Local Wisconsin governments would receive a 20% share of the state’s sales taxes for a $576 million funding infusion and the ability — with voter support — to raise the sales tax under a plan Gov. Tony Evers will include in his proposed biennial budget next week.
Evers initially made the pledge on revamping of the state’s shared revenue funding in his state of the state address last month with a $7 billion surplus in play as lawmakers debate a new budget. Evers rolled out initial details of the local government funding plans Tuesday.
Local governments across the state — especially Milwaukee — have been clamoring for more revenue flexibility and warned of dire choices as they are squeezed for funds to meet rising expenses. They operate under limited ability to raise taxes under state-imposed caps while state revenue sharing has remained stagnant.
“For a decade now, our local municipalities have been forced to do more with less,” Evers said in a statement. “They’ve had to make impossible decisions about what essential services to fund in our communities. The state must fulfill our obligation to ensure our local partners can meet basic and unique community needs alike, and this historic investment will ensure that we do.”
The new funding streams would provide much-needed salve for Milwaukee, which has seen its credit ratings fall over funding strains.
Evers’ plan would revamp the shared revenue program providing a new appropriation that earmarks 20% of sales taxes into the pool of funds for a $576 million infusion over the biennium. Providing a percentage of sales taxes allows the funds to grow in tandem with taxes.
As part of the 20%, communities will continue to receive existing County and Municipal Aid, Expenditure Restraint, and the county and municipal components of personal property aid. The remaining funds will be divided between public safety aid and general aid to municipalities and counties. A portion of the funding would be distributed as general aid while a big piece would be earmarked for public safety.
Milwaukee County would receive clearance to raise its sales tax by 1% with 50% of the revenue collected going to the city of Milwaukee. “This will diversify local revenue sources and improve the ability of both Milwaukee County and the city of Milwaukee to address unique needs in the state’s largest metropolitan area,” a statement reads.
Other counties and cities with a population of more than 30,000 — excluding Milwaukee — could impose an additional 0.5% sales tax. Voters would have to sign off through a referendum in any cities or counties seeking to raise the levy.
Counties currently may impose a local sales and use tax of up to 0.5%. Shared revenue has amounted to about $900 million. The state created the shared revenue program as a means to compensate local governments to offset the ability to levy an income tax or impose higher sales taxes. The state also imposes caps on property tax levies.
Cities and counties have been pressing for the sales tax option but the Republican-controlled Legislature had previously blocked it. Legislative leaders have been more open over the last year to discussions on the funding front and GOP leaders have pitched a similar revenue sharing change.
Whether Evers’ specific plan can pass is questionable as Republicans could seek to attach policy and spending conditions to any legislation. Evers, a Democrat who won a second term in November, has frequently butted heads with the GOP majority over taxes, spending, and COVID-19 restrictions.
Speaker Robin Vos, R-Rochester, supports raising shared revenue, but in a statement, said of Evers’ proposal that Republicans “will not grow the size of government or write blank checks without insisting that local governments innovate and combine services to reduce costs.”
“The mayor remains optimistic that substantive change is possible in the fiscal relationship between the state and Wisconsin municipalities,” Jeff Fleming, communications director for Milwaukee Mayor Cavalier Johnson said. “The discussions with legislative leaders are continuing, and today’s announcement by the governor reflects a growing appreciation that a refreshed relationship is in order.”
Last fall, Fitch Ratings cut the city’s general obligation rating by two notches to A from AA-minus and S&P Global Ratings cut it by one notch to A-minus from A. Both assign a negative outlook. Moody’s Investors Service in September downgraded the city to A3 from A2 and left a negative outlook on the rating.
Fitch said its downgrade stemmed from “significant operating pressure temporarily mitigated by the infusion of substantial federal stimulus.”
“Growing expenditures well above the rate of revenue growth and the inability to independently increase revenue may lead to significant declines in financial resilience if the city does not receive an infusion of revenue or implement large cuts to core services,” Fitch said.
The city also faces a looming spike in pension contributions. State shared revenues provide the largest source of city revenues at 40% followed by property taxes at 30%. A hike in the sales tax levy could generate between $55 million and $60 million.
A legislative fight also lies ahead over use of the $7 billion revenue surplus, with the GOP already labeling some of Evers’ proposals to increase spending as dead on arrival. Some GOP members are also pushing to move to a flat income tax as a means for providing relief. Evers wants one-time relief.
The Legislative Fiscal Bureau in late January released its latest revenue and expense figures that project a net balance of $7 billion for the biennium ending June 30. That’s up by $524 million from the bureau’s November report, with funding that went unspent accounting for most of the additional balance. Only $60.7 million more in revenue is expected to be collected this fiscal year. Revenues for the next fiscal year were lowered by $75 million and by $80 million in fiscal 2025 as the economy is expected to slow.
While Evers proposes a budget, it’s the Republican-controlled Joint Finance Committee that will write the final spending plan that goes before the legislature for a vote.