Well, here we go again.  TABOR, or some form of it, is back on the table in the Wisconsin legislature.  While I have serious problems with such legislation in general and am sure that it will have negative consequences for both taxpayers and state/local government, I am most frustrated with the narrow scope of the discussion surrounding the TABOR debate.  As both a member of Wauwatosa’s Common Council and an academic who writes about and teaches fiscal policy in the Masters of Public Administration Program at UW-Oshkosh, I would encourage a broader discussion about local fiscal policy change in WI.  Included in the discussion should be the relationship between state and local fiscal policy (remember the Kettl Commission?) as well as current local government budgeting practices. 

Key to the discussion about state and local fiscal policy is the shared revenues program.  While few would disagree with the premise that the shared revenues program was conceived in the early 1970s to compensate local governments for the State’s exemption of the manufacturing property and equipment, one cannot ignore the effect the program has been having on spending behavior.

Much of my research over the past six years has been on the impact of WI’s Shared Revenues program on local spending.  It is important to understand that both in terms of the amount (nearly $1 billion annually) and the lack of strings attached to this aid (local governments can spend the money on whatever they see fit), WI is unique when compared to other states.  While other states such as Florida, Massachusetts, Michigan, Minnesota and New Jersey have sizable intergovernmental aid programs, most are either tied to a specific revenue source such as sales or personal income taxes or require the funds to spent on specific programs/services. 

Given the unique nature of Shared Revenue Program, four general findings have been constant in the research I’ve published with Steven Deller (UW-Madison):

1.      shared revenues increase local government spending, meaning that when comparing two communities with the same general characteristics, the one that receives more shared revenues will spend more;

2.      shared revenue payments are related to reductions in property taxes, meaning that as shared revenues increase, local property taxes decrease;

3.      in general, municipalities that have received lower shared payments over recent years, have responded by replacing those aids through a combination of increased property taxes, fees and debt service;

4.      communities that lose shared revenues are most prone to replace funds for “core” services such as police and fire than for services such as culture, education parks and recreation. 

Now what does this have to do with State efforts to “reign in” local fiscal behavior through something akin to TABOR?  There has been a tendency over the past years to treat property tax limits (TABOR, or “simple” levy limits) separately from shared revenue payments.  This is not practical in WI for the simple reason that local governments have limited revenue options.  So, when state lawmakers freeze shared revenues as they essentially have done since the mid-1990’s, it should not be surprising that property taxes rise at a faster rate. 

Given past behavior, what can we expect from more property tax restrictions, no increase in shared revenues and, if the current proposal moves forward, limit on growth in fees and debt service?  At least in the short run, I predict that funding for services such culture, education parks and recreation will be reduced.  Now, since this has already been occurring since the mid 1990s due to the shared revenue freeze, cuts in protective services will probably follow. 

As a member of the Wauwatosa Common Council, I can say with a high degree of certainly that police, fire and EMS are as close to sacred cows as you can get.  Council members will do whatever is possible through a series of cuts and, where possible, revenue increases to maintain protective services.  In the short run this may be a valuable exercise in that it will force communities to have discussions about identifying core services, means of service provision and methods of service funding.  On the other hand, I believe that in some cases (those communities most dependent on state aid), these discussions have already occurred and additional revenue restrictions will put them in a very difficult position. 

From a local perspective, one of the frustrations is that while state lawmakers continue to put pressure on us, our decision-making is usurped.  One alternative, albeit a bit more radical, is for WI lawmakers to instead of getting more involved in local governance through revenue limitations and aid payments, to limit its role in by giving communities greater authority over its budgeting practices by giving municipalities more revenue options.  The most common in other states is a sales tax.  

A local tax for municipalities would enable the State to address some of its fiscal woes by reducing shared revenues and simultaneously provide property tax relief.  In addition it would force local policy makers (including myself) to be more accountable for their budgeting practices in two ways:  1) they would no longer be able to blame the State for the lack of growth in aid payments and; 2) given that sales taxes are sensitive to economic cycles, communities would be forced to budget accordingly. 

It is important to recognize that I am not advocating for the complete elimination of shared revenues (more specifically, the aidable revenues portion of shared revenues) because there are a number of communities that are reliant on the payments and do not have the economic base to survive on property taxes and sales tax collections.  One starting point could be to go back to the Kettl Commission recommendations and create a foundation program aimed at providing support to those communities in most need of state support.  As a locally elected official, I would gladly refund the state’s 2006 shared revenue payment of $2.7 million for a local sales tax. 

Finally, there is also academic justification for more local control.  A recent study of the Chicago metropolitan area, where municipalities have a number of local tax options including sales, income and gas taxes, found that communities with greater revenue diversity have lower tax effort.  This suggests that when communities have a broader range of revenue available, they act more efficiently, thus lowering taxes.   

I believe that before such authority is granted, local governments need to reevaluate their budgeting processes.  I have served on Wauwatosa’s Budgeting and Finance Committee for two years now and I can tell you that the process is wanting.  What seems to matter the most is tax rates.  In fact, tax rates have a tendency to drive the entire process.  It is not uncommon in Wisconsin communities for the entire budgeting process to be driven by the Council/Board’s comfort level with the amount of tax rate growth.  Given the obvious response from policy makers that they want to see minimal growth in the tax rate, Department Heads get their marching orders to hold operation-related expenses to a minimum.  Once the requests are received, budget deliberations begin.  This is typically a process that lasts several weeks where percent changes in line-items are painstakingly scrutinized.  What is missing from most of these deliberations is a discussion of the broader, and I believe, more important matters such as whether services/programs are necessary.  How well services are being provided?  What are the expected outcomes from programs?  How well did the program meet its outcome objectives the previous year?  James Rowen wrote an article in the November 20, 1995 MJS Crossroads Section saying much the same.  Interestingly, many communities in states throughout the nation have or are developing budgets along these lines.  I have tried to move Wauwatosa in this direction since the day I was elected.  What I have found is a great deal of complacency among Council members and Administration.  It may be that tax limits will force this discussion, but I am not yet convinced.

Notice nothing has yet been said about efficient service delivery.  One obvious criticism of the scenario I am painting is that restrictions on local revenues will force communities to look at more efficient means of providing services, including contracting out services and working collaboratively with neighboring communities.  Another possibility is to take the economies of scale argument a bit further and argue for the elimination some local governments.  This is essentially what is suggested by a recent Brookings Institute study of Pennsylvania.  The latter is such a politically volatile topic and the empirical research is lacking that I would prefer to duck the debate as members of the Kettl Commission did a few years back.  The former is a legitimate point; however, to suggest that communities are not already doing these is to ignore reality.  Based on survey work done in 2004, most municipalities contract out all or significant portions of public work services, including garbage and recycling collection and maintenance.  There is also a substantial portion of intergovernmental cooperation occurring, but it tends to less visible.  It is also the case that intergovernmental cooperative agreements are very difficult to maintain, just ask the North Shore communities about their fire department, or the City of Wauwatosa about library services through the Milwaukee County Federated Library System. 

Where does this leave us?  I am convinced that a broader discussion needs to occur in this state about the fiscal relationship between state and local governments.  State officials need to ask themselves if they want to dictate local fiscal policy, or whether it would be better to leave it at the local level.  Local officials need to ask if they want state lawmakers to dictate local policy and if not, realize the implications. 

--  Maher is on the Wauwautosa Common Council, District 8, and is an Assistant Professor at UW-Oshkosh.