One of the biggest political fights in Wisconsin is over shared revenue. What is it, and why does it matter?

As state legislators debate the budget, there are some terms we hear a lot like "shared revenue" and "levy limits." Whether in the cities of Milwaukee and Superior, or the towns of Hayward and Oconomowoc, shared revenue and levy limits affect all Wisconsinites.

A bill to raise local government funding has been introduced in Madison. Here's a guide to what exactly these terms mean and why they're important to know as a resident.

What is shared revenue in Wisconsin?

Shared revenue is unrestricted aid provided by the state to counties and municipalities through several programs, according to a Legislative Fiscal Bureau report released in January. This means local governments can use the money for any purpose approved by the governing body. There are no specified uses the money must be used for.

Where does the money come from for shared revenue?

The state has a myriad of revenue streams. The two primary forms are sales tax and income tax, which come from the residents and businesses in every county and municipality in the state.

For the last few decades, the state has agreed to share a portion of its revenue, an annual appropriation decided by state legislators, with counties and municipalities. However, the amount of revenue shared has remained stagnant for decades, according to Rob Henken, president of the Wisconsin Policy Forum.

“What we’ve seen is this change in the shared revenue program where appropriation has not grown in two decades coupled with stringent state-imposed restrictions of local governments tax revenue when the value of existing properties rises,” Henken said.

Under a proposed bill, a percentage of sales tax revenue (20%) would be used for the shared revenue program.

Outside of shared revenue, municipalities and counties are limited in how they can generate revenue.

What are levy limits in Wisconsin?

Levy limits are the maximum amount a town, village, city and county may implement as a property tax levy on properties within their boundaries, according to the Department of Revenue.

This means that a municipality's governing body cannot raise taxes by whatever amount they choose. A local government can raise the tax levy via vote at the annual meeting, but it cannot raise the taxes, meaning they must find a way to fund up to the new levy limit.

There are only two ways a municipality can raise taxes and the levy limit: by the percentage of net new construction that year (see below for more), or by asking voters through a referendum for permission to exceed that limit or via a vote during a muncipality's or county's annual meeting.

Municipalities heavily rely on property taxes and state aid for revenue

Levy limits and reliance on property taxes are nothing new in Wisconsin. In 2020, property taxes made up 47.1% of town general revenues and state aid made up 30.8%, according to the Wisconsin Policy Forum. Towns with larger populations were more reliant on property taxes than state aid compared to the smallest towns, which rely more on state aid than property taxes, but only somewhat.

“To fund local services, towns rely more on property taxes than other local governments in Wisconsin, which is notable given that other local governments in the state are themselves heavily reliant on this tax,” the report said.

According to Henken, cities receive a larger share of shared revenue. The way state laws are set up, cities like Milwaukee have become reliant on those funds.

“Bigger cities are most reliant on shared revenue,” Henken said. “They suffer more when that vital source has failed to grow.”

Can Wisconsin municipalities raise their levy limit?

Yes, but it's complicated and involves a formula involving "net new construction." Net new construction is defined by the state to “changes to equalized value due to new building construction and land improvements minus changes to equalized value due to the demolition/destruction of buildings and removal of land improvements.”

In simpler terms, net new construction encompasses both commercial and residential buildings (homes, apartment buildings, offices, stores, factories, etc). The percentage of new construction in a year is how much a municipality can raise their levy limit.

Because Wisconsin’s model ties directly to net new construction, a municipality, whether the city of Milwaukee or town of Hayward, can raise its levy limit by their percentage increase of net new construction compared to the previous year without having to go to the voters for approval.

Wisconsin has a massive state surplus right now. What does that mean?

Wisconsin’s financial surplus is expected to top $7 billion in 2023. That does not include the roughly $1.734 billion currently in the state's rainy day fund, according to the Department of Administration.

A few things have contributed to this excess amount of money the state has control over. First, pandemic-related federal aid boosted state revenue. A Wisconsin Policy Forum report estimated state and local governments collected at least $19.9 billion in pandemic-related funds.

Besides the federal stimulus money, Wisconsin is projecting state tax revenue increases in fiscal 2022-23 based on current state and federal tax laws:

• $744.2 million in state tax revenue increases in fiscal year 2022-23. That's a 3.6% increase over the previous fiscal year, for a total revenue estimate of $21.293 billion.

• $323.9 million in state tax revenue increase in fiscal year 2023-24; a 1.5% increase for a total revenue estimate of $21.617 billion.

• $855.1 million in state tax revenue increase in fiscal year 2024-25; a 4% increase for a total revenue estimate of $22.472 billion.

What is the state doing with this money?

Not much. The state has been reluctant to share funds with municipalities and counties around the state despite many systems like the courts, local governments, and fire and rescue services asking for aid.

As budget negotiations continue, Gov. Evers and Democrats in Madison disagree with Republicans on whether/how to use parts of the state’s surplus.

Could Milwaukee actually go bankrupt?

The short answer is no, but its more complicated than that.

Legally speaking though, the city cannot technically go bankrupt at this point.

Federal law requires a state to authorize a municipality to declare bankruptcy, and Wisconsin doesn't have a law like that on the books, according to the state Legislative Reference Bureau.

That means the state Legislature would have to enact legislation allowing the city to declare bankruptcy.

Does that mean everything is fine?

The city is staring down cuts to services that have been described as "draconian." This, after tightening budgets in recent years have already led city leaders to close firehouses and decrease the sworn strength of the Police Department by not replacing people who left.

Milwaukee-area leaders have long pushed for the state to allow a local sales tax and return more shared revenue to local governments. Both of those asks are part of legislation being debated by the state Legislature.

Is Milwaukee the only municipality in the state that is dealing with issues related to shared revenue?

No, shared revenue and levy limits are affecting just about every single municipality around the state, according to organizations like the Wisconsin Policy Forum and the Wisconsin Towns Association. It impacts cities, towns, villages and counties, alike.

Alison Dirr contributed to this report.

Drew Dawson can be reached at [email protected] or 262-289-1324.

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This article originally appeared on Milwaukee Journal Sentinel: What is shared revenue in Wisconsin and why does it matter?