Jan. 8, 2020
By Bill Osmulski
Loopholes and exceptions in Wisconsin’s property tax law ensure tax bills always go up despite levy limits and other political fixes.
This year, the average property tax bill is 4.5 percent higher than it was last year. School referendums had a big part to play in that, but city and county taxes are up too.
The state’s property tax law imposes levy limits, or levy caps, on local government to try to protect property owners. Those limits can only go up when there is new construction in a community called “Net New Construction” (NNC).
Every year, the local assessor collects all the building permits from the local town or municipality and adds them up. The Wisconsin Department of Revenue then takes that figure and compares it to the community’s total equalized value from the year before. The resulting NNC percentage is the amount the local government can increase its levy. The county’s NNC is calculated by combining all the towns’ and municipalities’ values, so it’s impacted by all the same factors.
If there were no loopholes or exceptions in this system, most people’s property tax bills wouldn’t change much from year to year. New construction would increase property tax collections, but there would also be more people paying those taxes. Unfortunately, there are loopholes and exceptions, and they drive those higher tax bills.
The first problem is that construction in TIF districts is used to calculate Net New Construction, but those new developments in the TIF district don’t pay property taxes to the levy. The TIF district keeps those property taxes for itself to fund its projects. That means everyone else in the community and the county can face higher property tax bills to fill that gap. (Read MacIver’s full report on TIF here.)
The second problem is that the NNC is calculated by using building permits. Many people take out permits for home and commercial improvement projects that few would consider to be construction. And so, when a building gets a new HVAC system, the levy limit goes up. When a homeowner takes out a permit to get a new roof, the levy limit also goes up.
The assessor is supposed to subtract any demolition projects from the total, but building permits typically treat razing as part of the cost of construction – not as a separate demolition cost. Also, the NNC can never be below zero. It is always a positive number, meaning local government is never forced to lower its levy.
Another problem is that government building projects also take out permits that are included in the NNC calculation. Government buildings don’t pay property taxes, which means, once again, other property tax payers can see higher bills to make up the difference.
This problem also means that taxpayers aren’t just paying for the referendum when a new school is built. That construction also increases the city and county levy limits, but the school doesn’t pay taxes. That leaves everyone else to make up the difference.
There is also the problem of how local government borrow money. Unlike schools, local government can borrow up to 5 percent of its total equalized value without holding a referendum. The government then gets to collect extra property taxes through a debt levy to make payments on the bonds. However, most people never realize that this is going on, because the debt levy and the normal tax levy are combined into a single line on property tax bills.
All these exceptions and loopholes ensure that property taxpayers consistently shoulder a heavier burden every year. Unfortunately, they shouldn’t expect much help from Madison. Every year, the legislature considers new loopholes and refinements to the state’s property tax law that ensure tax bills will always move in the same direction – up.