Michael S. D' Amato
Chair Judiciary and Legislation Committee
City of Milwaukee

Dear Chairman D' Amato:

I wish to thank you for holding this meeting to discuss the importance of equalization in the shared revenue formula especially as it relates to the Kettl Commission.

For the past several months I have been following the Kettl Commission closely. This includes providing two written documents and assisting the set-up of the chat room with municipal officials on June 27'h of this year.

One strong theme that I have continually stressed to the Kettl Commission is the importance of funding equity between municipalities. Prior to the current shared revenue program, Wisconsin had a "return-to-origins" tax sharing system. One of the problems identified with this approach was that economic growth tended to be concentrated in the high aid and low tax rate communities.

The present shared revenue system was developed to shift the focus toward a needs based distribution. As a result, those communities that have become economic hot spots share some of the wealth with those areas that are not.

At this point I believe the Kettl Commission is looking to make some radical changes to the face of local governments in Wisconsin. Attached to this letter is the "Statement of Principles"  adopted by the Kettl Commission.

To put some meat onto these six principles the commissioners were asked to fill out a "Sorting Out Responsibilities Grid." The grid focused on various local government issues for municipalities, counties and school districts. Dr. Kettl then summarized these grids into consensus and action statements.

What is most interesting about all of this is that equity - the very foundation of shared revenue as we know it - is noticeably absent from any of the discussion.

Some of the consensus and action statements from the Kettl Commission point to the conclusions that might he formed. From these statements I sense that the focus will be away from a needs based formula. Also, I doubt that the new system recommended will be "return-to-origins" formula. It seems that the Kettl Commission will recommend a performance-based approach toward funding local governments.

Based on the chat room I sense that new job creation will be a large part of the new formula (see the Kettl Commission web site chat). Also, Dr. Kettl wrote a paper titled "The Transformation of Governance: Globalization, Devolution, and the Role of Government" (see Dr Kettl's web site). Based on this paper, I sense that Dr. Kettl believes that we should redefine the role of government at every level - Federal, State and Local - due to the changing global economy.

All of this documentation could pose some interesting questions for local governments in Wisconsin. What if the State of Wisconsin funded local government services on a regional basis rather than an individual community basis? Could the state create financial incentives to regionalize local government services through a variety of interjurisdictional contracts without fighting the parochial issues associated with complete community consolidation?

These are speculative questions based on the review of the Kettl Commission material through today.

To summarize I believe that the Kettl Commission will recommend that we scrap the entire shared revenue program. I also believe that they will recommend that we base a new system not on equity or origin but on performance of the service. Further, such a recommendation will be structured in a manner to encourage local units of government to contract for services with the private sector in many areas. In those areas that cannot be outsourced, they will recommend incentives to regionalize the service across the jurisdictional boundaries to "follow people, not place."

Equity among communities or across regions is not being discussed at this point. I fear that the recommendations from the Kettl Commission could leave some communities behind. Those communities in a region who are financially vibrant will tend to gravitate toward one another. They will not have a strong incentive to regionalize with those communities who have strong dependence on the current shared revenue program. Those revenue sharing dependent communities would be perceived as an economic drag on those who form the regional partnership.

This is, to a large part, the problem that we currently experience with our inability to regionalize services today. Wealthy communities do not want to regionalize with perceived poor communities for fear of a tax shift from the poor community to the vibrant wealthy community. For this single reason alone the Kettl Commission should provide a strong discussion on the implications associated with moving away from a needs based system of funding local government.

 Without knowing the exact recommendations it is difficult to speculate on the full impact of these changes but I can assure you that these types of changes will have a dramatic effect on how we do business at the local level.

At this point, I see nothing in the Kettl Commission that would prevent local units from digressing back toward a "return-to-origins" funding system similar to what we had prior to the "needs based" shared revenue formula. The only difference would be that the "return-to-origin" might be on a larger aggregated scale based on multiple communities with similar wealth. Thereby, those wealthy communities could isolate the poorer communities in the region and take advantage of the new funding formula. This concern seems to be overlooked in the Kettl Commission discussions so far.

Respectfully Submitted:

Joseph F. Laux

Mayor