Q&A: UW professor explains why you should care about shared revenue

Though you may not have heard of it, shared revenue is a financial lifeline for local governments in Wisconsin — and it’s entered the spotlight as communities scramble to fund essential services.

Shared revenue is a group of programs providing unrestricted state aid for local governments. It can be used for activities approved within that local governing body and will often “intermingle” with other local government revenues, according to a Wisconsin Legislative Financial Bureau report.

Amid rising inflation and statewide shortages of emergency medical service (EMS) providers, firefighters and local police officers, shared revenue has been at the forefront of discussion about Wisconsin’s 2023-25 biennial budget.

Gov. Tony Evers announced a proposal to send 20% of annual state sales tax revenue back to local governments during his biennial budget address Thursday. His proposal comes after making shared revenue a mainstay on the campaign trail for his reelection last fall, with him seeing the budget increases as necessary for municipalities to take action, according to Wisconsin Public Radio. 

There is potential for bipartisan collaboration on changes to the shared revenue system between the governor and Republican legislators, who control both houses of the Wisconsin Legislature. Evers’ shared revenue proposal is similar to a plan Republicans have publicly considered, according to the Wisconsin Examiner.

The Daily Cardinal spoke to Dr. Ross T. Milton, an expert on tax policy and assistant professor at the University of Wisconsin-Madison La Follette School of Public Affairs, about proposed changes to Wisconsin’s shared revenue system and how these changes might affect local governments.

This conversation has been edited for clarity and brevity. 

Could you give an overview of what shared revenue is? What changes has shared revenue been going through recently, and what effect will it have on Wisconsin?

Shared revenue is a set of policies in Wisconsin that distributes money from the state to local governments, municipalities and counties. I think that it is a big issue today because payments via the shared revenue system have been stagnant in recent years and so many local governments, particularly municipalities and counties, have been feeling a lot of revenue pressure and have trouble meeting their expenses. There’s some particular issues around Milwaukee that have driven the current debate, but it by no means is limited to one place, and lots of local governments are in a tricky situation.

What programs are funded by shared revenue, and are there limits on the uses of shared revenue?

There’s a few different programs that, together, we typically call shared revenue. In modern times, we think of that as one set of programs. Really, there [are] a few different ties that get divided up that follow different formulas, that go to local governments — but they are, generally speaking, unrestricted grants to local governments. They can be used for anything.

We’ll see what policy gets enacted this year — it sounds like some changes to the shared revenue system are likely. For instance, Gov. Evers’ proposal, [which] earmarks some of these new funds specifically for public safety and related expenses. That would be a change; rather than having unrestricted funds, [shared revenue] would go towards certain expenses. That’s very common in other states.

How long has it been since we’ve had changes in our shared revenue program, and is there a particular reason why we’ve seen Evers talk about it in his reelection campaign and State of the State address?

There are changes to the amount appropriated for it that have happened in the past. I don’t know the last time we saw changes of the sort of scale we’re talking about this year. I think that is definitely unusual, but again, it’s driven by lack of changes to some extent.

The shared revenue system has not been keeping up with costs experienced by local governments. At the same time, the revenue limits and the levy limits that govern how much counties and municipalities can tax their residents through the property tax have also increased in the last several years starting during the Walker administration. Local governments find themselves in the situation where they don’t have the power to increase their own taxes, and at the same time, the money that they’re getting from the state is not increasing. You can see how that would make it difficult to keep up with inflationary changes to costs. 

[Local governments] can go to referendums where they ask the voters to approve higher tax rates or higher amounts of revenue from property taxes. Those referendums have increased pretty dramatically in the last few years. Historically, [it’s] not that common to have referendums for municipal or county taxes. 

I think most people in Wisconsin are familiar with school tax referenda that they vote on to either fund capital expenditures or to increase taxes to fund operations for school districts. There’s a similar type of referendum for municipalities and counties. They’re much less common and typically not as much money, and so typically less talked about. But we saw a lot more in the last year than we had in previous years. That makes sense because the local governments don’t really have any [other] way of increasing revenues, except for some fees and stuff like that [which] can also go up.

For local governments, how important would an increase in shared revenue allocations be? How vital could that be to their funding of programs or their budgets in general?

It’s a pretty big increase, the Evers proposal … to take 20% of the state’s sales tax revenue and allocate that to shared revenue. I don’t know what the formula will be — it might be one of the preexisting formulas or a new one, but that’s a pretty significant increase in shared revenue expenses. That is projected to look like $500 million approximately, and current shared revenues are twice that, and so it’s a pretty substantial increase in shared revenues. Some of that is earmarked for public safety. 

At the same time, they’re proposing to allow larger local sales taxes so local governments, if they choose to, could implement a sales tax to fund their revenues. In Milwaukee, it could be an additional 1% sales tax, and in other counties, it could be an additional 0.5% sales tax. Those things together will give local governments significantly more leeway in informing how they want to set their taxes and revenues than what they have today. It’s a substantial change.

You had mentioned that what we have right now, in terms of the release that was just sent out, is the Evers proposal for what shared revenue might look like going forward. What differences might we see in the Republican vision of shared revenue or an eventual reconciliation or collaboration between the two parties?

I can’t speak to the political negotiations, so I don’t know what will come of it. I think that, because it’s all sorts of local governments that are feeling these pressures, there’s broad support for some changes to shared revenue and some increase in shared revenue. We’ll see what form that takes.

Are there differences in how shared revenue might affect particular localities or communities over others? For example, a rural locality versus an urban locality.

Most states, particularly states that have one much larger central city than other cities in the state, typically fund that city through a different system than they fund other cities and counties in the state. That’s because big cities — particularly ones where the metropolitan area is carved up into many different municipalities, much like the Milwaukee area — face fundamentally different issues. Their downtown tends to drive the metropolitan area and is valued by people who don’t just live in that city. Public transit is often controlled in a metropolitan system. 

So one thing that makes Wisconsin unusual is that Milwaukee’s funding from the state comes from the same shared revenue system that everyone else’s [does]. These changes don’t propose to undo that — they’re keeping it the same. Exactly how it would affect each individual municipality is going to depend on what these formulas look like, whether the new revenues are distributed via a new or existing formula. We haven’t seen proposals for that, to my knowledge.

How hard has it been for localities and municipalities to push for shared revenue changes, or how much have they been pushing for them?

I think action is happening because people care about the services that their local government provides. If you think about the sorts of government services that most people interact with on a daily basis, almost all of them are provided by local governments. People care about a police service, people care about their roads being plowed. The ability for local governments to provide those is really important to everybody in Wisconsin, and that’s why you’re seeing this being talked about today. 

Certainly, leaders of local governments are concerned, but I think that this being important is pretty transparent to most people involved, so I don’t think it takes some big lobbying group. But obviously, there are organizations of counties and organizations of municipalities in Wisconsin that are important and they are represented in the Capitol.

Is there anything else you would like to add? 

One thing that lots of people think in Wisconsin is that we have very high property taxes — and relative to some states, we do. By giving more flexibility to local governments and more funding from the state, you’re putting less pressure on property taxes. 

Local governments are going to be getting money from state sales tax revenues this way and have some ability to increase local sales taxes, and that’s going to give governments another option than raising property taxes. It doesn’t necessarily force them to lower property taxes, but it makes it so that they have ways to generate revenue other than using property taxes. In a state that has pretty high property taxes and somewhat lower sales taxes than many of our neighbors, that could benefit many people. 

There’s pros and cons to both types of taxes. It’s not a simple issue, but in terms of what many people care about, it will matter.

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