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Recession downsized cities in Wisconsin

You may find it boring, but it’s an important public-policy issue: Which unit of local Wisconsin government—cities, towns or villages—was most hurt by the economic collapse of 2008-12?

Answer: Wisconsin’s shrinking cities.

The new state Department of Revenue report on equalized property values statewide said Wisconsin cities lost $22.14 billion from their tax rolls between 2008 and 2012. For every $11 in property that Wisconsin cities could levy property taxes on in 2008, $1 was gone within four years.

But some Wisconsin cities fared much worse than the 9.4 percent four-year drop in the property of all cities statewide.

Milwaukee, for example, lost a staggering 18.1 percent of its tax base, or $5.83 billion in property value. Kenosha lost 17 percent or $1.15 billion in property value.

Some other Wisconsin cities and their tax-base losses were: Waukesha, minus 12.8 percent or $797 million; Racine, minus 12.5 percent or $517 million; Beloit, minus 12.2 percent or $211 million; Green Bay, minus 11.6 percent or $740 million; Janesville, minus 10.8 percent or $475 million; Wausau, minus 7.7 percent or $214 million; and Appleton, minus 1.9 percent or $77 million.

Two other cities—Eau Claire and La Crosse—more or less kept their tax bases intact over those four years, although that’s no major victory because property values had marched steadily upward annually for decades.

Eau Claire lost 0.7 percent of its tax base; La Crosse, 0.19 percent.

Why is the dramatic drop in property values of cities in Wisconsin—and across the nation—important?

“Cities are important in this country,” said Andrew Reschovsky, professor of public affairs and applied economics at UW-Madison’s LaFollette School of Affairs and a visiting professor at the Lincoln Institute of Land Policy.

“Cities tend to drive economic policy,” added Reschovsky, part of a research team that studied the decline in property taxes in cities across the nation, including Milwaukee and Madison.

Cities “tend to have concentrations of the most needy residents”—residents who frequently have fewer work skills and who stay unemployed the longest, Reschosky said.

It’s not much of a consolation, but the drop in property values in many cities nationwide were “much, much larger” than in Wisconsin over the last four years, Reschovsky said.

Reschovsky said the “uncharted” question is how cities will maintain property taxes they need to pay for their core services, including public schools, streets, police, fire and other emergency services.

“In the U.S., local governments really are the service providers of last resort,” Reschovsky said.

But those decisions—what local services to keep and how to pay for them—are made by what Reschovsky calls every city’s “political economy.”

Reschovsky and Dan Thompson, executive director of the League of Wisconsin Municipalities, said Wisconsin’s local governments can simply raise their tax rates in 2013 to offset drops in property values unless taxpayers—waiving notices that tell them how much less their properties are worth—revolt.

What does the TEA in tea party stand for? Taxed Enough Already.

Thompson, who has been part of the dialogue over local government spending for decades, said the 9.4 percent four-year fall in the value of property in Wisconsin cities impacts them in “two ways—legal and political.”

“Legally, the drop in tax base has little impact on city budgets,” Thompson explained. “Under the current levy-limit law, cities will be able to levy the same amount in property tax in 2013 that they levied in 2012.”

But, he added, the political dimension—the fall votes facing mayors, city councils and town and village boards on whether to raise tax rates to offset the drop in property values—“will have a sharp impact on city budgets.”

Thompson said that as the DOR report shows, “taxpayers in cities have lost billions of dollars in net worth.

“When our citizens become poorer, they have more trouble paying their property taxes. This, in turn, will increase the pressure on mayors and city councils to cut municipal budgets. Local officials will have to decide how much they can cut without sacrificing vital services. It will be a daunting task.”

The tough tax-or-cut decisions facing local officials are one reason that one in five of them leave office every year, Thompson noted.

What’s the impact of the four-year drop in property values on homeowners? Let’s explore that next week.

Steven Walters is a senior producer for the nonprofit public affairs channel WisconsinEye. This column reflects his personal perspective. Email stevenscwalters@gmail.com.