Walworth County Government Today: Equalized value indicator of property taxes

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Dave Bretl | August 22, 2017

August 15th is becoming an important day again. That is the day when the Wisconsin Department of Revenue traditionally releases its calculation of equalized value throughout the state. Equalized value represents value of all taxable property. Ideally, it is a price that would be fetched if all taxable property in the state was sold on January 1.

The statistic is important for several reasons. First, it can give property owners a sense of how the real estate market is performing. While it isn't a perfect measure, a large increase in equalized value should mean that home prices are rising. Secondly, equalized value is one of three variables that will determine how much of the tax burden each property owner will pay when bills are mailed out later this year. For those of us tasked with putting together the county budget, the equalized value report tells us the maximum amount of property tax money that will be available to fund county operations in the next calendar year.

In recent years, the state legislature has used equalized value as a means of controlling taxes at the local level. The first tax levy cap that applied to counties and some other units of local government stated that the tax levy (the amount of money that the government seeks to raise from property taxpayers) could not exceed the increase in equalized value that took place in the previous year. During the booming real estate market of the early 2000's, this cap proved to be fairly ineffective. It wasn't uncommon for equalized value to increase at a double-digit rate from year-to-year.  This was particularly true in Walworth County. Between 2005 and 2006, for example, equalized value rose nearly 14 percent in our county.

In 2004, recognizing that the state-mandated limit would not be sustainable to local taxpayers, the county board adopted its own self-imposed tax levy cap. The board resolved to limit property tax increases to the percentage of new construction taking place in the county plus any increase in the consumer price index (CPI). The idea was that the county budget should be allowed to keep up with inflation. Our vendors raise prices over time. Costs, ranging from employee health insurance to road oil, increase from year-to-year. The CPI component of the formula was meant to capture that increase. New construction meant that more citizens need to be served. As a new home was added to the tax roll, the county included it in the equalized value available to be taxed.  What the formula did not permit the county to do was to raise the tax levy based on a hot real estate market.

After that formula was adopted, August 15th became a non-event in county government. While we needed to use the net new construction figure derived by the Department of Revenue, our maximum levy increase would be significantly less than the state-mandated cap.

A few years later, the State of Wisconsin realized that its levy cap was not doing much to control property taxes and made a radical change to its formula. Starting in 2013, absent authority from voters in the form of a referendum, the tax levy would need to be limited to the increase in net new construction that took place in the county during the previous year.  Suddenly, August 15th became a significant date again in our budget planning. The timing of the cap came at a particularly bad time as our county has been slow to recover from the banking crisis that took place in 2008.

Walworth County has lagged behind the state average in terms of new construction taking place. Between 2016 and 2017, new construction here increased overall equalized value by just 1.14 percent. This will be the maximum amount by which county government can increase property taxes to support the 2018 budget.

I actually thought our self-imposed levy cap made sense and had more local governments demonstrated greater fiscal restraint under the old equalized value cap, it's possible that the legislature would not have adopted the new one. Absent some type of building boom, I am not sure the current cap will be sustainable for many more years, not just in Walworth County, but in local governments throughout Wisconsin. 

Two options that will be in play for many local governments will be to reduce services or seek alternative sources of revenue.  Some communities have already embarked on this journey by imposing a “wheel tax” that is charged when residents register or renew the registration on their vehicles. The other option will be to obtain voter permission to exceed tax levy caps. I have not really seen municipal or county governments going this route, however, schools certainly have and voters are approving those ballot measures with increasing frequency.

A related issue is unfolding at the state level.  The state's road building fund, which is funded by a tax on gasoline, has been stagnant for many years. Debate over the topic appears to have stymied adoption of a new biennial budget. Holding the line on the gas tax means that the state either needs to slow down its construction and maintenance program or rebuild our roads with borrowed money. Our state leaders will have to figure that one out.  As far as Walworth County goes, I hope to present a budget next month that avoids taking on any new debt.  

If you are interested in how equalized value fared in your community, check out the Department of Revenue website at www.revenue.wi.gov.

Dave Bretl is the Walworth County administrator. Contact him at 262-741-4357 or visit www.co.walworth.wi.us.

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