Why an Idea to Raise the Local Sales Tax Could Trigger a Statewide Fiscal Overhaul
Wisconsin State Capitol Building in Madison

Why an Idea to Raise the Local Sales Tax Could Trigger a Statewide Fiscal Overhaul

Instead of letting Milwaukee County boost its sales tax, lawmakers will debate how to pay for local government and pensions

Legislation to raise Milwaukee County’s sales tax could lead to a broader debate about city and county pension issues – and possibly about whether all Wisconsin local governments could shift toward sales taxes to ease the property tax burden, a key Assembly Republican says.

The sales tax bill itself won’t reach the Assembly floor in its current form this session, say Rep. John Macco (R-DePere), chairman of the Ways and Means Committee, and Kit Beyer, spokeswoman for Speaker Robin Vos. The Assembly’s last regular floor period of the year is scheduled to end Thursday.

But a hearing before Macco’s tax-writing committee, tentatively scheduled for March 5, will become a forum for examining the structure of the Milwaukee city and county pension funds that are creating budgetary headaches for Wisconsin’s two largest local governments, he says.

And Macco says he’s open to a larger discussion of how to pay for local government statewide, and whether sales taxes or other revenue mechanisms would work better than property taxes.

“If this is good for Milwaukee, why is it not good for the whole state?” Macco asks of the sales tax authority that city and county officials have long coveted. “From a purely economic standpoint, you’re always better off taxing consumption than income and property.

The current plan would let Milwaukee County voters decide whether to triple the local sales tax, from 0.5% to 1.5%, and divide the additional revenue among the county, city and suburbs, with 7% set aside to deal with lead pipe and paint issues. It’s sponsored by Rep. Evan Goyke and Sen. LaTonya Johnson, both Milwaukee Democrats, and backed by a wide coalition of local officials, with support from business leaders who opposed some previous sales tax proposals. 

Metropolitan Milwaukee Association of Commerce President Tim Sheehy says advocates have made progress in lobbying for the sales tax, but some Republican lawmakers would feel more comfortable earmarking it for pension obligations. Goyke and Mayor Tom Barrett say they’ve heard talk of using the tax revenue for pension and/or police costs, but nobody has submitted specific amendments to do so.

Just obtaining a public hearing on the sales tax bill is a significant step forward in a GOP-controlled Legislature, Barrett and Goyke note. Senate Majority Leader Scott Fitzgerald already has declared the legislation dead, but Vos has been open to discussing it, and “he anticipates bringing people together on the issue in the future,” Beyer says.

The city and county are the only two Wisconsin local governments with their own pension systems. Both are forecasting major increases in pension costs in 2023, and planning for those increases already is cutting into their ability to pay for other local services. Macco says elected officials must deal with that structural issue before exploring new revenue options.

By contrast, the rest of Wisconsin’s municipalities and counties are part of the state’s fiscally healthy retirement system. Macco says he wants to see whether the city and county systems could be restructured to be more like the state’s system, or even merged into it. The Wisconsin Policy Forum plans to release a study examining those questions in early March, says Rob Henken, president of the nonpartisan statewide think tank.

Almost two decades ago, Milwaukee Magazine revealed that county officials had approved extraordinarily generous pension benefits — not just for workers, but also for themselves. The resulting scandal forced then-County Executive F. Thomas Ament to resign, swept Republican Scott Walker into the exec’s office and triggered a wave of recalls against supervisors.

While the higher benefits contributed to previous increases in the county’s pension costs, they’re not the main factor in more recent issues, Henken says. Both the city and county will need to increase their pension contributions as they dial back overly optimistic assumptions about investment returns, he says.

The sales tax debate grows out of state laws that force local governments to use property taxes as their primary revenue source, with strictly limited options for vehicle fees and hotel taxes. The Policy Forum has found Wisconsin cities and villages rely more on property taxes than their counterparts in other Midwestern states, and Milwaukee relies more on property taxes than any other major U.S. city.

Unlike municipalities, state law lets counties levy a 0.5% sales tax, an option that 68 of 72 counties — but not Waukesha and Racine counties — have exercised. Milwaukee County’s sales tax, which took effect in 1991, is projected to raise $82.5 million this year, mainly for costs related to borrowing, capital projects and employee benefits. 

Local officials have lobbied for years to expand the sales tax. In a 2008 advisory referendum, Milwaukee County voters supported increasing the tax to 1.5% to raise money for buses, parks and emergency medical services, over the objections of Walker and business leaders. 

The following year, the Democratic-controlled Legislature voted to boost the Milwaukee County sales tax to 1.15%, adding 0.5% for buses and 0.15% for city and suburban public safety services, as part of a broader deal on regional transit authorities. But Democratic Gov. Jim Doyle vetoed that plan because it separated a Milwaukee County bus authority from a regional commuter rail authority. Walker and his fellow Republicans took over state government in the 2010 election, dooming both sales tax increases and transit authorities.

Wisconsin allows some sales taxes related to sports, tourism and conventions, including the five-county 0.1% Miller Park tax that will end March 31; a 0.25% Milwaukee County tax on restaurant food and beverages to fund the Wisconsin Center District; a former 0.5% Brown County tax for Lambeau Field renovations; and sales taxes of 0.5% to 1.25% in “premier resort areas,” small tourism-dependent communities. However, suggestions for a regional sales tax for Fiserv Forum, convention center expansion and cultural and recreational assets went nowhere.

At the city level, Barrett has said a local sales tax would let him roll back plans to cut 60 police officer jobs through attrition. Seven suburban Republican lawmakers wrote to city officials last fall, objecting to the police staffing cuts.

The police staffing issue has its own political overtones. Barrett has previously said Milwaukee’s pension issues are complicated by Republicans’ decision to exempt police and fire unions from Act 10, the 2011 state law that slashed collective bargaining rights for most public employees. That allows the GOP-leaning safety unions to negotiate more generous pension benefits than other city employees. Police and fire pensions account for about 70% of the expected 2023 spending increase, Barrett says.

Republican legislators also killed the city’s residency rules, allowing Milwaukee police officers to move into GOP-represented suburbs. 

However, the police staffing debate rages on without any detailed analysis of how many officers the city actually needs, the Wisconsin Policy Forum observed in its review of Barrett’s budget. A cursory comparison of crime rates and police forces suggests Milwaukee’s staffing is in line with that of similarly sized cities, the October report noted.

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