Here & Now

Property Taxes: their Influence and Importance

Frederica Freyberg:

The complicated GOP state budget machinations over tax cuts leave school districts about even, but allow for federal COVID relief dollars to flow into Wisconsin. Budget writers essentially bought down property taxes, giving cuts to homeowners. They then backfilled school funding with state dollars. That maintained eligibility for federal funds which would have been forfeited had Wisconsin not obliged to the “maintenance of effort” threshold for state funding of schools. Wisconsin’s property tax is a vexing and important driver for homeowners, schools and politicians. Senior political reporter Zac Schultz unravels the way it works.

Zac Schultz:

If you live in Wisconsin, there’s almost no escaping the property tax. Even if you don’t own a home, you’re paying your landlord’s property tax bill through your rent and that bill can be big.

Jason Stein:

In Wisconsin that’s the biggest single tax.

Zac Schultz:

Jason Stein is research director at the Wisconsin Policy Forum and studies state and local government. He says Wisconsin stands out in how much we rely on the property tax.

Jason Stein:

We rely very heavily on the property tax to fund local government.

Zac Schultz:

Counties, towns, villages, cities, school districts and technical colleges all collect property taxes to help fund basic services like education, police and fire protection, parks, roads and the courts. When you open your bill, you can see where your money is going and how it all adds up. How much you pay is based on the value of your property. Let’s look at two homeowners in the city of Onalaska located north of La Crosse on the Mississippi River. The owner of this $800,000 home in the bluffs owed nearly $14,000 in 2020. Down the hill, the owner of this $170,000 home paid $2700.

Jason Stein:

So if you ask any homeowner in Wisconsin, “Hey, what’d you pay in property taxes last year?” They’re going to be able to give you a number that is close or even exact to what they paid.

Zac Schultz:

One reason the property tax stands out is it comes in one large bill. You pay sales tax on each transaction. You pay your income taxes on each paycheck. The property tax stands alone.

Jason Stein:

You combine both the salience and the actual size of it and it tends to loom pretty large in people’s minds.

Zac Schultz:

In theory, property tax levies are set at the local level by school boards and city councils when they past their budget. But in reality, property taxes are controlled at the state level by politicians and the Legislature.

Tony Kurtz:

The goal obviously is to keep property taxes low.

Zac Schultz:

Representative Tony Kurtz is a Republican on the Joint Finance Committee which writes the state budget every two years.

Tony Kurtz:

I think everybody, especially my area, when you get that property tax bill, everybody kinda holds their breath.

Zac Schultz:

He says Republicans fixate on property taxes because that’s what their voters tell them to do.

Tony Kurtz:

I kept hearing don’t raise my property taxes. So in my area, that’s a sensitive issue.

Zac Schultz:

The state has traditionally controlled property taxes in two ways: by using the state budget to help pay for services provided through general aid to schools and shared revenue for local governments and by using state law to eliminate local control and enforce revenue limits, preventing property taxes from increasing. Public schools have been under revenue limits since the 1990s when the state promised to pay two-thirds of the schools’ cost in exchange for a cap on property taxes. While the state rarely lives up to its end of the bargain in providing two-thirds funding, it does set how much the caps can rise.

Kent Ellickson:

Think of that as a bucket or container.

Zac Schultz:

Kent Ellickson is the director of finance for the school district of Onalaska. He compares their budget to a bucket and the revenue limits cap the size of the bucket.

Kent Ellickson:

So the state sets the size of that bucket, number one. And number two, they determine how much they’re going to fill up that bucket.

Zac Schultz:

Ellickson says after the state fills part of the bucket, the schools levy property taxes to fill the rest. If the bucket isn’t big enough, they ask their taxpayers to pass an operating referendum to increase the revenue limit.

Kent Ellickson:

We’ve been decades in funding with continuous operational referenda. That supports about seven or eight percent, a significant chunk of our operational budgets.

Zac Schultz:

Cities, villages, towns and counties have been under revenue limits since the 2000s. Originally, their tax levies were able to increase with inflation. But that was zeroed out under former Governor Scott Walker. Now the tax levy can only increase by the value in new construction, which is a very small number in most municipalities.

Steve O’Malley:

This past year was 1.5% and that doesn’t recognize inflation.

Zac Schultz:

Steve O’Malley is the La Crosse County administrator.

Steve O’Malley:

For most of the last two decades, we’ve seen little growth in any form of state or federal revenue. And we have the most restrictive levy limits in the nation.

Zac Schultz:

O’Malley says state and federal mandates require them to maintain highways, the jails, the courts and provide human services all without additional revenue.

Steve O’Malley:

You end up having to cut budgets. You have to cut positions. We’ve steadily decreased the number of full-time employees within La Crosse County, as have most counties across the state.

Zac Schultz:

O’Malley says the state should increase shared revenue because he doesn’t want to increase property taxes.

Steve O’Malley:

It’s just the hypocrisy of mandating us to provide services and not funding it. You have legislators who get to take credit for controlling property taxes but they don’t have to pay for what they mandate counties to provide.

Roger Stanford:

Right now, those limits are going to really strangle us.

Zac Schultz:

The technical colleges make up another line on your tax bill. Roger Stanford is president at Western Technical College, which covers an 11-county area centered in La Crosse. They too had limited authority to raise property taxes wiped out by Governor Walker.

Roger Stanford:

We were accountable under a system and it was a system that worked and it was a representative system because it represented our counties.

Zac Schultz:

Stanford says the levy limits hurt their ability to offer new job training programs that are requested by local employers because they don’t have the money to create new classes. He says people focused on their tax bill need to understand a small increase can lead to more jobs.

Roger Stanford:

So anytime you save them $6, $8, $7 on that tax bill that feels good. When you add $6, $7, $8 on there, you go, what am I directly getting for that. It’s hard for someone to look at that and say, “Oh, there’s a better workforce. Oh, they added another section of welding.” It doesn’t transfer to our citizenship exactly that way.

Mary Felzkowski:

We hear about that constantly and holding the line on property taxes.

Zac Schultz:

Senator Mary Felzkowski is also a Republican on the Joint Finance Committee. She agrees most voters do not always understand the link between property taxes and the services they pay for.

Mary Felzkowski:

So do they always realize everything that’s funded off of it? Probably not. But it’s still the difference of can I afford to stay in my house or not.

Zac Schultz:

Republicans could increase the amount of money the state gives local governments and schools to reduce their reliance on property taxes. But over the last decade, they’ve chosen a different route, pouring more state money into property tax credits. These credits appear on your property tax bill as a negative number, reducing the amount you owe. The state uses money collected from sales and income taxes to pay off a portion of your property taxes. The first dollar credit adds up to $150 million a year statewide and it’s the same number for all homeowners in each school district. The lottery credit comes from proceeds from the lottery and it’s the same for all homeowners as well. The school levy credit is the big one and it’s used to lower the tax rate in each school district and this is where Republicans have invested more and more money, to the point where the state budget spends nearly a billion dollars a year on the school levy credit.

Scott Walker:

Both property and income taxes will be lower in 2018 than they were in 2010.

Zac Schultz:

This accelerated during Scott Walker’s time as governor. He started campaigning on a pledge to make property taxes lower than when he took office. And when freezing levy limits wasn’t enough, he started pumping more state money into credits. Republicans increased the size of the school levy credit in 2013, ’16 and ’18. In 2014, they added $420 million in state dollars to the technical college budget but required them to lower property taxes by the same amount. In 2017, they eliminated the state forestry tax and backfilled the programs with state money. They also put state money into funding the lottery so that credit would increase. In the last decade, the state has invested $13.6 billion to buy down property taxes. But who’s seen the most benefit from that $13 billion investment? Who’s saving the most money? The people who own the most property, of course. Let’s look at our homeowners in Onalaska. In 2011 when Governor Walker came into office, this home was valued at $706,000 and the owner paid $14,000 in property taxes. Over the next ten years, the home went up $95,000 in assessed value, to $801,000. But in 2020 the property taxes had gone down from where they were in 2011, to $13,992. Over the years, those three tax credits on the bill saved the owner $14,000. Down the hill, this home was valued at $108,000 in 2011 and paid $2,000. Over the decade, this home went up $60,000 in value, but by 2020 the property taxes were up to $2780. The three credits saved this homeowner just under $4,000. Republicans like Senator Felzkowski says it’s okay if the wealthy save more.

Mary Felzkowski:

Well I also think you need to look at who’s paying more property taxes? Is it fair that this guy over here, if he’s going to pay more, if we implement a savings, he’s going to save more.

Zac Schultz:

Republicans say controlling property taxes was all about helping people afford to stay in their homes.

Tony Kurtz:

When we can keep property taxes low that’s going to keep those people on those fixed incomes.

Zac Schultz:

But increasing the school levy credit is not the best way to achieve that goal.

Jason Stein:

If you want to ensure that say elderly people remain in their homes, then no. There would be more efficient ways to do that.

Andrew Reschovsky:

We have it sort of upside down in Wisconsin.

Zac Schultz:

Andrew Reschovsky is a professor emeritus at the University of Wisconsin. He studies public affairs and one of his studies found only about half of the school levy credit goes to Wisconsin homeowners. The rest of the credits go to the owners of farmland, commercial property, industrial property and out-of-state owners. Most of the credit goes to wealthy property areas.

Andrew Reschovsky:

The way the levy credit works, they get a larger proportion of the total credit.

Zac Schultz:

Professor Reschovsky says if the goal is to help low-income homeowners pay their property taxes, the solution is not through the property tax bill, but through the income tax return.

Andrew Reschovsky:

The homestead credit is what economists call a circuit breaker.

Zac Schultz:

The homestead credit kicks in if the proportion of your property taxes is high compared to your income. But compared to other property tax credits, it’s very limited.

Andrew Reschovsky:

Over the last ten years, the number of people getting the credit has halved.

Zac Schultz:

In fact, the homestead credit is the one area of property tax relief Republicans have cut over the last decade, down 45% from where it was in 2011.

Andrew Reschovsky:

It’s tiny. Tiny amount of money relative example to the school levy credit.

Zac Schultz:

In the same decade Wisconsin spent $13 billion to lower property taxes. The state spent just $1 billion on the homestead credit.

Andrew Reschovsky:

The irony is that by that focus, we are not achieving the political goal that the legislators wanted in the beginning, which was to target those people who really need relief.

Zac Schultz:

Reporting from Onalaska, I’m Zac Schultz for “Here & Now.”

Frederica Freyberg:

You heard Zac report on levy limits placed on schools and local governments. Republican budget writers kept those spending caps in place in the budget to be voted on next week.