Wisconsin Municipalities Squeezed by Aid Cuts, Tax Caps

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CHICAGO – Wisconsin's bigger municipalities are faring better fiscally than their smaller neighbors, a new report says.

The Wisconsin Taxpayers Alliance and the League of Wisconsin Municipalities released "The 2016 State of Wisconsin Cities and Villages" late last month.

The report shows a "mixed picture of the health of Wisconsin's cities and villages," the league and alliance said in a joint statement.

It's based on the survey results from the 30% of cities and villages that responded to questions that sought information on one- and five -year trends on municipalities' fiscal condition, spending patterns, and services.

The report marks the first a series planned by the two organizations that annually will dig into the fiscal health, service levels, employment conditions, and other aspects of local city and village government operations.

Wisconsin's 597 cities and villages are home to more than four million citizens, or 71% of the state's 5.8 million people.

"Policymakers at the local level and at the state level will benefit from this ongoing update," said the league's executive director, Jerry Deschane.

Property tax limits and tightened state aid are squeezing local governments, the report said.

They two revenue sources make up a significant amount of local governments' $4.8 billion of revenue.

Between 2001 and 2014, municipal revenues rose a total of 2.1% while state revenues climbed 8.0%, according to the report.

State aid has been stagnant for some time, but the more recent burden of property tax caps has heightened municipal challenges.

Property tax revenue represents about 57% of local governments' general revenue.

Growth from that revenue stream is limited because of state-imposed levy limits.

State aid makes another 21% on average. Another 13% comes from local fees.

Local property taxes increased just 5.2% from 2011 to 2014 while state aid fell 7.5%. Adjusted for inflation, levies were down 0.8% and state aid fell 12.8%.

"Total 2014 revenues were sufficient to fund only about 95% of municipal services provided in 2010, had costs grown at the rate of inflation," the report said.

Act 10, which imposed strict limits on unions' collective bargaining rights at the local level and gave governments more control over benefits, covered some of the gap by generating about $100 million in savings, representing about 1.5% of spending.

Gov. Scott Walker pushed through the reforms in 2011 to help offset local government aid cuts that were part of a state budget repair package.

The proposal drew widespread protests.

The savings are limited because public safety employees were exempted.

With revenues tighter, the report found a shift in spending priorities. Administrative costs and spending on parks and related recreational programs slowed while public safety and streets remained top priorities. Public safety accounted for 31.4% of spending and in 2015 municipalities that increased public safety personnel outnumbered those that cut in that area.

Local road spending made up about 13.8% of spending.

It declined between 2010 and 2013 but rebounded in 2014. Still, it is falling short and poses a long-term challenge, the report concluded.

While 68% of city and village streets were ranked from "good" to "excellent," the percentage has been on the decline since 2009 while the percentage of roads labeled as being in "fair" and "poor or worse" condition has been on the rise.

"Delaying street maintenance projects raises costs exponentially. While basic street resurfacing costs $606,000 per mile, the cost quadruples if the work is deferred and streets need to be reconstructed," the report said.

"The streets are good, but the percentage of streets that are in really good shape is smaller, and the percentage of streets that are in poor shape is getting larger. That's a danger signal," Deschane said in an interview with The Wheeler Report website.

"Act 10 helped, but it did not go far enough because it did not cover police and fire," he said. "Act 10 did not make up for all the shared revenue lost. Changes in services are unavoidable unless the revenue changes."

Borrowing has slowed in recent years but municipalities ran up the tab between 2000 and 2009 and the cost to repay the debt is consuming one in five municipal dollars.

Debt service takes up about 21.7% of spending, up from 14.4% in 2000 and 19.6% in 2009 but down from a peak of 25.7% in 2012.

"Paying off old debts reduces money available to undertake current street projects and other municipal needs," the report said.

While municipalities say finances remain tight, most that responded to the survey believe their fiscal health has not declined over the past five years and 29% report improvement in 2015 compared to 2014 while nearly 60% said their fiscal health was at least holding steady between the two years.

Local job prospects are also generally on the mend, albeit at a slow pace from the last recession, while new construction also continues to grow, although also at a slow pace.

A notable finding from the survey came in the differing responses between large and small municipalities, with smaller ones facing more challenges in their post-recession recovery.

About 45% of the larger communities with more than 15,000 residents reported that their finances had improved and only 3% reported a decline, while only 23% of smaller communities saw an improvement and 18% said fiscal conditions were worse.

"Compared to their large community counterparts, officials from less populous municipalities reported worse finances, fewer job opportunities, less new development, and little or no competition for board seats," the report concluded.

The differential between larger and smaller communities was also seen in staffing and benefit decisions which the survey suggests provides insight into the level of fiscal stress communities are under.

Overall, 27% of municipalities said they had more full-time equivalent employees in 2015 than 2014, with 31% of larger communities reporting an increase compared to only 2% of smaller ones.

The report also warned of problems that loom with civic engagement, as indicated by smaller numbers of candidates for village boards and city councils over the past three years.

Only 4% to 5% of municipalities reported two or more candidates for each board seat.

In 52% of communities, there was one or no candidates for each seat.

That percentage was 21% in the larger municipalities but a "troubling" 64% in those with fewer than 15,000 residents, the report found.

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