7 Takeaways from the final shared revenue bill
7 Takeaways from the final shared revenue bill
Gov. Tony Evers signed the bill into law on Tuesday, June 20. Phil Rocco breaks it all down.
The Recombobulation Area is a ten-time Milwaukee Press Club award-winning weekly opinion column and online publication written, edited and published by veteran Milwaukee journalist Dan Shafer. Learn more about it here.
This essay is by Phil Rocco, associate professor of political science at Marquette University. Rocco is a regular contributor at The Recombobulation Area, and has written a multi-part series on the shared revenue debate in Wisconsin. Read it all here.
Yesterday in Wausau, Governor Evers signed a bill passed by both houses of the state legislature last week that will alter the state’s century-old system of sharing tax revenue with local governments in fundamental ways.
The most recent post in my Recombobulation Area series on shared revenue examines the political dynamics that explain why the bill passed when and how it did. Today’s post offers seven takeaways on how the details of the final legislation shook out.
1. Reminder: it’s not just a shared-revenue bill.
As I mentioned last week, while we used terms like “shared revenue” package as a shorthand to refer to this legislation, it’s really an amalgam of several different reforms that add up to a significant shift in the state’s overall fiscal regime.
True, the legislation provides a $274 million boost to the County & Municipal Aid program, which had flatlined in recent decades, starving local governments of a key source of revenue. Yet it creates new formulas for allocating this additional aid. In the case of municipal governments, the bill’s formula abandons the principle of equalizing tax bases, which defined the shared-revenue program between the 1970s and 2004. Instead, it uses only a local government’s resident population, but applies larger weights to the units of government with the smallest population. As a consequence, as I’ve noted in earlier posts, many of the largest percentage increases in aid went to the smallest municipalities in the state.
The legislation also makes other important changes to the local revenue system. This includes repealing the unpopular and difficult-to-administer personal property tax. Perhaps more importantly, the bill allows the City of Milwaukee and Milwaukee County to enact additional local sales taxes by 2% and 0.4%, respectively, without going to a public referendum. Should two-thirds of elected officials in each government cast a vote in favor of the increases, they could go into effect with barely enough time to spare before these governments hit deep fiscal cliffs in the next two budget cycles.
As Alison Dirr and D.L. Davis of the Journal Sentinel point out, the timing really matters here. The increases could be approved as early as July, and would be implemented in October. So too do the details. As I noted last week, Milwaukee’s new sales taxes will not really function like general revenue at all, since they can only be used for unfunded pension liabilities, and (in the case of the City) public safety.
Third, beyond the revenue provisions, the funding legislation contains a number of new restrictions on local autonomy. New revenue in the bill can be used only for police, fire protection, and emergency services, and local governments must maintain or increase their spending on these services, or else lose a significant share of their total County and Municipal Aid payments.
The legislation bans virtually all local advisory referenda across the state and limits public health officials’ ability to intervene during disease outbreaks. A number of these provisions are targeted specifically at the City and County of Milwaukee. These include, but are not limited to: a new rule requiring a two-thirds vote on all new spending in the county and the city, a ban on tax-levy expenditures on the streetcar, the gutting of civilian oversight of Milwaukee’s police department. Milwaukee would also see additional penalties (a 30% cut to supplemental shared-revenue payments) if its investments in police, fire, and emergency services fall below current levels.
As I noted last week, the Milwaukee-only provisions seem ripe for litigation under the Wisconsin Constitution’s Home Rule amendment. This week, Milwaukee Common Council has already announced it will begin the process of hiring counsel to explore just such a lawsuit.
Where the City of Milwaukee itself is concerned, there are also some important outstanding questions about whether the combination of a 2% city sales tax and an injection of shared revenue will be sufficient to fully avert a fiscal cliff. Among other things, the bill’s provisions allowing the “soft close” of Milwaukee’s pension systems require the city to lower its rate of return from 7.5% to the state’s current assumed rate of 6.8%. As Jeramey Jannene of Urban Milwaukee notes, this could cost the city approximately $50 million per year.
2. County and Municipal Aid increases came far closer to Republicans’ initial bill than they did to Evers’ proposal.
A second major takeaway from the final legislation is that, while the final package is about $47 million larger than the initial version of the legislation introduced by Republicans earlier this spring, it is still far closer in raw dollar terms to their initial proposal than it is to the aid increases proposed by Gov. Tony Evers in his biennial budget.
To get a sense of how this breaks down, the graph below shows the levels of county and municipal aid found in Evers’ proposal (black bar), Republicans’ initial proposal (gray bar), the legislation that passed the State Assembly on May 17 (white bar) and the legislation that was presented to the Governor on June 15 (striped bar).
Here, we can see that the final figure in the final bill is still roughly half the size of Evers’ initial proposal, at $274 million.
3. A boost in aid, but still a fraction of the support local governments received in the early 2000s.
Local governments in Wisconsin have lost significant levels of spending over the years, and it’s also important to recognize that context. While County & Municipal Aid payments have been more or less flat since 2003 in nominal dollars, inflation has eaten up a larger and larger chunk of those payments. Thus in constant dollars, these payments have fallen by the hundreds of millions over time, as the chart below shows.
Note that the final segment of the line here represents the effects of three funding different scenarios starting in 2024. The status quo here was, of course, untenable. Yet Evers’ proposal came far closer to restoring the level of aid governments would be receiving had the program been adjusted to inflation over the years.
While the final version of the legislation will once again allow aid payments to increase over time, the difference between where the program would have been had the legislature not abandoned it and where it will be when the new legislation takes effect is stark.
4. A quirk in the program’s design will create a trust fund with millions in unused funds.
This lower level of spending in the now-passed bill also has one important, but little discussed — still less understood — piece: millions of dollars of unobligated money.
It works like this. The legislation creates a local government trust fund that devotes 20% of the state sales tax to local governments. Yet County and Municipal Aid accounts for only half of this fund. The final legislation migrates a number of local-government programs into the trust fund. This includes expenditure restraint payments, a backfill for the elimination of the personal property tax, as well as a number of other smaller grant programs). Further, the fund includes $300 million of this revenue will be reserved for a separate “Local Government Innovation Fund” – whose unclear provisions I’ve analyzed in an earlier post. Yet even after we account for all these programs, the legislation will still produce tens of millions in unobligated balances.
These balances will only accrue over time. That is because, of all the programs contained in the shared revenue bill, only the County and Municipal Aid funds are designed to increase over time. On its own, that inflationary increase is a huge, important change from the decades of stagnant shared revenue payments. Yet as sales tax revenues grow, the fact that the remaining accounts in the trust fund will stay flat means that the legislature will soon be sitting on a growing pile of unobligated dollars that could have been spent to assist struggling local governments.
5. The City of Milwaukee got the lowest percentage increase in aid of any municipality in the state.
One of the major differences between the initial version of Republicans’ legislation and the version that was sent to the governor last week is the minimum increase in revenue guaranteed to municipal governments.
In the initial version of the bill, that base increase was 10%. By the time the legislature took its final votes last week, that minimum increase had grown to 20%, with one exception: the City of Milwaukee. As the minimum increase rate grew in successive versions of the legislation, Milwaukee’s increase stayed right in place at 10% — the only city in the state to receive this treatment in the legislation. As a result, Milwaukee’s increase in shared revenue was the lowest in the county (see below), the metropolitan area, and the state.
One potential reason for this was that, unlike all other cities and counties in the state, the final version of the legislation gave only the City and County of Milwaukee the option to enact new additional local sales taxes. Yet this rationale ignores that new sales taxes are not general purpose revenue. They can be used only to wipe out unfunded pension obligations and (in the city’s case) to support public safety. So if shared revenue is “swapped” for access (pending a vote) to a new tax source, it is a highly uneven one.
These Milwaukee-specific features should not overshadow the point that all municipalities in Milwaukee County would have done better (sometimes far better) under Evers’ initial legislative proposal. This is true when we widen our focus to the metro area, too. On average, municipal aid increases were higher under Evers’ proposal than in the final legislation in all but two counties (Dodge and Jefferson).
Looked at in per capita terms, municipal aid was higher on average under Evers’ proposal in all eight Milwaukee metro counties.
6. Milwaukee County received the lowest percentage increase in aid of any county in the state.
We see similar patterns when we turn our attention to county aid. As with the City of Milwaukee, Milwaukee County received the lowest percentage increase in shared revenue of any county in the state. Still, it’s worth noting that all counties in the Milwaukee metro area would have received a larger increase in shared revenue under Evers’ proposal. The differences are especially pronounced in Ozaukee, Walworth, Washington, and Waukesha Counties.
The pattern is equally visible when we look at things in terms of per capita aid payments. All amendments aside, all counties in the Milwaukee metro still do far better under Evers’ initial proposal than they do under the final version of the bill that passed last week.
7. Despite an aid boost in the final version of the legislation, most Wisconsinites live in a community that would have done far better under Evers’ initial proposal.
What is true for governments in the Milwaukee metro area is generally true statewide. Despite changes between the initial proposal and the final version of the legislation, most Wisconsinites live in a community that would have seen larger increases in shared revenue under the Evers’ proposal.
As I’ve done in previous posts, the charts below break out average aid increases and per-capita payments into four groups of municipalities, based on population – mirroring the breakdown found in the legislation’s formula.
Here we can see that only one group of municipalities, those with fewer than 5,000 residents, would receive a larger increase in shared revenue payments under the final version of the legislation than they would under Evers’ initial proposal. Put another way, 74% of Wisconsin’s population lives in a municipality that would have seen a larger aid increase under Evers bill than under the final legislation that passed.
To be sure, the bill that the legislature sent to the Governor’s desk represents a far better deal for a number of municipalities than the initial version of the legislation, as 72% of Wisconsin’s population lives in a municipality that saw a larger aid increase under the final version of legislation than it did under the version passed by the Assembly in May. This was driven largely by 155 municipalities which the final bill moved to a 20% minimum increase.
Where counties are concerned, the distributional effects of the legislation are very similar to those in the Assembly legislation, which I wrote about in May. The chart below breaks down the data here into four classes based on county populations, ranging from counties with fewer than 20,000 residents to counties with more than 100,000 residents. Probably the most striking thing to note here is that, whereas the smallest municipal governments receive a larger bump under the GOP plans, counties of all sizes do better under Evers’ plan than either version of the Republican legislation. In sum, 90% of Wisconsin counties — all but six — receive larger aid increases under Evers’ initial plan than any version of the Republican legislation.
When we look at the aid payments in dollar terms, we see that larger counties receive less aid per capita under all three plans. Yet with the exception of the smallest counties, per capita aid payments are higher under the Evers plan than they are under any version of the Republican legislation, including the one that was sent to the governor last week.
Summing up
From one vantage point, the legislative outcome here might seem highly predictable. As in so many policy battles, the governor proposed a plan to solve a decades old problem. A gerrymandered state legislature disposed of this plan, proposed another – on its own terms — and worked the legislative and fiscal clock to engineer a result far closer to those terms than to the governor’s. It’s like a diorama model of Wisconsin politics.
And yet the legislative outcome here can rightly be called historic. On the one hand, the bill constitutes a critical juncture that will allow local governments to pull back from the edge of a state-created fiscal abyss. No less significantly, the legislation also re-envisions the state-local fiscal relationship as more conditional, more beset by restrictions, and less solicitous of the autonomy of locally elected officials than ever before.
As the reality of those restrictions — and of the inadequacies of the bill — comes to light, more history could well be written, too.