long.

The following information is provided to help illustrate how state revenues are spent.  The first example represents spending of your state tax dollar.  The table below is an historical account of the loss in shared revenue to the City of West Bend since 1988.  It is important to note that any offset in Expenditure Restraint is the result of controlled spending by the City of West Bend.  The Budget Reform Act proposed by Governor McCallum will, in effect, penalize our community for its history of prudent spending.

How the 2000-2001 State Tax Dollar was Spent.

School Aid & Credits     44%

State Operations            24%

Aid to Individuals           16%

Shared Revenue              9%

Other Local Aid              7%

Source: Wisconsin Dept. of Revenue, Legislative Fiscal Bureau.

In the previous state budget spending for social welfare programs was almost double the amount spent in shared revenue to local municipalities and nearly five time greater for school aid and credits.  In addition, between 1995 and 1999 shared revenues decreased by 2.4% while spending for school aids and credits increased by 60.3%.  The Budget Reform Act proposed by Governor McCallum targets only the shared revenue portion of state spending which represents only 9% of total spending.

Historical Loss of Shared Revenue to the City of West Bend.

Our current law shared revenue payment for 2002 is $2,572,167.  The payment proposed by the Budget Reform Act is $1,449,920.  The difference will result in a direct loss to our current operation budget of $1,122,247.

Governor McCallum's Budget Reform 

Governor Scott McCallum announced his plan to balance the 1.1 billion dollar state budget deficit by phasing out revenue sharing to local municipalities.  I agree with Governor McCallum’s premise that fiscal responsibility begins with local levels of government.  After all, how many times have we heard that a project will be paid for with ‘State or Federal Funds’?  An illusion is created that the cost burden will not rest with the local taxpayer.  This is however only an illusion.  We all pay state and federal income tax, state and county property tax and tax directly to our school district.  Funds for public projects including road construction, airport expansion and water treatment facilities will ultimately come from the taxpayer.  I also agree that all levels of government will spend more carefully when the burden of justification remains within local communities.  The Governor's plan may have merit for future consideration, however, his current proposal calling for the immediate reduction of state revenue sharing was not a planned evolution but a reaction to years of irresponsible spending at the state level.

Governor McCallum’s proposal will cost the City of West Bend 1.1 million dollars from this year’s (2002) 17.2 million dollar operating budget.  The impact to our community will be substantial and probably result in a reduction of city services.  State Representative Mickey Lehman said ‘it was time local government officials and taxpayers define what government services are important and need to be preserved’.  Planning for this event was not within our control but the recovery will be.  I would like to hear your thoughts on this or any other issue.

Tax Watch

The table below represents an historical ranking of West Bend Tax Rates compared to 99 Wisconsin Municipalities with populations over 7,700 (August 2002 of the Municipality).  A ranking of 1 would indicate the highest tax rate in the state.  The 2004 average total tax rate for the 99 municipalities compared is $22.95.  The City of West Bend is well below the average with a 2004 full value total rate of $20.34 and ranked 80th.           

Revised Thursday, August 09, 2007