New development does not mean lower property taxes for everybody else!

By Richard S. Russell

Richard S. Russell, when he worked at the Wisconsin Department of Public Instruction, wrote the computer program that computed aid payments to the state's 400­plus school districts.

It’s a widespread misconception, often repeated without question as if it were self-evident, that new developments result in lower property taxes on existing properties. And, if you look at only half the picture (which is all anybody ever seems to do), it does superficially seem to make sense.

New development does indeed increase the local property-tax base, and property taxes on the more valuable land, with the new buildings on it, do indeed flow into the municipal and school­ district treasuries. And, if that were the end of the story, the new money from a development like a Walmart would enable a city and school district to lower property taxes for everybody else.

But that isn’t the end of the story

The State of Wisconsin runs two huge programs of financial assistance to localities:
• shared revenue for municipalities and
• general equalization aid for school districts.

Both of them operate on the exact same principle, which is that the better a locality is able to finance its own services from property taxes, the less it needs from state aid. The net result is that localities which spend at the same level will tax at the same rate, which is a good thing.

It means that the level of service you get isn’t dependent on how rich or poor your neighbors are. The aid programs intentionally neutralize the effects of property­-tax wealth, so that the only thing that matters in determining the property­tax rate is the local spending level.

The way it works in practice is that every dollar the local treasury gains in added property taxes costs it a dollar in state aid, within about 5%. (While it isn't precisely true that every $1 gained in property taxes results in exactly $1 lost in state aid, it usually runs between $.95 and $1.05.) Net effect of ups and downs in the property-tax base: pretty much zero.

What can make a difference, however, is the remaining factor in the formula: the added costs.

New development requires more municipal services like roads, sewers, snowplows, police and fire protection, building inspection, etc. And as those costs go up, property taxes go up, too, in order to pay for the services.

Sure, state aid helps pay for part of it, but the state­-aid formulas are based on cost per capita (for a city) or per pupil (for a school district), and if the state is picking up 40% of the cost, the local taxpayers are picking up the other 60%, regardless of how high it goes.

So the only significant variables in what people will pay in property taxes on a home worth $X are the value of X and the spending levels of the municipality (per capita) and school district (per pupil). If the municipality chooses to spend lots
more money supporting a new development, its property taxes on the residents will be going up, not down, solely based on its spending level. It's irrelevant how much value that development adds to the local tax base; the aid formulas zero it out.

Demand real numbers

Most people who are ardently pro­-development, including elected officials, are either oblivious to these financial realities or disingenuously hoping that nobody else notices it and brings it up. Don’t let them get away with it. Make sure that somebody (preferably several somebodies) does bring it up. And beat on it repeatedly and demand that they run the numbers to see exactly what effect it’s going to have on shared revenue and school aids, because you can damn well betcha that they won’t do it unless somebody makes them.

Take Action

This blog post was inspired by the Stoughton City Council vote on TIF for Walmart at tonight's meeting.  The meeting starts at 7 PM in council chambers above city PD office.  Get there early to fill out a form to speak

Contact the Stoughton City Council and ask them to vote no on the new Developer's Agreement:

dolson@ci.stoughton.wi.us,tswadley@ci.stoughton.wi.us, SSwangstu@ci.stoughton.wi.us, PLawrence@ci.stoughton.wi.us, RChristianson@ci.stoughton.wi.us, mengelberger@ci.stoughton.wi.us, Gjenson@ci.stoughton.wi.us, tsuess@ci.stoughton.wi.us, ehohol@ci.stoughton.wi.us, tselsor@ci.stoughton.wi.us, TMajewski@ci.stoughton.wi.us, poconnor@ci.stoughton.wi.us, sboersma@ci.stoughton.wi.us  

 

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