Financial study (copy) (copy)

Changes in state policies and spending priorities over the last three decades have created financial challenges for Wisconsin counties.

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Changes in state policies and spending priorities over the last three decades have created financial challenges for Wisconsin counties — regardless of federal assistance — according to an analysis conducted by the research arm of the Wisconsin Counties Association.

State aid accounted for 46% of funding for Wisconsin's 72 counties in 1987, and had declined to 26% by 2019, the Forward Analytics report found. Only two other states reduced state aid to county governments more than Wisconsin during that time period.

From 2008 to 2019, county government spending declined by 7%, adjusted for inflation. Without the inflationary adjustment, it effectively remained flat. The decline "reflects reduced or eliminated services in most counties," the analysis found.

"We need to think about a system that adequately funds countries — not so they can overspend, but so they can adequately fund all the services the state mandates and that citizens demand," said Forward Analytics director and report author Dale Knapp in an interview.

The report, which prompts a big-picture evaluation of state tax policies and funding priorities, comes as state leaders begin a debate over the best uses for an "unprecedented" projected surplus in the short-term. The nonpartisan Legislative Fiscal Bureau announced on Tuesday that Wisconsin is expected to take in $4.4 billion more over a three-year period than previously projected. Based on those projections, the state will end the current budget cycle on June 30 with a balance of $2.6 billion, and the next two-year budget cycle would end with a $5.8 billion balance.

Diminished state funding of county governments isn't unique to Wisconsin; 37 other states reduced the share of county funding from the state level from 1987 to 2017. However, Wisconsin's reduction was the third-largest, and its increased use of the property tax was the fourth-largest.

The report identifies several factors that have contributed to counties' financial challenges over the last few decades:

  • In the 1990s, Wisconsin started spending more money on corrections and K-12 education, followed by increased Medicaid costs after 2004 — shifting funds away from other programs and services.
  • Budget deficits from 2009 to 2013 led to spending cuts across the board.
  • Wisconsin has one of the strictest property tax limits in the nation — since 2006, counties have only been able to raise property taxes at a rate tied to new construction.
  • Wisconsin is one of 31 states that allow counties to impose a sales tax — but Wisconsin's limit of 0.5% is the second-lowest among those states.

Knapp highlighted Ohio as a state where state funding of counties is similar to that in Wisconsin — and in both states, counties act as an administrative arm of the state, providing state-mandated services at the local level. Ohio counties can implement a sales tax of up to 2.25%, bringing county property taxes 42% lower than in Wisconsin. In contrast, in Minnesota, which also operates similarly, counties make use of the sales tax less than in Wisconsin, and property taxes are 13% higher.

The report doesn't call for specific changes, but it does argue that it's time for Wisconsin to rethink the way it funds its counties — and to not make property taxes the only focus of those deliberations.

"Ideally, county revenue streams would be sufficient to fund the rising cost of county services and would be reliable, balanced and minimize the financial burden on those least able to pay," the report argues. "Wisconsin’s current system does not meet all those criteria."

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