As they advance 2021 budgets, the Town of Oakland and Village of Cambridge are a tale of two approaches to meeting crippling state tax levy caps.
Borrow or crumble?
For municipalities, neither is a good alternative.
The state levy limit law adopted in 2006, and update in 2011, continues to base how much a city, town, village or county can raise its tax levy over the previous year solely on the recent net value of new construction within its borders.
The law grants fast-growing communities that are seeing a lot of new development the needed flexibility to raise taxes to cover vital infrastructure upgrades and other costs.
But slow-growth communities, including small rural communities with more farm fields and natural areas than sprawl, have had under the law little to no annual budgetary wiggle room.
Under its 2021 state-imposed levy cap, out of about a $1.2 million budget, Cambridge for the coming year can raise its tax levy just $34,000 over 2020.
To meet that, the village’s Audit & Finance Committee at a meeting last week proposed for the second year to not fix any village streets, only to sealcoat some. A trash collection fee hike is on the table, as is a scaling back of the village’s subsidy to its water utility, which could lead to higher local water rates.
Municipalities can borrow outside of their levy caps. Cambridge elected officials and village staff have been adamant, however, about not borrowing for operating expenses.
Borrowing, however, has been Oakland’s go-to solution to levy constraints. Its board is electing — again — to short-term borrow $350,000 in 2021 to meet the town’s operating obligations. It borrowed that same amount in 2019 and 2020, paying off a one-year loan at the end of each fiscal year and starting anew with the cumulative principal rolled into a new loan – plus interest.
Town Chairman Eugene Kapsner says under levy caps, borrowing is the only way to fund costs like road repairs that shouldn’t be pushed off. Under its levy cap, Oakland can only raise its tax levy over 2020 by about $3,700. That’s out of a total proposed 2021 budget of about $1.8 million.
Cambridge and Oakland aren’t alone. Across Wisconsin, communities that are seeing little development struggle to fund basic services while meeting levy caps.
In a 2018 report, the Wisconsin Policy Forum noted that few cities and villages were seeing even modest growth, which was keeping their tax levies locked down.
Between 2012 and16, only 62 of nearly 600 cities and villages averaged new construction rates of 2 percent, the Policy Forum said, while 186 averaged 0.5% or less.
Evolving needs, like having to hire full-time emergency service crews as volunteerism declines, brings further complications.
As part of a long-standing agreement between five local municipalities, Cambridge and Oakland each fund a portion of local and fire and EMS costs, divvied up according to their equalized values.
For 2021, the Cambridge Community Fire and EMS Commission is asking for about $359,000 from Oakland, an 8.3 percent increase over $331,000 in 2020. It is asking for about $184,000 from Cambridge, an 8.6 percent increase over $169,000 in 2020.
Those are significant increases, that blow much of Cambridge’s and all of Oakland’s levy cap allowance for 2021.
Jerry Deschane, executive director of the League of Wisconsin Municipalities, said the League and the Wisconsin Towns Association said he’s hopeful that levy cap reform lies ahead.
In an email this week, Deschane said the League and Towns Association “have been telling legislators for several years that current levy limits are harmful to proper local government operations.”
“I would say there is a slowly-dawning understanding among legislators that there will need to be an adjustment soon or some of our communities, most particularly our rural communities, will start to experience significant fiscal problems. Whether that understanding will be sufficient to enable an adjustment during the next legislative session remains to be seen,” Deschane said.
Across the state, levy caps are unduly constraining slow-growth communities like Cambridge and Oakland. We hope to soon see statewide reform of that broken system.