A Little About Property Taxes

PROPERTY TAXES
The public generally understands that municipal activities are different than private sector businesses. Most members of the public do not understand the depth of the differences. The public sector in the U.S. evolved because the private and non-profit sectors could not satisfy all community needs. Municipalities started to provide services that were deemed necessary by the majority of the public because these services were not effectively provided by the private sector since generating a profit was difficult.
So, municipalities exist to provide goods and/or services related to real or perceived market, distribution, or competitive failures. Public goods are goods or services that can be consumed by several individuals simultaneously without diminishing the value of consumption to any one of the individuals. This key characteristic of public goods, that multiple individuals can consume the same good without diminishing its value, is termed non-rivalry. Nonrivalry is what most strongly distinguishes public goods from private goods. A pure public good also has the characteristic of non-excludability, that is, an individual cannot be prevented from consuming the good whether or not the individual pays for it. For example, fresh air, a public park, a beautiful view, and street lighting. Municipalities can and normally do provide goods and/or services that aren’t necessarily pure public goods[1].
The size and diversity of the service population and the scope of the service roles assigned to respective governments creates their operating challenge. In large part, the political impact of demography and economic changes are filtered through the assignment of functions among governments and the respective power of the affected groups to influence policy and the related services.
Over the last twenty years, the demographic change that is of the greatest consequence for municipalities has been the growth in new residential and commercial building activity. This activity had been the largest factor in the increased demand for public construction and services to newcomers. Residential units typically resulted in the greatest amount of growth in maintenance and service costs for municipalities.
The population growth trend in the second half of the twentieth century had been toward suburbanization and, more recently, a renewed growth in smaller cities. As a nation we actually hit the high-water mark of "big city" urban living in the 1960’s when about 35% of the urban population lived in cities with over 250,000 populations. As of 1990, that percentage fell to about 29%. Since the 1960s national population growth has been in suburban areas and smaller cities, particularly in the metropolitan areas that grew up around the central city areas. This scattering of population throughout metropolitan regions has had consequences for transportation spending, especially highways. It also brought higher levels of community spending to meet a host of state and federal environmental mandates that have increased the costs of development.
A new trend has been termed gentrification. Although originally socially driven, urban redevelopment is becoming economically driven. Urban gentrification, is a term applied to that part of the urban housing cycle in which physically deteriorated neighborhoods in large cities attract an influx of investment and undergo physical renovation and an increase in property market values. Gentrification has benefits for urban renewal, such as renewed investment in physically deteriorating locales, improved access to lending capital for low-income mortgage seekers as their property values increase, increased rates of lending to minority and first-time home purchasers to invest in the now-appreciating area and improved physical conditions for renters. Gentrification has been linked to reductions in crime rates, increased property values, increased revenue to local governments from property taxes, and renewed community activism.
Homebuyers have been evaluating the trade off between urban/suburban for years - the further away from metropolitan centers a home is located the better the price/livability balance is likely to be. There are exceptions to this, of course, but generally consumers have been willing or maybe forced to exchange time for location, frequently commuting 40 or more miles each day between a nice home in the suburbs to their job in the city or in another far-flung suburb. With the seriously possibility of $4 to $5 per gallon gas becoming a long-term possibility, homebuyers will find the price/commute trade-off is no longer feasible. This could drive down the price of housing in far-flung suburbs and put an additional premium on homes that are close in or with access to public transit systems. These issues are going to drive social changes that effect the revenue/expense positions of cities.
Because cities are site-specific, they respond to changing paces and patterns of development and decline in their area. They may through their taxing and regulatory powers try to influence the location decisions of firms and individuals as the latter navigate the constantly changing waters of economic activity and social change. Cities provide services within their borders to residents, businesses, and those vacationing there, doing business or simply passing through. Many cities must work harder to provide these services because they have smaller tax bases, larger dependent populations, less income and wealth, or because of their natural features (like harsh weather or sparse populations). They also differ according to the resources potentially at their command to meet service needs because of endowments of natural resources, economic activity and again the wealth and income of residents.
All these issues require thought and action by local decision-makers. But the biggest factor in explaining local demand for services typically is that of family incomes. People with more money and especially more money tied up in their biggest asset, their residential property, typically want higher levels of local public services. Paying for them can be another matter, but sorting that out too is a matter of state and local decision making.
Practical Capacity
Decision-makers basically deal with two definitions of the capacity of a physical system which produces a product of goods or services. One is that the capacity is equal to the maximum quantity of output which the system can produce, considering only physical limitations on production. For example, one might be interested in the capacity of a system of power plants to produce electric power. This output level is of course limited by both the number and size of generators and the availability of fuel. This definition of capacity focuses solely on maximizing the output, and ignores other factors which may make achievement of such an output unlikely or undesireable. For example, in some systems marginal costs may become very large when output approaches this capacity. This concept of capacity is often termed ultimate capacity.
The other basic definition of capacity recognizes that the cost may be far too large at the ultimate capacity for such a level of output to be practically or economically attainable. This suggests the other basic definition of capacity: the maximum output at which cost does not exceed a maximum acceptable value. This concept is termed economic capacity in economics literature and practical capacity in the engineering literature. The term cost is deliberately left vague, for the specific measure used varies with the situation, in some cases being average cost, in others marginal cost, etc.
These definitions all refer to the quantity of output of the system of interest. This naturally raises the question of how the output of an entire system is to be defined. In most cases where capacity has been estimated, there is usually defined – or assumed -- a single, homogeneous output of the system being considered. For example, in the case of a manufactured product, the quantity of output would be simply a count of that particular product produced. If there is only one product, or if the variations in the product are rather minor, such that one measurement can be applied to all of the different products, then there is no difficulty in defining a single measure of output. This is the case for the individual components of systems for which capacity is often estimated, as described previously. But in the case of an entire city system, the output is very heterogeneous, encompassing many links as well as other elements of the system. This necessitates a discussion of the system output in detail.
If we consider a city system from the perspective of a physical system, the product of that system probably is most appropriately considered as the delivery of things -- services or objects -- from one provider to an appropriate beneficiary. Thus, at the micro level of a service delivery by a provider of a single service, such as zoning, the product of the city system would be a change in zoning on the individual’s property. Along with this change in zoning come a number of concomitant changes. One is a change in all the possible future uses of the property. Usually, associated with zoning will be some other changes, some of which may reflect the reason for which the zoning is affected. For example, in the case of commercial zoning, it usually results in an increase in the value of the property and surrounding properties, offsetting the cost to society of affecting the previous uses. In addition, other features may change which make the zoning more or less desirable, such as possible deterioration or improving of buildings as a result of the zoning. Thus there may occur changes in the state or condition of the property as a result of a government service delivery.
Similarly, the delivery of pothole repair will have features of ultimate, practically or economically attainable capacity. Waiting until there are enough potholes to justify the mobilization of a load of hotmix and two employees and a truck for a period long enough to make practical and relatively economical a non-routine task. Other issues may be involved in timing delivery of a service. A pothole at the edge of asphalt and concrete may need a special concrete repair method. Employee work and vacation schedules contribute to the ultimate service delivery. The hotmix must be used when it is above 220 degrees and as a result is only useful for a day. The purchase of less than a half ton of asphalt at a time becomes an expensive proposition. All these issues affect the timing of the service delivery. The basic definition of capacity recognizes that the cost may be far too large at the ultimate capacity for such a level of output to be practically or economically attainable.
From the viewpoint of the city system as a whole, the problem is that the output is heterogeneous, that is, there are many products. Each service is truly unique in some aspects although many of these may be unimportant in terms of overall measures of output or capacity. If categories of attributes can be specified such that every service can be classified into one category, then the output could be described by a measure giving the quantity of services in each category. Basically, the delivery of most municipal goods and services would have problems generating a profit because they are difficult to produce economically.
Fiscal Capacity
Municipalities are individuals joining together to cooperatively purchase goods and services. As discussed earlier, municipalities have different levels of resources and the level and mix of goods and services that can be provided in response to demand is constrained in part by the revenues available or fiscal capacity, to meet the demand. At the municipal level, general state non-targeted aids and property taxes are the primary sources of revenue. Together they accounted for nearly 60% of total revenue for Wisconsin cities[2]. State aids take two forms, general targeted aids, such as road maintenance aids, and general non-targeted aid in the form of state shared revenues. State shared revenues follows the model of the old Federal Revenue Sharing program of the 1970s and 1980s. In essence a direct transfer from the state to local government is made with “no strings attached.” Wisconsin’s state revenue program is an aid programs that accounts for 24 percent of all revenues for Wisconsin municipalities[3].
Revenue System
Any discussion of municipal fiscal capacity or level of services must start with the local revenue system and the much maligned but heavily used property tax. Most cities depend at least in part on property tax revenues to provide funding for their services. The property tax is characteristically the municipal discretionary tax of choice. Originally the idea was for the governing body to tote up all the spending that needed to be done (levy) and then, taking the assessed value of property from the previous year, to set a tax rate that generated the year’s needed revenues. The various tax limitations have put constraints on that exercise, but the property tax still plays a significant role in most municipalities.
The property tax is also a legacy of the days when tax obligations were backed by collateral that could be seen, enumerated, and seized in satisfaction of obligations. In view of the many linkages between basic municipal services, land-use controls, and property values, the grass-roots reliance on the property tax is historic and rooted in our system of governance. And, who knows, if the rise of internet sales and international commerce becomes as impressive as some believe, then the property tax (and utility charges) may become the last dependable, unavoidable tax standing.
The property tax has been unfairly flagellated because of over-reliance, poor administration and public misconceptions. The State legislature is constantly shifting the tax burden through tax breaks which only result in increases in the taxes of other property owners, declining state aids which are making cities even more property tax reliant and the constant changing of property tax regulation makes administration of the system difficult for cities even if they have highly qualified staffs[4]. These issues focus attention on the property tax, but the real problem is our revenue system lacks the diversity that builds a good tax system.
The property tax is the largest source of state and local tax revenue in Wisconsin. Local governments levy 99% of the tax, and the remaining 1% is collected by the state. Prior to 1900, the property tax was the state government’s largest tax. As the state’s economy has diversified, state government has come to rely on other tax sources and established various aid programs to reduce local reliance on the property tax.
Property Tax Concepts
Ad Valorem Tax (in Latin: to the value added) refers to property taxes levied by local governments. The property tax involves three key concepts. The thing that is taxed--is the assessed value of property. The total revenue collected is called the levy. The local property tax rate depends on the amount of taxes levied by local governments (municipalities, school districts, technical college districts, and special purpose districts) and the total value of taxable property in the jurisdiction. The property tax rate is calculated by dividing the levy by the assessed value in each jurisdiction each year.
The assessed value of a property is than multiplied by the combined rate (municipalities, school districts, technical college districts, and special purpose districts) which produces a tax amount which is the fair share of the total property tax levy. The amount of tax that a property owner pays is based on two factors: the value of the property owned by the taxpayer and the local property tax rate. A local assessor determines the value of each individual’s property. Multiplying the value by the rate produces the amount of taxes levied on each property. A portion of the tax is paid by the state through state tax credits and the remainder is paid by the owner.
Assessed values are the property values determined for individual parcels of property by the local assessor. Equalized value is the state-determined full market value of all property within each jurisdiction. Equalized values provide a means of comparing different jurisdictions, even if they are assessed at different percentages of market value. Dividing the total assessed value by the equalized value produces a district’s assessment ratio. All taxable property is classified as either real estate or personal property.
The property tax levy is the total amount of revenue that a local unit will collect through the property tax in one year. The gross levy is the total amount of taxes billed including the portion paid by the state through state tax credits. The net levy is the gross levy minus the state credits.
The mill rate is the rate of taxation expressed in terms of dollars of property tax per $1,000 of value. For example, a tax rate of .02400 or 2.4% is equal to 24 mills or $24.00 per $1,000 of value.
Rates usually change each year, and are different in every tax collecting jurisdiction.
Assessed Valuation
Assessed valuation is the value of property against which an ad valorem tax is levied, usually a percentage of "true" or "market" value. In Wisconsin, the Department of Revenue annually publishes an "Equalized Value" report that establishes the real estate value in each municipality for debt purposes.
The assessed valuation of residential and commercial properties is determined by the City Assessor. The assessed valuation of individual properties is adjusted when property changes occur such as improvements, property sale, annexation, new construction, demolition or a city-wide revaluation. The objective of a citywide revaluation is to adjust all property values to fair market value.
Most assessors value property at some fraction of market value, despite a statutory requirement that property be assessed at full value. A series of court cases, dating back to the nineteenth century, has interpreted the statutes to allow assessed values at a fraction of market value, provided the same fraction applies to all property in the taxation district. As a result, local assessors can assess property at a level below market value without violating the state constitution’s requirement of uniform taxation.
When an Average Assessment Ratio is considerably above or below 100% (or 1.0), a community-wide reassessment should be forthcoming. State law requires average assessment ratios to be within 10% of market value, that is, between 90% and 110% once every 4 years. This requirement promotes tax fairness. When community assessments are not regularly updated to reflect changes in the real estate market, unfair taxation can result. As properties increase in value at different rates, some property owners will pay too much in tax and others will pay too little.
The State develops the average assessment ratio by doing an equalized valuation study. The equalized valuation of properties changes annually. The equalized valuation is intended to represent fair market valuation annually because municipalities do not revalue annually. The equalization ratio is used to determine the total current market value of all taxable property within the city.
A school district in Wisconsin does not have direct taxing authority. They bill the municipalities lying within the district and the municipality collects their property taxes. In essence, our local school district sends tax bills to only six taxpayers, the six municipalities (City of Lake Mills and all or portions of the Towns of Lake Mills, Milford, Waterloo, Aztalan and Oakland) lying within the boundaries of the School District of Lake Mills. The amount of school district taxes levied by each municipality is based on the portion of each municipality’s property value in relation to the total property value of the district. These property values will vary based on the last revaluation by each municipality.
The Department of Revenue determines the equalized value of all property in each municipality, but generally does not determine the value of individual parcels. Equalized value is determined based on an evaluation of recent sales data, which is then applied to similar type properties in the entire municipality. The sales data used is for sales that took place a year ago. Therefore, the values certified by the Department of Revenue may not accurately reflect current market conditions for a given municipality or area in a municipality.
The Department of Revenue values take into consideration new development, changes in classification, sales prices and other factors. A community could experience property valuation increase due to more individuals or companies having a desire to locate there (popularity) or a scarcity of available developable property. An increase in values, without additional development, means property values increase due to inflation.
The ratio is calculated by dividing the total yearly assessed value for properties that sold by the total of the sale prices for that year. The DOR findings demonstrate whether the “Aggregate Ratio” for all valid sales occurring in a year is within the State’s standard range of 90% to 110%. Ratio’s outside that range are acceptable but trigger the start of a time period in which a city-wide revaluation must occur.
Only sales that the State considers “valid” are used to create the ratio. The DOR may label a sale as “not valid” for various reasons including but not limited to 1) being between related parties, 2) a foreclosure sale, or 3) the assessment was for a house under construction.
The Department of Revenue determines the equalized value of all property in each municipality, but generally does not determine the value of individual parcels. Equalized value is determined based on an evaluation of recent sales data, which is then applied to similar type properties in the entire municipality. The sales data used is for sales that took place a year ago. Therefore, the values certified by the Department of Revenue may not accurately reflect current market conditions for a given municipality or area in a municipality.
Notwithstanding, equalized value is important in determining the total tax burden for a municipality. The Department of Revenue values take into consideration new development, changes in classification, sales prices and other factors. A community could experience property valuation increase due to more individuals or companies having a desire to locate there (popularity) or a scarcity of available developable property. An increase in values, without additional development, means property values increase due to inflation. In this circumstance current property owners will feel the impact of the full burden of any property tax levy increase. On the other hand, if the increase in values is due entirely to property development, then the new property tax payers will pay for any property tax increase. Typically, property value increases are a combination of inflation and property development.
The result of the equalization allows for comparison of equalized rates across Wisconsin municipalities and allows the state to promote tax fairness.
Property Tax Levy
The property tax levy is the total amount of revenue that a local unit will collect through the property tax in one year. The gross levy is the total amount of taxes billed including the portion paid by the state through state tax credits. The net levy is the gross levy minus the state credits. The mill rate is the rate of taxation expressed in terms of dollars of property tax per $1,000 of value. For example, a tax rate of .02400 or 2.4% is equal to 24 mills or $24.00 per $1,000 of value. The levy is the direct result of the annual budget process. Each fall, cities would determine the amount of their property tax levy by first budgeting their expenditures for the following year and then reducing that total by anticipated amounts from other revenue sources.
The Lake Mills budget starts in May with the City Manager preparing a draft budget that is than sent to the Department Heads for review. The Department Heads send comments and corrections to the City Manager and the corrected draft is reviewed at the second Department Heads’ meeting in July. This meeting begins the development of a budget supported by all Department Heads for the City Manager to submit. A final review is completed at the second Department Heads’ meeting in August and is then prepared for submittal to the City Council at their first meeting in September. These Department Head meetings focus on expenditures for the departments and revenues are constantly reviewed by the City Manager and Clerk-Treasurer up until submittal to the Council and refinement after submittal based on state information.
The property tax was considered a residual revenue source. The remaining amount represented the property tax levy. Currently, all non-property tax revenues are estimated and subtracted from the levy. With property tax caps in place, the property tax revenues are estimated and fees are adjusted to cover the remnant levy and or services and goods are cut.
The Council may hold up to three work sessions where they review additions/deletions to the City Manager’s Budget. When they have completed their changes, the budget ordinance is prepared and there are three readings and a public hearing at the second October and both November Council Meetings with passage at the second November Council meeting.
The passed ordinance is submitted to the County.
The amount of change in the annual property tax that is paid by the individual taxpayer will likely not be the same as the overall change in the tax levy for a municipality. There are a number of additional factors that enter into the calculation.
Property Tax Rate
The amount of tax that a property owner pays is based on two factors: the value of the property owned by the taxpayer and the local property tax rate. A local assessor determines the value of each individual’s property. The local property tax rate depends on the amount of taxes levied by local jurisdictions (municipalities, counties, school districts, technical college districts, and special purpose districts) and the total value of taxable property in the jurisdiction. Multiplying the value by the rate produces the amount of taxes levied on each property. A portion of the tax is paid by the state through state tax credits and the remainder is paid by the owner.
Property is valued at two levels within the state. First, local assessors determine the assessed values for individual properties, except for manufacturing property, in each municipality. Assessed values are used for apportioning property taxes on tax bills to individual property owners within municipalities. Second, the state Department of Revenue (DOR) estimates the full market or equalized value of all property in each district. Equalized values are used to apportion the levies of overlying districts (for example, schools and counties) to the municipalities within them and also to distribute certain types of state aid. The state values are needed because municipalities assess property at varying percentages of market value.
The Net Assessed Value Rate is calculated by adding each taxing jurisdiction’s mill rate less the state credit.
The County aggregates the overlying districts levies and totals the combined tax levy for city residents. The combined rate for the city is calculated by dividing the combine levy by the total assessed value. The combined rate is then applied against the property owner’s assessed value to generate the property taxes owed. The County than produce tax bills that is distributed to each municipality for mailing.
The Property Tax Shift
Tax shift or Tax swap is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same. The term can refer to desired shifts, such as towards Pigovian taxes (typically sin taxes and ecotaxes) as well as (perceived or real) undesired shifts, such as a shift from multi-state corporations to small businesses and families.
John Muir is right. "Tug on any one thing and find it connected to everything else in the universe." Tug on the property tax and find it connected to someone else’s change in taxes. Millions of dollars in property tax breaks may cost local governments’ badly-needed revenue but more often result in increases in the taxes of other property owners. If the state mandates a homestead exemption equal to $20,000 of assessed value, for example, then the local government loses $20,000 multiplied by its nominal tax rate for every eligible property or else must raise this rate (or find revenue somewhere else).
The property tax has long been the mainstay of the local tax system in the United States, and it is a highly visible and hence unpopular tax, at least for homeowners. For many decades, therefore, state public official have searched for and often implemented programs to provide relief from local property taxes.
The more familiar property tax reforms have failed to address this many-headed hydra at its root. Since1970 taxes increased more rapidly on commercial and residential property than on manufacturing and other property. As a result, residential and commercial property have borne increasing shares of the tax burden, while decreasing shares have been borne by manufacturing and other property. Several factors explain the shift in tax shares.
Category
1970
2003
Residential
50.6%
69.2%
Commercial
19.4%
21.4%
Manufacturing
17.7%
4.1%
Agriculture
10.4%
2.9%
Forest/swamp/waste
0.6%
2.3%
Other
1.2%
0.1%

State-initiated property tax relief programs fall into five broad categories. The first and most visible type of program in recent years is a property tax limitation, which cuts local property tax rates or limits their growth without identifying, let alone supplying, alternative revenue sources.
The second type of program, which is the type most commonly associated with the phrase property tax relief, explicitly replaces local property tax revenue with some form of state revenue. In other words, this type of program explicitly shifts the burden of the state-local tax system from the local level to the state level. Examples of this type include circuit breakers and homestead exemptions with state reimbursement.
The third type of program, state aid to local governments, also shifts the tax burden from the local to the state level, but does not specify any particular drop in local revenues or local property taxes. Nevertheless, many studies have shown that state aid programs lead to reductions in property tax rates and hence to property tax relief.
The fourth type of program is a state takeover of some previous local spending responsibilities. State takeover of some county functions, for example, raises the need for state revenue, but lowers the need for county taxes, including property taxes.
Finally, the fifth type of program is a change in the rules governing local revenue systems. A state can allow its local governments to use a payroll tax, for example, an option that enables them to cut property taxes. A mandated homestead exemption with no state reimbursement could also be placed in this category, and a classification scheme that allows a local government to charge a higher effective tax rate on business property can provide some residential property tax relief.
In Wisconsin, the shift has occurred because some types of property have been exempted through state law changes. Manufacturers’ machinery and equipment (M&E) was exempted in 1974. In 1977, the Legislature chose to gradually exempt farmers’ livestock and commercial and manufacturing inventories by assessing them at increasingly lower percentages of full value until they became entirely exempt in 1981. The exemption for computers and related equipment took effect in 1999 and removed $2.3 billion in tax base. At the time of their enactment, these three exemptions collectively represented 18% of the remaining statewide taxable value. Some of the reduction in agricultural taxes between 1995(96) and 2001(02) was caused by phasing-in use value assessment for agricultural land.
The M & E exemption was adopted in 1974, and it helped contribute to a drop in the percentage paid by manufacturing property between 1970 and 1975. Still, the share paid by manufacturing property has continued to decline since 1975, even after the M & E exemption was implemented.

1970
1975
2003
Manufacturing
17.7%
9.4%
4.1%

For commercial property, the inventories exemption was phased in between 1977 and 1981. This caused a drop in the percentage paid by commercial property between 1970 and 1980. However, the share paid by commercial property has increased since 1980.

1970
1975
2003
Commercial
19.4%
19.0%
21.4%

For agricultural property, the use-value assessment was phased in between 1995 and 2003. This helped contribute to a drop in the percentage paid by agricultural property between 1995 and 2003. Nevertheless, the share paid by agricultural property had been declining between 1970 and 1995, even before use value was adopted.

1970
1975
2003
Agricultural
10.4%
6.7%
2.9%

Under prior law, agricultural land was assessed at full market value. Under current' law, as implemented, parcels of agricultural land were assessed on both January 1, 1996 and on January 1, 1997 at their January 1, 1995 level of assessment.
Since the taxable value of agricultural land did not increase on January 1, 1996 nor on January 1, 1997, property taxes were shifted from agricultural land to other classes of property, state equalization aids were also reallocated and state forestry taxes were lower than under prior law. The property tax shift also affect state costs for tax credit programs and state tax revenues. In addition, the state and municipalities incur costs to implement the new assessment system.
The local fiscal effect of this property tax shifts that the equalized value of agricultural land was $9 .02 billion on January 1, 1995. Assuming that the value would grow by 5.9% in 1996 and 1997, as it did in 1995, agricultural land assessments would be $0.53 billion (5 .9% x $9 .02 billion) lower in 1996, and $1 .1.0 billion [(1 .059 x 1 .059 x $9.02 billion) - $9 .02 billion] lower in 1997 than under prior law. Assuming a net statewide tax rate of $23 per $1,000 of value, $12.2 million ($0.53 billion x 0.:023) in property taxes would be shifted from agricultural land to other classes of property in 1996, and $25 .3 million .($1 .10 billion x 0.023) would be shifted in 1997. The Department of Revenue estimated property taxes on agricultural land would be 5.57% less and property taxes on other classes of property would be 0 .25% higher in 1996 than under prior law. In 1997, property taxes on agricultural land would be 10.89% less, and property taxes on other classes of property would be 0.48% higher than under prior law.
A second factor is that property has been added or removed from the tax rolls since 1970. The majority of new construction has been for residential and commercial uses. As that tax base has been added, residential and commercial taxpayers have borne an increasing percentage of total taxes. Other properties have been demolished or converted to other uses. This accounts for some of the reduction in the percent of taxes borne by manufacturing property. Similarly, farmland has been converted to other uses as the number of farms has declined from about 110,000 in 1970 to 77,000 in 2001.
During this 30-year period, residential property values increased at a faster rate then other classes of property in Wisconsin and this also increased the amount of property taxes that homeowners paid. It’s important to note that the share of property taxes paid by commercial property has also risen as the economy has moved to a more service-oriented economy. Manufacturing property and agricultural property have paid a declining share of property taxes as those sectors have accounted for a smaller share of overall economic activity over the same period.
Finally, economic conditions explain some of the shifts. For example, national economic conditions associated with recessionary periods caused some reductions in manufacturing, commercial, and agricultural tax base during the 1980s. As a result, taxes on that property either declined or grew at a slower rate.
Net tax levies and rates include reductions for credits that were not extended to all property owners: personal property tax relief (PPTR) for owners of Line A personal property in 1970(71) through 1980(81) and the lottery credit for property used as the owner’s principal residence in 1995(96) , 2000(01), and 2001(02).
The result is that although taxpayers actually pay almost $10.00 net less per $1000 in 2001 than they did in 1970, the tax burden has shifted so that the average residential/commercial taxpayer is paying substantially more and the agricultural/industrial taxpayer is paying less in property taxes in 2001 than 1970. If you believe in paying for what you use, than this is an appropriate adjustment. Industrial, Agriculture and Commercial uses have always subsidized residential uses, but now at a lower rate than in 1970.
Conclusion
Taxpayer dissatisfaction with increasing property taxes and local governments’ struggles to maintain services with declining revenues may compel politicians and decision-makers to take a closer look at the actual costs and benefits of these preferential property tax treatments of land. Funding for other, more effective land use tools may depend, in these times of fiscal austerity, on analyzing honestly the tax expenditure costs of tax relief in contrast to other more direct expenditures.
In Wisconsin, the business sector pays 35% of all state taxes, according to data from Ernst & Young, the large accounting firm. The nationwide average contribution by business to state taxes is 40%, compared with Wisconsin’s 35%.[5] It’s the same story for local taxes. In Wisconsin, the business sector pays 47% of all local taxes, according to Ernst & Young. The nationwide average contribution by business to local taxes is 52%, compared with Wisconsin’s 47%.
Governance encompasses the many and ever changing sets of relationships between the people who make up the government and the interest of citizens, who interact with public institutions both as individuals and as participants with mutual interests. Decision-makers need to recognize there is a lot of complexity involved in the legislative and administrative processes that determine what services citizens want and how to provide them on a day-to-day basis. Most of our standard communications is already difficult because there are major potentials for message transmission error. The choice of words or language in which a sender encodes a message will influence the quality of communication. It is important to note that no two people will attribute the exact same meaning to the same words. More often than not - and most of us are quite unaware of the process - our mind tries very hard to fit impressions and stimuli into a framework of expectations. We resist any attempts to make us 'change our mind'.
The city as a creature of the state legislature is subject to state regulation at anytime. The state tax changes shift our levy from one set of taxpayers to another. We respond to actions beyond our immediate control to provide continued goods and services with limited fiscal options.
[1] Almost no good or service is completely non-rival. On the other hand, many goods are not completely rival either. Hence, non-rivalry as a characteristic of a public good is a relative, not an absolute concept.
[2] A city is a type of municipality.
[3] Municipalities in Wisconsin include Cities, Villages, Towns and Counties.
[4] Wisconsin has fewer Finance Directors per municipality than most other states.
[5] Total State and local Business Taxes: 50-State Estimates for Fiscal Year 2006, by Robert Cline, Tom Neubig and Andrew Phillips.