Wisconsin municipalities rely on property taxes far more than most other states, a report finds

MADISON - Wisconsin’s municipalities rely on property taxes at nearly twice the rate as their counterparts in other states on average, according to a new report.

Municipalities in the Badger State got about 42 percent of their revenue from property taxes — well above the national average of about 23 percent, according to the study released Thursday by the nonpartisan Wisconsin Policy Forum.

At a stop in Milwaukee, Gov. Tony Evers said he hoped to address the issue by providing local governments with more state aid known as shared revenue.

"We have to create a more flexible opportunity for all of our municipalities to access resources so they can thrive. If it's property-tax related, it really constrains our cities," the Democratic governor said. "So we'll be looking to increase shared revenue, but we're also looking to provide some flexibility to our municipalities, including Milwaukee."

Wisconsin ranks seventh in the nation for its reliance on property taxes for funding municipalities, the report said.

All the states that outrank Wisconsin on that measure are in the Northeast. No other state in the Midwest uses property taxes as heavily as Wisconsin, the report found.

Local governments in Wisconsin have seen their revenue constrained for more than a decade by property tax caps. Wisconsin’s caps — championed by Republicans who control the Legislature — appear to be tighter than other states that rely as heavily on property taxes for local governments, according to the report.

"It's a classic good news-bad news story," said Rob Henken, president of the Wisconsin Policy Forum.

"I don't think there's any question that the property tax caps have been a contributor to the successful effort to reduce the property tax burden in the state of Wisconsin. I think what we're pointing out here is we are starting to see issues arise in terms of some unintended consequences potentially that have to do with the caps."

RELATED:Report: Milwaukee only city of its size limited to property taxes as sole local tax

Among those possible unintended consequences: rising debt and increased use of wheel taxes. 

Funds used to pay off debt aren't subject to the property tax caps, so borrowing provides one of the few relief valves for local officials. 

Local governments have few ways to raise funds if they want more money. Increasingly they have imposed wheel taxes — a development that has drawn opposition from some lawmakers.

Over the years, property taxes have become more important in funding municipalities in Wisconsin, the report showed. For two decades, state aid made up a bigger share of local budgets than property tax revenue, but that changed in 1997.

Now, property taxes account for twice as much revenue for local governments as state aid.

In November, nine municipalities voted to exceed their property tax caps, according to the report. Typically, past votes to exceed those limits have been to help fund schools, not municipalities.

Municipalities in most other states use sales taxes more routinely to fund their operations. Wisconsin’s sales tax — 5.5 percent in most parts of the state — is the lowest in the Midwest, the report found.

Local officials in Milwaukee and elsewhere have sought ways to raise more money, with some calling for the ability to increase sales taxes. 

The report looked at revenue but not spending by local governments. Henken said local spending has been studied in past reports and will be again in the future.

"There's an expenditure question here, too, and both have to be looked at," Henken said.

The Wisconsin Policy Forum conducted its review in collaboration with the League of Wisconsin Municipalities, Wisconsin Realtors Association and the Greater Milwaukee Committee. 

The report follows up on one from 2017 that suggested the funding structure for Milwaukee was outdated and ineffective. 

Mary Spicuzza of the Journal Sentinel staff contributed to this report.