To:            Municipal Executives of Central Wisconsin
From:       Rich Eggleston
Subject:   The State-Local Partnership 

I. Beginnings of the Partnership

In 1911, state government created the state shared revenue program with enactment of the state income tax. In doing so, state government recognized how imperfect the property tax was as a mechanism for funding local government. At first, the state income tax law provided that 70% of proceeds be returned to the taxpayer’s home community, and 20% to his or her county.

The percentages changed as state government became more expensive, and today shared revenue totals just nine cents of every sales tax and income tax dollar state government collects.

II. Interim Urban Problems Committee

By 1957, the state-local partnership was stressed by urbanization, and the Legislature created the Interim Urban Problems Committee, which reported to the Legislature and Gov. Gaylord A. Nelson 43 years ago.

Its first recommendation:

"The problems arising from the rapid expansion of urban areas in the state are so numerous and complex that further study is essential. It is urged that the governor and the 1959 Legislature seriously consider continuing the urban committee as one means of seeking solutions to the problems associated with urban growth and development."

The committee’s recommendations centered mostly around incorporation law and regional planning, and some of its recommendations made it into law, though not its continuance.

III. The Citizens Study Committee on Metropolitan Problems

Those stresses had intensified by 1971, when Gov. Patrick J. Lucey appointed the Citizens Study Committee on Metropolitan Problems, which issued its report in January, 1973. The committee, headed by Gilbert W. Church of Glendale, took a look at local government in Wisconsin and found a system "designed for an agrarian society of a hundred or more years ago," an "urban community" plagued by "a patchwork of political boundaries which become increasingly aimless and arbitrary as they outlive their historical origins."

The "kaleidoscopic design of local governments" in Wisconsin's metropolitan was reflected in "magnified costs" and inefficiencies at the local level and in the "often bitter battle among municipalities for tax base advantage," the study committee concluded.  But probably the worst result of the hodge-podge was "the atrophied sense of community — of common political purpose — which occurs when arbitrary jurisdictional lines divide residents from employment, wealth from poverty, and political leadership from economic power."

The committee recommended that:

• Counties be authorized to form urban services districts.
• Voluntary merger of such districts in adjoining counties
• That counties modernize themselves "and not be handcuffed by constitutional restrictions."
• The state provide financial incentives for the above to occur.
• Mass transit, public health, police support services, consolidated municipal and county law enforcement and wastewater treatment be considered candidates for tasks to be assumed by urban services districts.
• Cleaning up the waters of the state on a watershed basis, with financial incentives for areawide efforts rather than piecemeal projects, with water and sewer extensions following regional plans.
• Regional planning agencies certify all major land use changes.
• Annexation, incorporation and consolidation disputes be settled by a state boundary review board, which would decide which course provides the most orderly future growth. "There must be orderly growth to assure that urban services can be efficiently and equitably provided," the committee said.
• Housing for low-income families be provided on a metropolitan basis, with a "fair share" system used to allocate housing.
• Repeal of the "internal improvements" clause of the state constitution.
• All elementary and high-school pupils receive "the same basic financial support...regardless of where they live."
• Law enforcement policy and control of police departments be placed in the hands of elected officials "subject to safeguards against undue political interference."

The committee further recommended that the property tax be used mainly for services related to property, and that the entire cost of welfare be borne by the state and federal governments. It also recommended:

• county administration and professionalization of property-tax assessments; and
• assessment at 100% of market value.

IV. The Wallace Commission

In 1975, there was another Lucey administration attempt at changing the state-local partnership. The Commission on State-Local Relations and Financing Policy, chaired by Harry L. Wallace of Wauwatosa and dubbed the Wallace Commission, made a series of recommendations along policy themes that included:

• Local governments must have greater flexibility and autonomy in meeting their responsibilities for organization, service provision and financing.
• General purpose units of local government should be strengthened, and the functions of special purpose districts (other than education districts) transferred to general purpose units.
• Legislation should be enacted to encourage governmental units in an area to consolidate and create an areawide form of government at their initiative.
• The state should have a comprehensive statewide land use and boundary adjustment policy. Haphazard development can increase the costs of providing services, and guidelines and procedures are needed to ensure a rational approach to land use.
• The present system of state-local financing relies too heavily on property taxes.
• The Commission reaffirms its support for two major financing policy goals: the equalization of the fiscal capacity of local units to finance services, and the equalization of the ability of individuals to bear the local tax burden.

Again, some of the Wallace Commission’s recommendation became state policy and many did not — notably the recommendation for encouraging areawide government.

V. The Barry Commission

In 1987, a brand new Wisconsin governor, Tommy G. Thompson, was concerned that property taxes in Wisconsin were 25% above the national average. He appointed the Local Property Tax Relief Commission, chaired by then-Dane County Executive Jonathan Barry, who had opposed Thompson in the 1986 Republican primary for governor.

In December, 1987 the Barry Commission reported back to Thompson, and among its findings:

• Increased state local assistance is the best alternative to the property tax for local governments.
• Any new state initiative to reduce property taxes must be adequately funded.
• Increases in state sales tax revenues would need to provide approximately 60% of the funds necessary for property tax relief.
• A combination of increasing the sales tax rate and expanding the sales tax base is necessary to provide adequate funds for property tax relief.

The commission recommended a foundation plan for schools, financed in part with per-capita shared revenue payments, and that a share of general purpose state revenues be earmarked for property tax relief.   

While some of the concepts embraced by the commission became law in succeeding years, there was no increase in the sales tax, and by the mid 1990s, the state’s commitment to shared revenues was flagging.

Created by Gov. Tommy Thompson in 1993, the SAVE Commission spent a year crafting a wide range of recommendations, mostly affecting state government. Among them:

VII. Shared Revenue Task Force, 1999

1997 Act 27 created a Shared Revenue Task Force chaired by John W. Rader of the state Department of Revenue. In its March, 1999 report to the Legislature, the task force said it had reached the following conclusions:

• Tax-base equalization aid has worked well and has accomplished many of the goals it was intended to achieve. The policy should remain a significant focus of the shared revenue formula.
• To encourage municipalities and counties to restrain spending, most additional funding that may be funneled into general municipal and county aids should be distributed in a manner that mirrors the Expenditure Restraint Program.

VIII. The Blue-Ribbon Commission on State-Local Partnership for the 21st Century

In his State of the State speech to the Legislature in 2000, Thompson said he would appoint a blue-ribbon task force to "develop a new system for providing the services our people demand and collecting the money to pay for them."

In April, he named the 31-member commission, chaired by UW political scientist Don Kettl. In January, 2001 the commission issued a 133-page report, including 139 recommendations.

The first recommendation:

"Wisconsin must immediately launch a major effort to rebuild its state-local partnership. The first steps in doing so require all members of the partnership, at the state and local levels, to recognize the valuable role that all the partners play; and for all of the players to work with their partners with an attitude of mutual respect."

In general, the Kettl Commission recommended that: 

• The state should provide more aid to villages, towns, cities and counties that collaborate on a regional basis to provide taxpayers better service and spur economic growth. The state would earmark .25 percent of state sales tax revenue, roughly $170 million annually, for local governments to earn through collaborative efforts. That would replace $142.7 million in shared revenue now distributed on a per-capita basis to municipalities.
• The state should ultimately assume responsibility for defining and financing social service and criminal justice programs at the county level, including child welfare, circuit courts and juvenile justice.
• Counties now have that responsibility and finance the programs with state aid and local property taxes. Under the proposal, counties could serve as general contractors and continue to provide the services. If a county chose not to run certain programs, the state could turn to private vendors to provide the service.
• State and local governments should move as quickly as possible to a paperless system by switching to an e-government and e-procurement system. Using the Internet, citizens would have electronic access to government services. Government agencies could save money by seeking bids and procuring goods and services over the Internet.
• State officials should reassess how Wisconsin funds education for students with special needs, including those from low income backgrounds, struggling to learn English and with disabilities. The state should strengthen its programs to assist students who are not English-proficient and adjust its funding formula to account for the number of students who are working to learn English. Also, the state ought to align the Department of Public Instruction's standards with federal standards, especially in defining which students need special education programs.

IX. The Task Force on State & Local Government

In March, 2002, Gov. Scott McCallum announced that he would create a task force to "build a better Wisconsin through state and local partnerships."

McCallum told the task force to re-examine state mandates, encourage local governments to consolidate and become more efficient, reward economic development and growth, and tackle the issue of "too much government" in Wisconsin.

The task force chair, Tim Sheehy of the Metropolitan Milwaukee Chamber of Commerce, said he would like the group to focus on recommendations that are "actionable — things that local governments can do, that the Legislature can enact." The summary of the task force's recommendations is located here.