Economic Development at Risk
Twelve Alliance Cities Collide With TIF Limits

Twelve Alliance cities that have generated more than $1 billion in economic growth through tax incremental financing (TIF) are unable to undertake more TIF borrowing under current law, state Department of Revenue records show.

TIF financing is the chief tool that cities and villages have to bring businesses to their communities and create new jobs. Between 1976 and 2000, communities across the state created more than 1,000 tax increment districts, or TIDs, to undertake that task, according to the Legislative Fiscal Bureau.

The state's tax incremental financing law includes two caps, and if both are exceeded, a city cannot create any new TIDs. The first cap deals with the total value of increment plus base, which cannot exceed 7% of total value.The second cap deals with just the incremental value of the districts, which cannot exceed 5% of total value.

The situation is handcuffing some cities' efforts to bring new jobs to Wisconsin. In Illinois, there are no caps. It's just one difference between the two states' business incentives that Andrew Janke, economic development director for Beloit, uncovered in a comparison.

CITY	7% Limit	5% Limit		Downtown redevelopment, including this area of Pearl Street, was accomplished in La Crosse with the help of TIF financing.
Appleton	9.0%	5.5%
Baraboo	9.9%	8.3%
Beaver Dam	11.3%	10.6%
Beloit	8.4%	5.5%
Cudahy	24.2%	15.4%
De Pere	10.2%	8.3%
Kaukauna	10.1%	5.8%
La Crosse	7.2%	5.2%
Marinette	9.0%	5.0%
Sheboygan	10.1%	6.2%
Wausau	7.6%	5.4%
Whitewater	17.9%	11.8%

By John Keckhaver and Joel Rogers

A thorough analysis of our state and local tax burden – a Tax Incidence Study – is badly needed in Wisconsin today. A report on our tax burden would not provide all of the fiscal policy answers we’re searching for as a state, but it would inject some accurate data into the upcoming budget deficit discussions.

Such a study would include a breakdown of our various taxes – and fees. It would allow us to compare the total tax burden borne by different income groups, highlight tax trends and uncover anomalies in our current tax structure. It would show us how significant various exemptions and exclusions have become. As far as rankings go, we need a clearer view of how our recent tax cuts have affected our tax burden relative to other states, particularly in the Midwest.

The last Wisconsin tax incidence study was conducted by the Department of Revenue in 1979, the one before that in 1959. Even tax rankings from 1999 — still cited by some organizations — are out of date and misleading. For a new study, the Department of Revenue should make use of the most recent Census Bureau data. And it should commit to regularly updating the study. Minnesota recently completed a comprehensive tax incidence study.  Wisconsin should catch up.

Trying to set fair tax policy that accomplishes state goals in the absence of   such a study is like trying to land a 747 in the fog without instruments. We need a single, unbiased source for answers to critical questions about who actually pays the taxes in Wisconsin. Without that  knowledge base, taxation discussions are liable to devolve into campaign rhetoric, interest group spin and the simplistic "taxes are too high in Wisconsin" mantra.

This begs many questions, distorts consideration of others, and degrades political decision-making on how we propose to pay for government. A thorough, nonpartisan tax incidence study will cost money, but not a prohibitive sum. The modest cost of keeping it current would preserve our investment.

We have nothing to lose from obtaining reliable, timely tax data, and a lot to gain. Anyone interested in the fiscal health of the state, and intelligent policy debate on how to repair it, should be calling for a tax incidence study along the lines suggested here, with perhaps the loudest call coming from those recently elected.

John Keckhaver is Senior Policy Associate at the Center on Wisconsin Strategy (COWS)) at the University of Wisconsin-Madison (www.cows.org). Joel Rogers is Professor of law, political science, and sociology at the UW-Madison, and founder and Director of COWS.

Health Costs Crimp More Budgets

The city of Wausau approved contracts with police and fire unions Dec. 10 that call for members of the two unions to pay 7.4% of their health insurance costs in 2003, up from 5% currently, the Wausau Daily Herald reported.

Health insurance costs are increasing by $800,000 in Fond du Lac, where the new city budget eliminates eight full-time positions and delays the hiring of six other positions as a way to accomplish budget reductions, the Fond du Lac Reporter says. In Manitowoc, the increase was $414,983.

An increase of  $408,193, or 28%, in health insurance costs is one of the factors driving De Pere's budget, the Green Bay Press-Gazette reported. An almost equally large hit on that city's budget: reduced interest income. The city predicts it will spend $1.6 million for employee health care by the end of this year.

For the Wausau story, look here. For the Fond du Lac story look here. For the De Pere story look here, and for a look at the effects health costs are having on smaller municipalities in the Green Bay area, look here.

Broadband Deregulation Scrapped The Legislative Council's Committee on Public and Private Broadband Dec. 19 rejected a proposed state ban on regulation of broadband communications. The committee voted 7-4 against the plan to keep the Public Service Commission out of the admittedly murky waters of broadband regulation. Staff attorney Mary Offerdahl told committee members that the Federal Communications Commission wants to regulate high-speed data transmission differently depending on whether it is provided via digital subscriber line (DSL) or cable modem, and the potential for state regulation likewise varies. The bill would prevent the Public Service Commission from going above and beyond federal regulation.  PSC consideration of broadband regulation is on hold until courts define states' regulatory role.  State Sen. Ted Kanavas (R-Brookfield) said Congress created a "regulatory fallacy" in 1996 when it passed the Telecommunications Act. The law regulates telecommunications services differently from information services. "We have deregulated insurance companies and banks ... what do we see?" asked Rep. Marlin Schneider (D-Wisconsin Rapids). "We see Conseco go from $80 a share to a nickel a share. "The more we deregulate, the more we get Enron and Arthur Andersen," Schneider added. "I don't know that deregulating more will get us anything more than higher costs and more corruption." The committee also rejected a proposed bill to provide a sales tax exemption for broadband equipment destined for unserved areas.
Budget Math Tax Cuts Helped Create Deficit Tax cuts in Wisconsin since 1995 reduced state revenue by $3.7 billion,  contributing to state government's fiscal mess, a legislator said last week. "We were on an orgy of tax cutting and tax spending at the same time," Rep. Dave Travis (D-Middleton) told the Wisconsin State Journal. Of course, the tax spending didn't include a penny spent on a state rainy day fund. Travis distributed a Legislative Fiscal Bureau memo that can be found here. In Minnesota between 1997 and 2001, tax cuts  reduced forecasted revenues by $5.5 billion in fiscal 2004-05, more than enough to have created that state's budget problem, the Minneapolis Star-Tribune reported, citing a report by the Minnesota House. Raising taxes at least part of the way back to earlier levels must be part of Minnesota's solution to its budget deficit because the alternatives would be more damaging to the state’s economy, communities, and people, the Minnesota Budget Project asserts. For its look at Minnesota's problem, look here.