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Wednesday, Sept. 17, 2008

Real Property Tax Relief

A case for the sales tax referendum

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On Nov. 4, Milwaukee County voters will have the opportunity to advise their elected officials on a proposal to shift the tax burden for parks, recreational and cultural functions,emergency services and transit from the property tax rolls and onto the sales tax with a penny increase in the sales tax.

Proponents of this tax shift cite three main reasons for why this policy makes sense:

The property tax in Wisconsin is high com pared to many other states because our property tax supports more county-based services than other states’ property tax. Other states are more likely to utilize state revenues, sales tax or a variety of fees to support these services.

We must begin to lower Milwaukee County residents’ property tax burden or we will destroy our quality of life in Milwaukee. Residents are constantly conflicted between their desire to maintain valued county services while struggling with their high property tax bills.

This shift from the property tax to the sales tax for parks, recreational and cultural functions would provide a more solid and stable funding source for our parks and provide for the needed maintenance and repairs. Milwaukee has one of the best park systems in the country, but over the past 20 years we have failed to adequately maintain it. For example, from 1986 to 2006, the parks went from more than 28% of the total county tax levy to just 8%.

The shift of funding for transit will also provide a more stable funding source and enable Milwaukee County to adequately maintain our mass transit system. A decent and affordable mass transit system is necessary to transport employees to their jobs and will become even more important as we struggle to lower our carbon emissions. Two main business organizations—the Metropolitan Milwaukee Association of Commerce (MMAC) and the Greater Milwaukee Committee (GMC)— have gone on record supporting a half-cent sales tax increase to pay for the county’s transit system.

It is important to understand that Milwaukee County government is quite efficient relative to other urban counties in the country. We also have enjoyed a high quality of life in Milwaukee County, but it is declining. It is necessary to preserve this quality of life in order to attract the highly skilled labor force that we need for our economic growth in the 21st century. This is why the tax shift is important.

But whenever anyone mentions any kind of change in tax policy, the misunderstandings, distortions and outright lies begin to fly. Here are the top 10 issues and questions that have surfaced on this referendum, as well as the facts about them.

Issue No.1

Other efforts to lower property taxes were not very successful, so why should I believe that this would actually lower my property taxes?

The property tax levy is the sum of the costs of the various items it covers, such as the parks, transit, schools, police protection, emergency services, garbage collection, social services, etc. The only real way to have an impact on property tax is to entirely remove some of these line items from the property taxes. For example, in 1989, the state Legislature passed a bill that made district attorneys and all of the assistant district attorneys state employees and no longer county employees paid for from the property tax. In Milwaukee County, this removed millions of dollars from the property tax roles because those employees were then paid for by the state’s income and sales tax. By removing the entire program, property taxes were lowered.

The current referendum proposes to entirely remove the parks and recreational and cultural functions costs, emergency services costs and transit costs from the property tax. In the first year, it should lower property taxes by $67 million and, due to strict limits set by the state, the levy could not increase more than 2% on this lower base. It is real property tax relief.

Issue No.2

Increasing the sales tax would hurt the poor since the sales tax is a regressive tax.

In general, a sales tax is a regressive tax because it takes a larger percentage of a poor person’s income than a wealthier person’s income, since the poor person spends virtually every dollar he or she earns and a wealthier person will save a portion of his or her income.

But since Wisconsin has a progressive tradition, many of life’s necessities are exempted from the sales tax. For example, food purchased at a grocery store, a necessity, is exempt from sales tax, while food purchased in a restaurant, a luxury good, is subject to sales tax. So because of these numerous exemptions, Wisconsin’s sales tax is not particularly burdensome for the poor.

Issue No.3

This is just a backdoor trick to raise taxes.

The parks are in disrepair. Many of them have to keep the bathrooms locked because they just don’t have the resources to maintain something as basic as the bathrooms. The shortfall in funds for basic operations, not including the deferred maintenance for the parks and the transit system, is increasing each year and causing a decline in the entire system. We are gradually hurting the quality of life and beginning to damage the economic climate in Milwaukee County.

The amount we spend through the property tax to support these items is inadequate relative to other urban counties. Compared to park systems in other urban areas, we run an absolutely bare-bones operation. Chicago, for example, spends over 10 times more dollars per resident for both operations and capital expenditure for each acre of park land than we spend in Milwaukee.

So, realistically, what are our choices? We can let the parks totally decline, which will lower the value of our homes and our quality of life. Or we can raise the unpopular property tax. Or we can be more creative and shift important items from the property tax to the sales tax, as has been done in other states.

Raising the sales tax would actually lower the tax burden for Milwaukee County residents. Approximately 30% of the sales tax paid in Milwaukee County comes from people who live outside the county. Just think about the sales tax paid by all of those out-of-state Harley riders who spent four days in Milwaukee and what that additional sales tax could have done for our parks, recreational and cultural functions, emergency services and transit.

Issue No.4

This penny increase in the sales tax will generate more money than we are currently spending for parks, recreational and cultural functions, emergency services and transit. What are we going to do with the extra money?

The 1-cent sales tax increase will generate approximately $130 million. Currently we are spending $67 million on parks, recreational and cultural functions, emergency services and transit, which leaves approximately $63 million.

So why does Milwaukee County need the additional monies? Since the mid-1980s, we have dramatically cut back on park maintenance. For example, the Milwaukee County Parks System went from 760 full time employees in 1986 to fewer than 280 today.

We all know what happens to a home when you fail to repair the leaky roof or the crumbling foundation. The amount of deferred maintenance for our parks alone is in the hundreds of millions of dollars. This is just to bring them into adequate repair, not anything fancy.

Transit needs support, too. Even the business community understands that a decent mass transit system is not some kind of frill but rather a vital necessity for a growing urban economy. Despite the broad community support for a decent transit system similar to other major cities, Milwaukee County continues to cut back on bus routes and raise fares. But these cutbacks discourage ridership, which, in turn, results in less revenue and more cuts. This downward spiral is slowly killing our transit system.

While Milwaukee watches its bus system decline, other cities have made serious investments in mass transit with various forms of light rail. These wise investments resulted in increased ridership—especially among middle-class commuters—increased revenues, reduced auto congestion and parking problems, and improved air quality. While other cities are moving forward on 21st-century transit systems, Milwaukee doesn’t even adequately support its 20th century bus system.

Issue No. 5

Milwaukee County would become a tax island and our retail businesses would suffer.

The largest retail purchase we make is our automobile. The tax-island concept does pertain to vehicle purchases because Wisconsin charges sales tax on vehicles based on where buyers live, not on where the vehicles are purchased. Even if a Milwaukee County resident purchased an automobile in a different county, he or she would have to pay the Milwaukee County sales tax. So the next largest purchase might be a television or an appliance, and, yes, there would be an extra cost of 1% on an appliance purchase. The extra cost, for example, for a $500 or a $1,000 appliance would be between $5 and $10.

But with the price of gasoline today, is it worth driving outside the county to save $5 or $10?

Issue No. 6

Can’t we just cut the costs of these services and save money by being more efficient?

You get what you pay for, and compared to the two major cities near Milwaukee—Minneapolis and Chicago— Milwaukee residents get a lot. For example, Milwaukee has 16.3 acres of parkland per 1,000 residents compared to 14.4 acres per 1,000 residents in Minneapolis and only 4.2 acres per 1,000 residents in Chicago. Yet Minneapolis and Chicago residents spend three times as much per resident to operate their smaller park systems. We are getting a first-class park system at a bargain-basement price.

Issue No. 7

Parks, recreational and cultural functions are luxuries that Milwaukee just can’t afford anymore in this competitive world economy.

If anything, the opposite is true. In our global economy, where labor and businesses are more mobile than ever, cities need a strong quality of life to attract a high-quality workforce and sophisticated businesses. Thirty years ago, highly trained employees would follow a job to a city. Today, many younger, highly skilled workers look for a city that has the quality of life they desire and then look for a job there. This is a major shift in thinking. It is not the cities with the lowest taxes and fewest amenities that have the best-paying jobs. It is the cities with good amenities and a better quality of life—like Seattle, Boston and Minneapolis—that are leading the way on the economic development front.

If some of the short-term thinkers had their wish, we would have a stark dual system in our county, where the wealthy would have their private country clubs for their recreation and the rest of Milwaukee County would be sitting on their front steps. In the short run, starving these assets might save a few dollars in taxes, but in the long run we would lose our mobile, young, highly skilled employees and all of the potential they bring to a community.

Issue No. 8

I have a car, so why should I support mass transit?

This issue is probably more about economic development than anything else. You may not use mass transit, but the nurse’s aide, the restaurant’s dishwasher, the barista who makes your espresso macchiato and many others who make this economy work do need a mass transit system.

“Mass transit is the economic infrastructure for people from all walks of life in Milwaukee County,” says County Board Chair Lee Holloway. “Whether it is helping residents get to work, school, church or shopping, we must do everything we can to preserve and improve our transit system. Holding this referendum is the first step in preserving funding for this crucial service.”

Issue No.9

I won’t see any decrease in my property bill.

By taking the parks, recreational and cultural functions, emergency services and transit off of the property tax, this will lower the property tax in Milwaukee on a $150,000 home by $165. Of course, there is inflation and other factors that cause the property taxes to increase each year. But at the end of the day, your property taxes will be $165 lower per $150,000 of assessed value than they would be had this shift not taken place.

Issue No.10

This is a vote to raise the sales tax and it will go into effect immediately after the election.

This is not a vote to raise the sales tax. It is just an advisory referendum to ask the state Legislature to provide enabling legislation so the county can, if it chooses by a vote of the county board, shift the parks, recreational and cultural functions, emergency services and transit from the property tax to be paid for by a penny increase in the sales tax.

Louis Fortis is a former economics professor, former Wisconsin legislator and current chair of the Milwaukee County Parks Advisory Commission.

What’s your take? Write: editor@shepex.com or comment on this story online at www.expressmilwaukee.com.

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