New state figures show property values in Wisconsin rose last year by the fastest rate since before the Great Recession— a welcome reminder of the economic recovery. However, while some parts of the state have seen strong growth over the past decade, property values in parts of northern and central Wisconsin have yet to recover fully.

Also, the good news about the overall increase in property values is tempered by the fact that most of that growth comes from appreciation of existing properties. New construction in the state is growing slowly and is not contributing to rising property values the way it did before the Great Recession. The growth in property values from new construction—or lack of it—matters for both taxpayers and elected locals, as the state uses it to limit property tax increases for local governments across Wisconsin.

Each year, the Department of Revenue publishes data at the municipal, county, and state level on two important metrics: net new construction and equalized property values. We take a broad look at these numbers here, in advance of a more detailed upcoming report on state property taxes and values. From 2018 to 2019, equalized property values increased for the sixth straight year, rising 5.7% to $580.9 billion statewide, and producing a new high in nominal dollars for the third straight year. Meanwhile, the percentage increase in values attributed to net new construction amounted to 1.6%.

The state “equalizes” property values across all of its municipalities each year to account for differences in how local officials assess properties and how recently they have done so. This is important to ensuring that communities pay their fair share of property taxes within overlying units of government like schools or counties.

Since 2005, annual property tax increases for Wisconsin municipalities, counties, and technical colleges to cover ongoing operations generally have been limited to the rate of net new construction. That means the limit varies widely by community. For example, in the most recent data, Madison’s net new construction rate was 2.23%, while Racine’s was just 0.14%.

Given that Wisconsin relies heavily on the property tax to fund local government, it matters that the state also has relatively tight limits on its growth. The link between levy limits and net new construction was first established in 2005, when the rate of net new construction statewide was 2.82%; the rate has not reached 2005 levels since, and has been below 1.75% in every year since 2008.

In addition, state officials initially included a “floor” for the property tax limits that allowed local governments to increase their levies each year by the greater of their rate of new construction or a specified percentage, which was never lower than 2%. The floor was removed in 2011, however, tying increases—with some exceptions— to new construction alone.

In 2018, the statewide rate of net new construction (1.60%) barely surpassed the relatively low rate of inflation from January 2018 to January 2019 (1.55% as measured by the Consumer Price Index). Less than a quarter of all municipalities had rates of net new construction above the rate of inflation, including only seven of the 20 most populous cities and villages (Madison, Kenosha, Eau Claire, Janesville, Wauwatosa, Wausau and Menomonee Falls).

Statewide equalized values have increased for six straight years, and the majority of the state’s population now lives in a municipality or county where land is valued higher than ever before, at least in nominal dollars. That said, even in a strong period of economic growth, the increase in property values from net new construction remains below pre-recession levels.

The slow and uneven growth in new construction raises the question of whether the state should reconsider its use as the sole factor in limiting the growth in property taxes. Tying tax increases to net new construction has slowed the growth of municipal and county levies to the bene t of property owners. However, linking increases year after year to a factor that lags inflation for many Wisconsin communities makes it di cult for them to maintain service levels over time.

Property tax limits and their link to net new construction are not necessarily the most important factors contributing to or limiting growth at the local level. Still, recent trends suggest state lawmakers and the governor may want to at least consider whether these factors are creating unintended consequences that need to be addressed.

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