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Wistax: Report explores link between state property tax limits and new construction

For more information: Rob Henken (414-276-8240) rhenken@wispolicyforum.org or Dale Knapp (608-241-9789) dknapp@wispolicyforum.org

In 2006, when Wisconsin policymakers first adopted legislation linking property tax limits on local governments to growth in new construction, rates of growth were relatively strong. Twelve years later, according to a new report by the Wisconsin Policy Forum, that is not the case; in fact, most cities and villages are experiencing growth rates of less than 1.5% annually.

In “Changing Patterns of New Construction,” Forum researchers explore new construction trends across Wisconsin and analyze factors that may be contributing to growth (or a lack thereof). The report is the first in a two-part series on property tax limits. A second report to be released next month will examine the impacts these limits have had on municipal finances and services.

The new report finds that in the year levy limits were enacted, the statewide rate of new construction was 2.8%, while in the five prior years it averaged between 2.5% and 2.8%. In contrast, by 2008 (after the state had entered into recession), the statewide new construction rate dropped to less than 2.0%, and three years later it was just 0.7%. Annual growth in statewide new construction has grown slowly since then, but the 1.6% statewide growth rate in 2017 still was substantially below growth rates enjoyed in the middle of the previous decade.

The report notes that during most of these years, municipalities were protected somewhat by “floors” in the state’s levy limit law. For example, in 2006 and 2007, in municipalities and counties that experienced new construction rates of less than 2%, levies still could increase by up to that amount. The floor was changed to 3.86% in 2008, 2.0% in 2009, and 3.0% in both 2010 and 2011.

However, beginning in 2012 and continuing to today, the floor was eliminated, meaning that counties and municipalities are allowed levy increases only up to their rate of new construction (with some exemptions allowed).

The report explains that there are significant variations in new construction growth across municipalities and counties statewide, and that most municipalities are not achieving the statewide average. For example, less than 20% of municipalities statewide experienced growth of 2% in 2017, while only 28% achieved more than 1.5% growth.

In addition to exploring regional patterns of new construction growth and differences among smaller and larger communities, Forum researchers explored some of the factors that may influence new construction. The report reveals that nearly 60% of the fastest-growing cities and villages had easy access to a four-lane highway, and that 42% of those achieving at least 1.5% growth during 2012-17 created at least one tax incremental district in 2011 or after.

The WPF analysis, “Changing Patterns of New Construction,” is available now by visiting www.wistax.org.

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