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Op-Ed
Dec 20, 2024, 10:20 AM CST
In Waukesha County — and in county courthouses and city halls around the state — budget shortfalls are revealing the limits of Wisconsin’s 2023 shared revenue reform. Essay by Phil Rocco.
This piece was also published at The Recombobulation Area, a weekly opinion column and online publication covering news and politics in Milwaukee and Wisconsin. The Recombobulation Area is now part of Civic Media.
DEC 19, 2024
The Recombobulation Area is a thirteen-time Milwaukee Press Club award–winning weekly opinion column and online publication founded by longtime Milwaukee journalist Dan Shafer. The Recombobulation Area is now part of Civic Media.
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By looking at a spreadsheet of expenditures, one discovers which causes have attracted sufficient political will, and hence the necessary resources, to be acted upon. A tabulation of revenue sources reveals who pays for government services, how much they must pay, and how the costs of government are allocated across economic strata.
Yet for Wisconsin’s local governments, budgets are political documents not merely because they emerge from disputes over competing public demands, but also because they elicit conflict between levels of government themselves. Some of the most important decisions about local priorities — and the resources governments have to address them — are made not in city halls or county courthouses but at the state capitol complex in Madison. While local governments are frontline service providers for everything from public transit to mental health to parks and recreation, it is the state that ultimately sets the parameters for how they spend, the kinds of revenue sources they may use, and the tax rates they may apply. Under “Dillon’s Rule” — a legal doctrine that dates to the 1860s — local governments are considered “creatures of the state.”
And since 1911 — the year that Wisconsin both enacted the nation’s first progressive income tax and inaugurated a program of sharing tax revenue with local government — the politics of local budgets have also been shaped by the level of tax revenue elected officials in Madison have deemed sufficient to return to cities and counties. Think of this as a gigantic tradeoff: in exchange for preempting local governments’ use of most non-property tax sources, the state shares back a portion of its annual revenues with the state’s counties and municipalities.
Yet while the state relies on local governments to deliver services to its residents — often the services the state itself mandates — these governments have no constitutional entitlement to a particular level of aid. Hence, when it has been politically, and fiscally, expedient to do so, state officials have simply underfunded aid to local governments.
Such is the situation that local officials around Wisconsin now confront. Less than two years after state legislators successfully negotiated what was then advertised as a historic investment in local government, the limitations of that reform have begun to reveal themselves.
It was the revelation of a $5 million budget shortfall for 2025 that brought things to a head in Waukesha County. As Paul Farrow, the County Executive — and a Republican — saw it, the county could not afford the status quo: “We’ve kind of gone through 1,000 paper cuts, and we’re at a point now where we need to find another revenue stream.”
The budget shortfall would now require not only substantial reductions in capital projects, highway repairs, and improvements to park facilities, but reductions in key county personnel. Farrow’s solution was to increase sales taxes by 0.5%, a proposal that county officials estimated would bring in at least $50 million annually. Currently, Waukesha is one of three counties around the state without a sales tax. Manitowoc County will add one in January.
But the proposal met with swift pushback from the business community. Whereas Milwaukee County’s 0.9% sales tax, which passed in 2023, was strongly endorsed by the Milwaukee Metropolitan Association of Commerce (MMAC), the Waukesha County Business Alliance instead urged elected officials “slow down and evaluate” the proposed measure. The Alliance also went public, launching a websitethat allowed voters to send a form e-mail to signal their opposition. Former Republican Governor Scott Walker — now a resident of Waukesha County — broadcast his objections to the tax on social mediaand right-wing talk radio. On Oct. 22, with only an hour to go before the board’s scheduled deliberations over the measure, Farrow pulled it from the agenda. The sales tax proposal was dead.
In addition to making $2.9 million in budget reductions, the sales-tax proposal’s failure pushed Farrow and other Waukesha County officials to turn their attention towards state legislators.
Going into 2025, the state of Wisconsin has a $4 billion budget surplus. Meanwhile, Waukesha County residents had sent more than $1.5 billion to the state but had only received $60 million back in state aid. And while the state had passed a significant boost to county and municipal aid in 2023, it wasn’t enough. Waukesha County — the state’s wealthiest— still ranked last among local governments in terms of per capita shared revenue.
These facts and others made their way into a resolution passed by the Waukesha County Board in late November, which urged the State of Wisconsin to provide the county with additional shared revenue. The resolution, introduced by County Supervisor Jacob LaFontain, occasioned a rebuke from State Senator Chris Kapenga (R-Delafield), who had lost a special election for Chief Executive to Farrow in 2012. In Kapenga’s view, the problem was Waukesha’s alone. The county, he said, “needed to increase efficiency and make tough decisions.” An increase in shared revenue, he vowed, would not make it through the Senate.
This was a curious confrontation, all things considered. A little less than two years earlier, state legislators from both parties had lined up to support what they referred to as an historic investment in aid to local governments in the form of Act 12, a $274 million boost to the state’s County & Municipal Aid program, which had flatlined in recent decades, starving local governments of a key source of revenue.
What happened?
Waukesha County’s problems with the state’s shared revenue system are far older than the most recent budget cycle, and they extend far beyond the county line.
Wisconsin’s 72 counties — like their counterparts elsewhere — pull “double duty” as governments. On the one hand, they act as administrative units for services provided by the State of Wisconsin. Among their other responsibilities, counties run courts, jails, social services, and health programs mandated by the state. In 2025, 44% of Waukesha County’s tax levy will be devoted to services mandated by the state.
At the same time, while counties lack the same kind of home rule enjoyed by cities and villages in Wisconsin, they provide a number of essential services not mandated by the state. They operate public transit systems, networks of libraries, public parks, golf courses, and other amenities that are critical to maintaining the quality of life that results in a growing population. Financing these non-mandated services can be difficult, however, especially as the range and depth of state-mandated services has widened, eating into the county’s tax levy.
Due in part to Wisconsin counties’ mix of functional responsibilities, most of the state funding they have historically received has come not in the form of shared revenue – which can be allocated to a wider range of activities – but as grants or aid for specific functions such as highways, health and human services, and courts. Thus in 2022, shared revenue accounted for only about a tenth of the aid received by counties statewide. For comparison, in the same year, shared revenue constituted 52% of the aid received by municipalities.
While counties have historically received minimal shared revenue, the formula for allocating these funds has posed problems of its own. The shared revenue system that operated from the late 1970s until the early 2000s tended to disadvantage Waukesha County. The system’s design was anchored on an “aidable revenues” formula that aimed to help communities that had a harder time raising revenue due to lower property values. At the same time, the system aimed to put downward pressure on rising local property taxes by disincentivizing communities from engaging in a “dollar for dollar” tradeoff, using shared revenues simply as a means of lowering local property taxes rather than providing services.
With a combination of higher-than-average home values, lower-than-average taxes, and lower-than-average spending, Waukesha received among the lowest shared revenue payments in the state.
To make matters worse, beginning in 2003, the legislature began a decade-long process of dismantling – without replacing – the old system. Following significant cuts, shared revenue payments were frozen at their 2004 levels between 2005 and 2009. By 2010, state lawmakers had put into place nearly $30 million in additional cuts to shared revenue. In 2012, they slashed another $76 million from the program. Thus as Waukesha County’s population grew (and as inflation rose), its payments – like payments to counties and municipalities across the state – dwindled.
By 2023, local officials from around Wisconsin were in desperate need for a legislative fix on shared revenue. And a confluence of events led to a window of political opportunity. City and county governments in Milwaukee simultaneously stood on the brink of a budget crisis and had recently seen the election of new political leaders who could refresh negotiations with Republican leaders in the legislature. That refresh no doubt included supporting a bid for Milwaukee to host the 2024 Republican National Convention. But the devil of shared revenue was in the details — details that emerged rapidly, and which contained more than a few causes for concern.
Held in May of 2023, the hearings on the legislative proposals before the state’s powerful Joint Finance Committee were a tense mixture of optimism and frustration. In his testimony before the legislature’s Joint Finance Committee, Waukesha County Executive Paul Farrow put it bluntly. He had, he said, “read and reviewed every page” of the bill winding its way through the legislative process. He knew what it funded, the strings attached, and the details of the bill’s effects on Waukesha County. He was not impressed. “Waukesha County received little money in the old formula, and, despite the seemingly large percentage increase in our projected aid under the new formula, we will not receive enough money to cover our cost-to-continue in one single year of our budget,” Farrow said, “By the time the state ends its two-year budget cycle, Waukesha County will be back to square one. That is not the hallmark of a bill making an historic impact on local government.”
Waukesha County’s problems with the state’s shared revenue system are far older than the most recent budget cycle, and they extend far beyond the county line.
Wisconsin’s 72 counties — like their counterparts elsewhere — pull “double duty” as governments. On the one hand, they act as administrative units for services provided by the State of Wisconsin. Among their other responsibilities, counties run courts, jails, social services, and health programs mandated by the state. In 2025, 44% of Waukesha County’s tax levy will be devoted to services mandated by the state.
At the same time, while counties lack the same kind of home rule enjoyed by cities and villages in Wisconsin, they provide a number of essential services not mandated by the state. They operate public transit systems, networks of libraries, public parks, golf courses, and other amenities that are critical to maintaining the quality of life that results in a growing population. Financing these non-mandated services can be difficult, however, especially as the range and depth of state-mandated services has widened, eating into the county’s tax levy.
Due in part to Wisconsin counties’ mix of functional responsibilities, most of the state funding they have historically received has come not in the form of shared revenue – which can be allocated to a wider range of activities – but as grants or aid for specific functions such as highways, health and human services, and courts. Thus in 2022, shared revenue accounted for only about a tenth of the aid received by counties statewide. For comparison, in the same year, shared revenue constituted 52% of the aid received by municipalities.
While counties have historically received minimal shared revenue, the formula for allocating these funds has posed problems of its own. The shared revenue system that operated from the late 1970s until the early 2000s tended to disadvantage Waukesha County. The system’s design was anchored on an “aidable revenues” formula that aimed to help communities that had a harder time raising revenue due to lower property values. At the same time, the system aimed to put downward pressure on rising local property taxes by disincentivizing communities from engaging in a “dollar for dollar” tradeoff, using shared revenues simply as a means of lowering local property taxes rather than providing services.
With a combination of higher-than-average home values, lower-than-average taxes, and lower-than-average spending, Waukesha received among the lowest shared revenue payments in the state.
To make matters worse, beginning in 2003, the legislature began a decade-long process of dismantling – without replacing – the old system. Following significant cuts, shared revenue payments were frozen at their 2004 levels between 2005 and 2009. By 2010, state lawmakers had put into place nearly $30 million in additional cuts to shared revenue. In 2012, they slashed another $76 million from the program. Thus as Waukesha County’s population grew (and as inflation rose), its payments – like payments to counties and municipalities across the state – dwindled.
By 2023, local officials from around Wisconsin were in desperate need for a legislative fix on shared revenue. And a confluence of events led to a window of political opportunity. City and county governments in Milwaukee simultaneously stood on the brink of a budget crisis and had recently seen the election of new political leaders who could refresh negotiations with Republican leaders in the legislature. That refresh no doubt included supporting a bid for Milwaukee to host the 2024 Republican National Convention. But the devil of shared revenue was in the details — details that emerged rapidly, and which contained more than a few causes for concern.
Held in May of 2023, the hearings on the legislative proposals before the state’s powerful Joint Finance Committee were a tense mixture of optimism and frustration. In his testimony before the legislature’s Joint Finance Committee, Waukesha County Executive Paul Farrow put it bluntly. He had, he said, “read and reviewed every page” of the bill winding its way through the legislative process. He knew what it funded, the strings attached, and the details of the bill’s effects on Waukesha County. He was not impressed. “Waukesha County received little money in the old formula, and, despite the seemingly large percentage increase in our projected aid under the new formula, we will not receive enough money to cover our cost-to-continue in one single year of our budget,” Farrow said, “By the time the state ends its two-year budget cycle, Waukesha County will be back to square one. That is not the hallmark of a bill making an historic impact on local government.”
The problem with the bill came down not so much to the convoluted formula it used to allocate aid to counties, but to its relatively stingy financing. Overall, Act 12 allocated $68 million to counties in 2024. This is a fraction of what counties would have received had the “old” shared revenue system been revived and adjusted for inflation. It was also half of what counties would have received under the proposal made by Governor Tony Evers in early 2024 (see the figure below).
To see how the limits imposed by the legislature affect Waukesha County’s slice of shared revenue, consider the details of the most important component of Act 12’s allocation formula for county aid, which accounts for 74% of the aid counties received. Under the first part of the calculation — which attempts to boost per capita aid for counties that had historically seen low per capita payments — Waukesha County is allocated over $4 million in 2024.
But here’s the catch: because the legislation says that aid to counties under this part of the formula cannot exceed $50 million, all aid amounts must be pro-rated. After applying the pro-rationing factor, Waukesha County’s share under this part of the formula is shaved down to roughly $3.2 million. While the county receives a small boost under a separate component of the formula, bringing its 2024 payment to $3.5 million, it continues to receive one of the lowest boosts in per capita payments of any county in the state. As county supervisors noted in their November resolution, Waukesha County continues to rank last among local governments in shared revenue per capita, and very near the bottom in supplemental aid per capita provided in the 2023 law.
Proposals to increase aid to counties and municipalities beyond the levels set in Act 12 had nevertheless been on the table in 2023. All but six of Wisconsin’s 72 counties would have seen a greater level of shared revenue under a plan included in Governor Tony Evers’ 2023–25 budget proposal. Under Evers’ proposal, Waukesha would have received over $1.8 million more in additional aid for 2024 alone than it did under Act 12. Additional payments like these might not have closed Waukesha County’s budget gap entirely, but they would have necessitated far fewer cuts than the county was ultimately forced to make.
That a more expansive version of shared revenue reform did not happen in 2023 is not surprising. Despite broad support from local officials for a boost in shared revenue, the reform was swept up into the kind of partisan confrontation between a Republican-controlled state legislature and a Democratic governor that has become a hallmark of Wisconsin politics. The legislation’s design — as well as the rhetoric surrounding the bill — also helped to divide potential coalitions by singling the city and county of Milwaukee as objects of ridicule, as well as prisoners of their own unique set of new prohibitions.
While the drift in shared revenue strained the finances of governments across the state, right-wing radio described the legislation as a Milwaukee “bailout.” So too did Waukesha County Executive Paul Farrow. Thus if the goal of these measures was to divide potential coalitions of supporters – or to deepen existing divides – the spell evidently worked. At any rate, debates about the overall size of the package receded as the legislative process wore on. The result of the tight cap on spending in Act 12 is that all counties, not just Waukesha, are receiving a fraction of what they would need to maintain the delicate balance between offering a complex mix of essential services without unduly raising local tax burdens.
The momentum of the legislative process would not allow such details to be hashed out. Decades of drift had given way to a new urgency and a sense that large – even if inadequate – increases would be better than none at all. At the very least, Act 12 provided at least some mechanism for increasing aid to local governments in the future, by linking payments in years 2025 and beyond to increases in the state’s sales and use tax collections. (Between 2024 and 2025, this provision accounted for a 2.3% increase in supplemental aid to counties and municipalities.) Further tweaks could, it was felt, be left for another day. With Wisconsin municipalities facing the prospect of significant shortfalls in 2023, and with limited space on the legislative calendar, the spring of 2023 was a moment for political brokerage, not policy analysis. Little time, then, for the public to consider the bill’s curious aid formulas, its new restrictions on local governments, and its creation of a trust fund that will accumulate millions of unobligated dollars that could be better deployed by local governments.
Complaints by co-partisans like Farrow notwithstanding, Republican legislative leaders hardly budged on the overall size of the aid package. While tax burdens in Wisconsin have fallen to record lows in recent years, Republicans remained keen on preserving the billions of dollars in budget surplus Wisconsin has amassed to finance tax cuts, which have become by now the party’s signature policy instrument – its meta-solution to all social ills. Even so, an adequate program of shared revenue – as well as the financing of many other essential governmental functions – is irreconcilable with upwardly redistributive tax cuts.
If these contradictions become difficult to see, it is in part because the illusion that counties, cities, villages, and towns are masters of their own fiscal fates dies hard. But the reality is that these governments are the creatures – hence the prisoners – of the state. Because the state can set the parameters of their fiscal policies, it can also offload onto them painful political choices its legislators do not wish to make. This arrangement – in which the state can alter fiscal realities for which local officials can be more readily blamed – constitutes a basic problem for democratic accountability.
In the past, mayors, county executives, and other local leaders have been able to short-circuit this vicious cycle only by exposing the links between state policies and the essential services local governments provide. This requires a level of collective action that can be difficult to achieve in a state whose political geography is so fragmented.
Yet whatever happens in the next legislative session, the politics of local budgeting in Wisconsin will – for the foreseeable future – remain in no small part an “away” game.
This piece is written by Phil Rocco, associate professor of political science at Marquette University. Rocco is a regular contributor at The Recombobulation Area, and the winner of a gold award from the Milwaukee Press Club for his work at the publication.
