Revenue growth slows for local governmentLocal government officials aren’t just whining that money is tight — it really is, according to a study by the Wisconsin Taxpayer Alliance.
Local government officials aren’t just whining that money is tight — it really is, according to a study by the Wisconsin Taxpayer Alliance.
While state government made headlines over the past decade moving from problem budget to problem budget, local governments experienced more significant but less noticed financial change. County revenue growth that averaged nearly 8 percent annually in the early 1990s slowed to just 1.5 percent per year during 2005-11. Municipal revenue increases slowed from an average of 5.5 percent to 2.7 percent per year. The causes and consequences of this shift are featured in “The Local Squeeze? State Aid Cuts, Tax Limits, and Local Government Finances,” the latest report from the nonpartisan researchers at the Wisconsin Taxpayers Alliance.
As revenues slowed, more of the funding of local government shifted to local taxpayers. Property taxes that funded 34 percent of municipal spending in 1995 paid for 43 percent of spending in 2011. The shift for counties was slightly less as the property tax share climbed from 32 percent in 1995 to 38 percent in 2011.
With revenue growth slowing and reliance on the property tax rising, local government spending growth slowed as well. Average municipal spending grew just 1.7 percent per year during 2005-11 compared to 5.5 percent in 1990-95. The county slowdown was more pronounced — from 7.3 percent per year during the first half of the 1990s to 1.9 percent per year during 2005-11.
Local officials also re-examined and adjusted spending priorities, with public safety favored. Between 2000 and 2011, public safety grabbed larger shares of both municipal spending (33.4 percent in 2000 to 37.3 percent in 2011) and county spending (19.7 percent to 22.6 percent), WISTAX reported.
Limited growth and eventual cuts to state shared revenues partly explain the slowing revenues. After 1995, state priorities shifted from aiding local governments to funding K-12 schools, corrections and Medicaid. After rising 14 percent during 1990-95, state shared revenues were nearly unchanged during the subsequent eight years. They were then cut about 8 percent in 2004 and 2012, WISTAX found. The reductions left 2013 shared revenues below 1990 levels.
State levy limits imposed in 2005-06 also led to a change in local government finances. By capping the amount by which municipalities and counties could increase property taxes, levy limits helped slow 2005-11 annual average property tax growth to 3.7 percent in municipalities and 3.2 percent in counties.
The WISTAX report also examined local government borrowing. Despite slowing revenues, both municipalities and counties continued to borrow. During 2000-11, general obligation debt rose 65.9 percent in counties and 67.2 percent in municipalities. These increases were less than their 1990-2000 counterparts (85.3 percent in counties, 83.0 percent in municipalities) and less than the 135.6 percent increase in state general obligation debt during 2000-11.
More borrowing means more debt service. WISTAX researchers found that, during 2000-11, interest payments on municipal debt rose 41.5 percent, compared to 28.8 percent for other spending. In counties, the increase was 49.4 percent compared to 36.6 percent for everything else.
A free copy of The Wisconsin Taxpayer magazine, “The Local Squeeze? State Aid Cuts, Tax Limits, and Local Government Finances,” is available by visiting www.wistax.org; emailing email@example.com; calling 608.241.9789; or writing WISTAX at 401 North Lawn Ave., Madison, WI 53704-5033.