Dear Senator Welch:

Thank you for your prompt response to my letter of April 16 and the questions you raised. The answers to some of your questions may be intuitive to a local official but not to a state legislator, so let me respond to them one by one.

1. You ask why a levy freeze would prevent local governments from seeking new businesses or providing subsidies to attract development.

The reason is that growth is not cheap. As each new subdivision is added to a community, there are expenses for street lights, garbage collection, recycling, police and fire protection, snow plowing and street maintenance, to name a few.

Without any additional revenue to offset those costs — a levy freeze is a freeze on the absolute dollars a unit of government receives from the property tax — new development shortchanges existing taxpayers by reducing their services. I won’t do that to the families of my community.

2. You ask how a property tax freeze would affect the bond ratings of Wisconsin communities — since it isn’t a cut in local taxing authority, it simply forbids increases.

To make sure my understanding of local government finance is not faulty in this regard, I have checked with three municipal finance authorities, two of them consultants with firms that handle municipal borrowing and one who works for a member of the Wisconsin Alliance of Cities.

The fact is that municipal bond investors hate levy freezes. No matter how slightly, a levy freeze reduces the security of their investment.

"The limitation on ability to tax is a significant constraint and limits the flexibility of a community to meet ongoing operational and capital obligations," was the way one municipal borrowing expert put it to me. "While it may not have an immediate effect on an individual communities' bond rating, our view is that it will definitely impact the ability of communities to sustain or upgrade their ratings, especially as time passes with increasing pressures on expenditures.

Another municipal borrowing expert told me that rating agencies like Standard & Poors and Moody’s focus on the long-term ability of the municipal borrower to repay its debt.

"An externally imposed limit on a major ongoing source of municipal revenue (the levy freeze) means a continuing new constraint on that repayment capability. Since this limit cannot be eliminated in the future by the local government should bond repayment require it, a levy freeze

constitutes a significant loss of fiscal control by the local government. With this loss of control, the risk of future default (non-payment of debt service) on local government debt increases," I was told.

Finally, a third municipal borrowing expert told me a levy freeze could impair the ability of a municipality to pay off its existing debt, and that would be unconstitutional.

To summarize, a freeze is most likely slow death to a community’s credit rating, not a bullet to the brain.

3. In response to my assertion that "the mayors in the Alliance of Cities with whom I have spoken unanimously vowed to hold the line on property taxes in their communities," you suggest that if "you all are promising not to raise taxes" a levy freeze could be fashioned to only affect schools and counties.

Of course, I can’t make that promise, in large part because I don’t know what the future holds for shared revenues. Raising taxes is my last option. I will do everything I can to avoid raising property taxes, short of compromising essential services to the families of my community. But I’m not going to rule it out. That would be irresponsible.

Finally, I note that you are chief sponsor of 2003 Senate Bill 15, which according to the Legislative Reference Bureau, would require funding of any constitutional or statutory mandate on local governments. As you recall, I came to Madison to testify in favor of that bill.

A levy freeze would be the mother of all mandates. It would permanently dissolve the partnership between state and local government. We need to be partners, not adversaries, in building a strong economy and improving the quality of life for our families. Until last week, I had hoped we were partners.

Sincerely,

Michael R. Miller

Mayor

Location address: 1115 South Main Street West Bend, WI 53095
Mailing Address: P.O. Box 1975 West Bend, Wisconsin 53095-9975