The State Budget and the City Finances

The State Joint Finance Committee (JFC) passed their series of omnibus motions on May 29th. The Committee's version of the state budget increases the governor’s cut in shared revenue from 1% to 3.5% and it also prohibits municipalities from cutting emergency services expenditures in 2010. The JFC's proposal reduces shared revenue funding by an additional $21.4 million for a total cut of $29.9 million to be applied to payments made in 2010. The total 3.5% cut is to be distributed among municipalities in the same manner as proposed for the original 1% cut included in Governor Doyle's recommended budget, which is on a equalized value basis with a 15% maximum payment reduction. After the cut in 2010, each municipality would receive the same shared revenue payment in 2011 that it received in 2010. The Legislative Fiscal Bureau will release a report showing the impact of the cuts on each municipality in the next week or so.

To keep shared revenue cuts below 5%, the Governor and legislative leaders agreed on a plan inserted into the Joint Finance Committee's version of the budget that converts a telephone surcharge approved by the committee last month to pay for county 911 dispatch equipment upgrades to a police and fire telephone fee. The new 75 cent per month fee on all cell phones and landlines raises an estimated $100 million in new revenue for the state to help fund the shared revenue program.

The JFC in exchange for this funding add on requires that each municipality spend each year for "emergency services" no less than the amount it spent in 2009, not including one-time expenses. Failure to comply may lead to a reduction in shared revenue payments in an amount to be determined by DOR. DOR is instructed to develop a definition of "emergency services."

The Joint Finance Committee also proposed increasing funding for the General Transportation Aid program by 2% in 2010 and 3% in 2011. (The Governor had proposed a 1% cut to GTA in 2010.)


These are some other municipal related items:

Expenditure Restraint Program. (ERP)

• Modify the definition of "inflation factor" under the expenditure restraint spending limit formula to limit it to no less than 0%. (The League had requested the adoption of a CPI floor of 3%.)

• Modify the budget test under ERP to allow an adjustment to municipal budgets equal to the difference between a municipality's entitlement under the payments for municipal services program, assuming the program is fully funded, and the municipality's actual payment under the program. Provide that any expenditures allowed under this provision cannot be financed with property tax revenues. (This was requested by the City of Madison).

• Exclude from the spending limits under ERP unreimbursed expenses related to a declared emergency.

Levy Limits.

• Allow municipalities to recapture unused levy capacity from the previous two years when calculating the allowable levy increase in 2009.

• Except from levy limit any amount that a municipality levies to pay the unreimbursed expenses related to a declared emergency beginning in the year in which the emergency occurs or the next year. Extend the exception to amounts levied to replenish cash reserves used in the previous year to pay any unreimbursed expenses related to a declared emergency.



• Allow levy limit adjustments when two communities contract to consolidate services where one community agrees to lower its allowable levy to allow a second community to increase its allowable levy.

The Assembly next prepared and passed their version of the state budget on June 13th. The Assembly made dozens of changes to the state budget passed by the Joint Committee on Finance, including the following:

• Expenditure Restraint Program -- Police and Fire Expenditures. Excludes police and fire expenditures from the expenditure restraint program's budget test if those expenditures are funded from a municipality's general fund balance.

• Property Tax Exemption for Student Housing Facilities. Creates a property tax exemption for all real and personal property of a student housing facility if: (a) the facility is owned by a nonprofit organization; (b) at least 90% of the facility's residents are students enrolled at a public or private institution of higher education and the facility houses no more than 300 such students; and (c) the facility offers support services and outreach programs to its residents, the public or private institution of higher education at which the student residents are enrolled, and the public.

• Beer and Wine at Nonprofit Organization Fundraisers. Deletes provision added by the JFC allowing any non-profit organization to provide free beer or wine at fundraisers without the need for a license from the municipality.

The Senate then passed its version of the state budget on June 17th. The Senate version differs significantly in some areas from the Assembly's. The Senate, like the Assembly before it, used as its base the Joint Committee on Finance's version of the state budget. The Senate made several dozen changes to the Joint Committee on Finance's version, including the following:

• Expenditure Restraint Program Budget Test. Establishes a CPI floor of 3% under the Expenditure Restraint Program's spending limits.

• Maintenance of Effort for Police and Fire Protection Services. Clarifies that the new maintenance of effort requirement for police and fire protection services inserted into the budget by the JFC does not apply to capital expenditures or one time expenses.

• Municipal and County Recycling Grant Program Funding Level. Increases funding for the municipal and county recycling grant program by $2.5 million annually. This would provide a total of $31.6 million in 2009-10 and $32.6 in 2010-11. (The program is currently funded at $31 million, but $3.1 million was transferred to the general fund as part of the current budget deficit efforts.)

• Property Tax Exemption for Retirement Homes for the Aged. Reduces the threshold for distinguishing between taxable and exempt dwelling units within retirement homes for the aged from 160% to 100% of the average equalized value of residential parcels within the county; deletes provision requiring assessors to exclude common areas when assessing value of individual units; and restores requirement that retirement homes must be owned by benevolent associations to qualify for the exemption.

• Definition of Agricultural Land for Property Tax Purposes. Modifies the definition of agricultural land for purposes of property taxation to exclude any land that is platted or zoned for residential, commercial, or industrial use.

• Police and Fire Protection Fee – Sunset. Sunsets the police and fire telephone surcharge on June 30, 2011. Creates a 911 equipment upgrade telephone surcharge effective July 1, 2011.

• Modifications to Prevailing Wage Provisions. Clarifies that the prevailing wage requirements do not apply to "minor service and maintenance work," which is defined to include minor crack filling, chip or slurry sealing or other minor pavement patching, not including overlays. Makes several other technical modifications, including defining "direct financial assistance" for publicly funded private construction projects as moneys in the form of a grant or other arrangement that a municipality directly provides to assist in the erection, construction, repair, remodeling, demolition, or improvement of a private facility.

• Broader Definition of Public Contract Subject to Competitive Bidding. Expands definition of municipal "public contract" for purposes of determining when public works contracts are subject to competitive bidding requirements. The new definition includes contracts for demolition, grading, alteration, painting, or decorating, as well as construction, repair, and remodeling, which are included under current law.

The budget is supposed to be done by July 1 and neither the Assembly nor the Senate has appointed members to a joint conference committee to reconcile the differences between the budget bills passed by each house. Speculation in the Capitol is that perhaps a conference committee won't be appointed and leaders in both houses, along with the Governor's office, will meet privately to work out their differences. Both the Senate and Assembly are scheduled to meet on the floor shortly, at which time they could each appoint members to a joint conference committee. The overall budget package could eventually work out relatively well for the city if the correct options from each proposal are selected, although the chances of that are pretty limited.

The Governor has notified the City of Lake Mills of a 7.6% reduction in shared revenues and 6.13% reduction in transportation aids. Although the total shared revenues distributed by the state where reduced 3.5%, the actual reduction per city was done on an equalized value basis and Lake Mills was the largest percentage cut in Jefferson County for cities. The transportation aids were proposed by the Governor to decrease 1% and increase in all the other proposals so the notice of a 6.13%reduction was a surprise.

Much of this information is from League Legislative bulletins.