Cities facing fiscal crisis, leading to more debt and fewer services, report says?


By Henry Redman | Wisconsin Examiner

Wisconsin’s nearly 1,250 cities face a fiscal crisis. The shared revenue they receive from the state government has dwindled, causing them to raise property taxes and run into debt while the services they provide – primarily fire, EMS and l road maintenance – are facing budget cuts, according to a new report from the Wisconsin Policy Forum.

Wisconsin is one of the few states in the country to have municipal governments separate from cities and towns. Wisconsin’s cities are home to 1.6 million people – about a third of the state’s citizens – and city governments face many of the same fiscal challenges as larger municipalities, though the small size of cities creates problems unique as they struggle to stay afloat, the report found.

The biggest problem for city budgets, according to the report, is a drop in state aid coupled with tighter property tax limits.

In 1990, State aid represented 45.1% of the general revenue of municipalities, while property taxes represented 36.8%. Three decades later, this has reversed, with property taxes representing 48.2% of income and state aid 30.3%. The state’s major cities are the most dependent on property taxes, according to the report.

The drastic decline in shared revenue has hurt municipalities large and small across the state, but cuts to shared revenue over the years and the elimination of a program specifically designed to send money to small governments have hard hit municipal governments.

Adjusted for inflation, municipal governments received the equivalent of $150.9 million in 2020 in 1990. In 2020, they received $55.8 million.

During this period, municipal governments have seen an increase in the amount of state aid they receive for road construction, but not as much as shared revenue has decreased.

With the loss of shared revenue, municipal governments have turned to property tax increases to stay afloat. City residents, who receive fewer government services such as libraries or parks than their neighbors in larger communities with more amenities, still pay lower property taxes, but those taxes have increased over the past 30 years. .

“To fund local services, cities are more dependent on property taxes than other local governments in Wisconsin, which is remarkable given that other local governments in the state are themselves heavily dependent on this tax,” the report said. .

This shift towards property tax revenues comes with limitations. The state has set caps on the amount a local government can raise property taxes in 2006. Property tax increases depend on the number of new constructions in a given municipality. In less developed rural communities, there is not much new construction to allow for tax increases.

“With state handouts barely keeping pace with inflation and few other local taxes available, cities have funded a greater share of services over time through property tax,” the report says. report. “This poses a challenge for cities given the caps the state imposed on property tax increases beginning in 2006…The limits pose a particular problem for rural towns with relatively few new developments over the course of the year. last decade. Annual net new construction rates for Wisconsin communities have declined significantly since the housing boom of the 2000s and have generally kept pace with the rate of inflation in recent years.

State budget rules for local governments include an exception for debt payment, prompting municipal governments to borrow more and more money to cover costs they previously could have paid in cash , according to the report.

The per capita debt of municipal governments is at record highs, but the debt goes to expensive projects such as road maintenance, according to the report. Debt payments have risen as part of city spending, which the report said could be troubling as interest rates rise in the face of inflation.

Cities own more than 60% of the state’s local roads, but the amount of money they spend on maintenance and construction has plummeted.

“With their cold winters and large numbers of rural roads, Wisconsin and other northern states like the Dakotas have some of the highest per capita road costs in the nation and a substantial portion of that expense is borne by cities” , says the report. “Yet, as city budgets have come under greater pressure in recent years, they have spent less of their budget on road maintenance and more on other needs.”

In addition to falling spending on road maintenance, municipal governments have had to increase the amount they spend on fire and emergency services, a trend the report links to an aging population requiring more medical care. As spending on these services has grown, cities have struggled to staff departments, leading some to consider contracting with larger neighbors, which cost more. .

Shrinking municipal budgets, the report says, has ripple effects across the state. Roads for which cities are responsible connect to a larger system, for example.

“Cities devote a much lower share of their spending to roads, their traditional top priority,” the report says. “This finding underscores previous research that suggested cities were spending less on building local roads than was actually needed to maintain our current statewide infrastructure. small numbers of people, they are the state’s largest form of local government, and their challenges still reverberate across Wisconsin.Highway systems, in particular, depend on shared investment across a region to ensure a solid system.

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This story first appeared in the Wisconsin Examiner and is republished with permission via a Creative Commons license. See the original story, here.


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