Research 06/08/2021

Rethinking Revenues: A National Perspective on Funding Counties

A new report from Forward Analytics, Rethinking Revenues: A National Perspective on Funding Counties, highlights some of the fiscal challenges faced by Wisconsin’s 72 counties due to a long-term shift in state spending priorities, state budget cuts, strict property tax limits, and few local revenue options — challenges that remain despite an influx of federal assistance. In 2008-2019, state aid to counties declined 20 percent and inflation-adjusted county spending fell 7 percent.

The state aid decline was part of a longer-term priority shift at the state level.

“Beginning in the early 1990s, we saw a shift in state spending to corrections and K-12 education, followed by soaring Medicaid costs after 2004. This resulted in fewer dollars for other programs, including aids to counties.” said Forward Analytics Director Dale Knapp and author of the report.

State spending cuts due to budget deficits from 2009 to 2013 further reduced county aid. State funding of county services fell from 46 percent of total revenues in 1987 to 26 percent in 2019, putting pressure on county property taxes. Property taxes funded 41 percent of county services in 2019, up from 34 percent in 1987.

The move away from state funding was part of a national trend, with the share of state services funded by state government dropping in 38 states from 1987 to2017. Wisconsin’s funding decline was third largest and the subsequent increased use of the property tax was fourth largest among those states.

Two other factors limited counties’ ability to replace lost state aid:

  • Since 2006, state law has limited county property tax growth to the rate of new construction. While many other states have property tax limits, Wisconsin’s is one of the strictest in the nation.
  • The lack of significant revenue sources other than property taxes and fees also hindered county finances. While Wisconsin counties can impose a 0.5 percent sales tax – 68 counties currently avail themselves of this option – the allowable rate is second lowest among 31 states that allow this tax.

The report also found:

  • The ability to use other revenues, particularly sales taxes, also impacted property taxes. Contrasting approaches are used in Ohio and Minnesota, where state funding of counties was nearly the same as in Wisconsin. Ohio counties are allowed to impose a sales tax up to 2.25 percent, which helped drive county property taxes 42 percent below Wisconsin’s. Minnesota counties used the sales tax less than Wisconsin counties, pushing property taxes 13 percent above Wisconsin’s.
  • New York is a state where high sales tax use allows for less state funding, but also less reliance on the property tax. With an allowable sales tax of up to 4.75 percent, county property taxes were 31 percent less than in Wisconsin, despite significantly less aid from the state.

While the impact of the funding shift on property taxes was considerable, that should not be the sole focus. Ideally, county revenue streams would be sufficient to fund the rising cost of county services and would be reliable, balanced, and minimize the financial burden on those least able to pay. Wisconsin’s current system does not meet all those criteria.