July 6, 2000

Dr. Donald F. Kettl and Members of the Commission on State-Local Partnerships:

Thank you for hosting a town meeting in Superior and for giving citizens of northwest Wisconsin an opportunity to offer comments on the future of local government in this State. As you learned from your drive north to this meeting, this region is a long way from Madison. But even at this distance we are acutely aware of the fiscal reality that the State of Wisconsin faces. Let me summarize the current dilemma as I see it. Wisconsin is a high tax state. Recent state budget and legislative decisions have left the State budget with an intimidating structural deficit. The state and national economy is starting to show signs of slowing. Partisan politics makes it increasingly difficult for state officials to work together to find solutions to the growing crisis. Hence, the Wisconsin Blue Ribbon Commission on State/Local Partnerships has been created. Your task is to find a way out of the mess that has been created. It is probably fair to say that all local government officials in this state are holding their breath that you will be successful.

I applaud Governor Thompson for creating this Blue Ribbon Commission and for giving you encouragement to be bold in your recommendations. Creative initiatives are needed. But, the initiatives should not just be revenue based. We need to do more than tinker with local government aid formulas or revenue alternatives. Changes to the basic structure of the myriad of governments in Wisconsin may need to be recommended and implemented.

It is no secret that local governments in the State of Wisconsin are very territorial. Relationships between counties, cities, villages, towns, and school districts are distant at best. Cooperation to provide services or to complete projects is limited. It is my hope that the Commission can find ways to break down the barriers of cooperation between government units and eliminate the waste that the current system creates. Proposals related to regionalization and consolidation of governments and/or services make sense. The new governance model should reflect the opportunities and constraints of the new economy and should be based on a shared vision of how we want local government to function 10 to 20 years into the future.

As you consider a new model for local government, please understand that one of the greatest concerns of city government is the inequality of taxation policies. People who live in cities pay higher taxes than taxpayers that reside in surrounding towns. City taxpayers are subsidizing the cost of living on the fringe of the city limits through the consequences of unfair double whammy taxation policies. Of course, people who live in the towns often rely on the cities for their fire, ambulance, library and other municipal type services. However, county and town officials are offended when attempts are made to charge non-residents for services provided by the city. Also, bitter annexation battles are fought for financial reasons not because of service delivery concerns. A goal of state/local finance policies should be to find a way to equalize the tax disparity that exists between north/south, urban/rural, city/town, etc...

The equalization of revenue for municipalities is an objective of the shared revenue program. Most agree that the equalization formula of shared revenue works if it is properly funded. The City of Ashland has benefited from the shared revenue program and the revenue has helped city officials control the growth of property tax collections. If the shared revenue program is abandoned, the city will need to increase the property tax mill rate by approximately 16.67 mills (200.46% increase) in order to offset the lost revenue. To look at it in another way, if the city reduced costs to make up for the absence of shared revenue, the combined budgets of the police, fire and ambulance, parks, library, and garbage collection would need to be eliminated. Obviously, the shared revenue program is very important to the City of Ashland. Even minor changes to the formula for shared revenue could cause significant property tax increases for our small community and its limited tax base. Elimination of the program would be catastrophic.

A proposal was floated to discontinue the shared revenue program and allow local government to retain sales tax revenues. Local government’s dependence on sales tax creates policy shifts for cities. City officials would certainly spend more time and effort recruiting sales tax generating business. The competition between cities for retail business would intensify as officials try to lure Menards, McDonalds and Mini-Marts to the community. Instead of building industrial parks, cities may be more interested in building retail malls. Retail rich cities would have low sales tax rates while a more industrial city may have to assess very high sales tax rates to stay afloat. Revenue fairness under a local option sales tax model is very hard to achieve. In fact, nearly all local option based funding models will lead to tax disparity issues that will hurt the State of Wisconsin in the long run.

It appears to me that one of the complicating factors of the Commission assignment is that the Commission is trying to resolve state/local government funding problems without having all revenue sources on the table for examination. Although it is unpleasant for some to contemplate, perhaps it is time to revisit how businesses are taxed in Wisconsin. As compared to Minnesota, we recognize that business taxes in Wisconsin are low. Wisconsin has also been very generous in granting a variety of tax exemptions to businesses. Maybe we have been too generous to business interests. It may be time for a comprehensive review of the overall tax structure of the state in light of the changing economy.

The new economy thrives on the supply of workers. Although northwest Wisconsin still has high unemployment rates, many parts of Wisconsin are now facing worker shortages. If business interests are increasingly being driven by the supply of skilled workers, then it is not unreasonable to ask businesses to be a greater part of the financing solution. Specifically, a stronger tie between business interests and education funding would seem appropriate.

In summary, a shake-up of local government structures, roles and funding is probably appropriate. The status quo needs to be challenged from time to time. However, it is not reasonable for the State of Wisconsin to expect to solve all of its financing challenges on the backs of local government units. If local governments must rely on increased property taxes and new local option revenue sources to replace shared revenue, then the likely outcome will be less desirable Wisconsin communities. Carried to an extreme, Wisconsin will not have to worry about recruiting skilled workers for the new economy. We will need to worry about residents leaving our communities for financial reasons.

Thank you for your willingness to tackle these difficult issues and thank you for considering these comments.

Sincerely,