“Make no mistake, we still hold the majority,” Felzkowski said. “I hope we have better conversations. I hope we have better negotiations," Senate President Mary Felzkowsi said. (Screenshot via Zoom)

New-elected Senate President Mary Felzkowski (R-Tomahawk) said Tuesday that she hopes for more bipartisan conversations next year, but that her caucus plans to operate in the same way it has previously, since Republicans still hold the majority in the Wisconsin Legislature, even after losing a handful of seats this election year. 

The Legislature will return with closer margins next year following elections under new legislative maps. Republicans will have an 18-15 majority in the Senate, down from their previous 22-seat supermajority.  In the Assembly Republicans will hold  a 55-45 majority. Felzkowski made her comments during a WisPolitics panel Tuesday alongside Assembly Minority Leader Greta Neubauer (D-Racine) and two strategists — Keith Gilkes, a consultant and former chief political advisor for Republican former Gov. Scott Walker and Democratic strategist Tanya Bjork.

“Make no mistake, we still hold the majority,” Felzkowski said. “I hope we have better conversations. I hope we have better negotiations.” 

Felzkowski said she would “love” to have more meetings with Democratic Gov. Tony Evers, noting that former Gov. Scott Walker used to conduct weekly meetings with lawmakers during his time in office. (During the Walker administration, Republicans controlled both chambers of the Legislature and Democrats accused them of breaking the law by meeting in secret with Walker.)

Democratic leaders have said that they believe there will be more opportunities for work across the aisle next year, and that more competitive legislative districts will encourage that. 

“We’ve got some Republicans. We’ve got some Democrats who are in close, 50-50 seats,” Neubauer said during the panel discussion. “I expect that some in Republican leadership want things to continue as they have in the past, but I expect that a lot of those members who are in those difficult seats are going to be pushing to invest in K-12, to lower costs for working families, to take up popular policy.” 

The state budget — and potential use of the $4 billion budget surplus — will be a major focus for lawmakers when they return in 2025. Writing the budget is a time when lawmakers discuss potential policy changes on a wide array of issues, and the potential funding that should be placed behind them. 

Potential budget proposals and policy changes in wake of school shooting

Neubauer and Felzkowski discussed ways to address school safety, through policy changes and the budget, after a 15-year-old girl shot and killed a teacher and another student before turning the gun on herself at Abundant Life Christian School in Madison Monday. Six other people were injured in the school shooting.

“This is the deadliest school shooting on record in Wisconsin and it’s just an incredible tragedy. I know that people across the state are sending their good thoughts, of course, to those who were impacted but also really are looking for leadership in this time,” Neubauer said. She said proposals from President Joe Biden, who called for Congress to pass universal background checks, a national red flag law and a ban on assault weapons and high-capacity magazines, as well as new proposals from Wisconsin legislators in the state budget could be paths for improving school safety. 

“In Wisconsin, for many years, we’ve been talking about red flag laws. We’ve been talking about universal background checks. These are policies that are widely supported by the people of this state, and I think in particular when it hits home for kids,” Neubauer said. 

“For my school district here in the Racine area, they would really like to invest in school safety, there are important programs that they run, there are physical improvements that they would like to make, and I know that we’re going to be having a budget conversation very soon,” Neubauer continued. “I do hope that we’re able to keep in mind that investments in K-12 are also investments in school safety, and that’s a responsibility of the Legislature for the coming session.” 

Felzkowski stopped short of endorsing the policy changes that Neubauer mentioned. She instead said that people need to look at what has changed in American society, adding that people also took guns to school 30 and 40 years ago.

“We went hunting after school and nobody was afraid. Nobody was afraid that they were going to get shot at school, so society has changed,” Felzkowski said. “I think we need to recognize those factors that have changed in our society.” 

“We can pass a lot of different legislation, but we need to start looking at underlying causes…Is it social media? Is it cyberbullying? Is it too much screen time in our children? Is it violence that we’ve allowed them to watch at a young age?” Felzkowski asked. “I hope we can come together with a lot of tough conversations and look at that.” 

Felzkowski said increasing weapons screening in schools could also be a point of discussion. 

“Those are conversations that we should have in this budget to help fund ideas, so that people can’t walk through the door with no screening,” Felzkowski said. 

Spending the surplus, funding priorities

The state’s $4 billion budget surplus will likely be a key point of discussion during the budget writing process. Felzkowski said that when it comes to the surplus Republicans will “do exactly what we did last time,” and don’t plan on using the money for recurring projects. 

“If the majority of this is one-time money we’re going to spend it on one-time projects,” Felzkowski said. “One-time money should be spent on infrastructure. Instead of borrowing, we’ll spend it on our roads. We’ll spend it on maintaining our buildings.”

Felzkowski said during the budget process, lawmakers will survey current spending costs and what funding could be needed for other priorities. She said returning money to taxpayers would also be a priority.

“If we have a $4 billion surplus, then we have too much of our taxpayers’ money; we can return it to them,” Felzkowski said. 

Felzkowski added that the government didn’t choose for property taxes to rise in certain communities. Her comments follow a Wisconsin Policy Forum report that found gross K-12 property taxes in the state are expected to rise by the largest amount since 2009. She said she voted in favor of raising property taxes in her own community.

“When people vote at the local level to increase their taxes, their property taxes, that’s a decision they make, and that’s a decision they choose to make,” Felzkowski said. “I don’t think that’s government making that decision for them and I think that’s something they can do.” 

Neubauer said Assembly Democrats would be open to conversations about tax cuts, if they’re targeted. 

“We’re just simply not gonna give a tax cut to the wealthiest Wisconsinites and people who do not need it. We are very open to considering a tax cut that is targeted, that is focused on middle class and working families,” Neubauer said. She said also that people in their communities are being “forced to raise their own property taxes in order to fund their schools.” 

Felzkowski didn’t specify what potential tax cut proposals would look like, but noted that Evers “moved the needle” for what he considered a middle class tax cut when he vetoed some tax cut bills lawmakers sent him earlier this year. Those proposals included raising the top income in the state’s second-lowest tax bracket to just over $112,000, exempting up to $150,000 in retirement income from the state income tax and increasing the current maximum marriage tax credit. Evers did sign a law increasing Wisconsin’s child care tax credit. 

“If Gov. Evers continues to move the needle on what ‘middle class’ is, then we’re kind of at a loss,” Felzkowski said, adding that some families struggling financially could use a tax cut. “We gave [Evers] the tax cut and he still vetoed it. I’m hoping that that needle doesn’t move again.”

Several policy proposals are likely to be discussed next year in relation to the budget, including for Medicaid expansion and higher education. States that accept the federal Medicaid expansion agree to cover people with incomes up to 138% of the federal poverty guideline, and the federal government pays 90% of the cost for the additional Medicaid recipients, more than the 60% Wisconsin currently receives. 

Evers has proposed that Wisconsin join 40 other states across the country in adopting the Medicaid expansion every budget cycle, and Republicans have rejected the proposal each time. Felzkowski said that it remains off the table for Republicans. 

“We don’t have a gap in Wisconsin, so why would we take people off of private insurance to put them on government insurance and put our hospitals, who are already suffering, into a worse position with a lower reimbursement rate?” Felzkowski said. “We don’t need to create more gaps in health care when we have people covered.”  

Neubauer said that Medicaid expansion would continue to be a priority for Assembly Democrats. She said that some insurance remains a “huge strain” on families with private insurance.

“They frankly are not able to afford it. They are cutting in other areas to afford that insurance,” Neubauer said. 

Higher education will also be a focus of budget discussions as the UW System has requested an additional $855 million to bring the system up to the national median in state spending. Felzkowski said that she hasn’t heard much support for the proposal. 

Other issue areas

Lawmakers may also turn their attention back to medical marijuana legalization this year. Felzkowski said that there was one person standing in the way of getting it done last session: Assembly Speaker Robin Vos. 

“That person has some pretty strict ideas on how that bill should be drafted,” Felzkowski said. Vos’ proposal last session included opening a handful of state run dispensaries, an unpopular idea among many in the Legislature. “We’re hoping to have a conversation in early January to see if there isn’t a way that we can come to a consensus between Assembly Republicans and Senate Republicans to negotiate a compromise.” 

Felzkowski said that a bill to allow “Monday processing” of absentee ballots could also come forward next session. A proposal to allow election clerks to begin processing absentee ballots  on the Monday before the election passed the Assembly last session but never advanced in the Senate.

“There are many senators that were very much in support of that. The chair of the Senate elections committee was not and chose not to hear that. He is no longer a member of the Senate,” Felzkowski said. Sen. Dan Knodl, who served as chair of that committee, chose not to run for reelection under the new legislative maps, but will serve in the Assembly next year. “I’m hoping this year that we will have a committee hearing on that bill if it’s brought back and that we have a robust conversation on that. I personally think that is something that we should be doing in the state of Wisconsin.”

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The December Farm Foundation Forum, Tax Year 2025: Potential Impacts and Opportunities for Farmers and the Agriculture Sector, covered the possible outcomes and impacts for farms and the greater agricultural sector from potential changes to taxation policy in 2025 and beyond. Some key aspects discussed included the impact of expiring tax provisions, and specific issues like estate tax and bonus depreciation. 

The conversation was moderated by Todd Van Hoose, president and CEO of Farm Credit Council, and included input from Mark Albright, public affairs specialist in tax outreach partnership and education at the Internal Revenue Service; Kent Bacus, executive director of government affairs at National Cattlemen’s Beef Association; Tia McDonald, research agricultural economist with USDA Economic Research Service; Paul Neiffer, agribusiness and business advisor with Farm CPA Report; and Elizabeth Swanson, national tax senior manager with Pinion. 

Below are some of the main points presented by the panel. 

1. Expiring Tax Provisions: Expiring tax provisions, including key provisions from the Tax Cuts and Jobs Act (TCJA) and the American Rescue Plan Act (ARPA), will impact farm households. These include the child tax credit, earned income tax credit, estate tax exemptions, and bonus depreciation, set to expire by the end of 2025. 

2. Impact on Tax Liabilities: Expiring provisions are expected to increase tax liabilities by nearly $9 billion, with $650 million coming from the estate tax exemptions. The most significant increase will come from the expiration of changes to federal income tax rates, the removal of the state and local tax cap, and the reinstatement of the personal exemption. 

3. Qualified Business Income (QBI) Deduction: The QBI deduction, which allows farm businesses to deduct 20% of their income, will be affected by expiring provisions. Larger farms benefit more from this deduction, but moderate-sales farms face the highest percentage increase in taxes due to the expiration of this provision. 

4. Estate Tax and Exemptions: A major concern for farm households is the estate tax exemption, which will be halved in 2026, potentially leading to higher estate tax liabilities for farm families.  

5. Concerns Over Bonus Depreciation: The phase-out of bonus depreciation, which allows faster write-offs of equipment costs, poses a risk to farm businesses that rely on capital-intensive equipment. The expiration could lead to significant tax burdens unless replaced with alternative provisions. 

6. CTA Compliance and Penalties: The Corporate Transparency Act (CTA) mandates reporting beneficial ownership information for entities like LLCs. Failure to comply with CTA filing requirements can result in significant penalties. However, on December 3, 2024, the U.S. District Court for the Eastern District of Texas entered a preliminary injunction suspending enforcement of the Corporate Transparency Act (CTA) and its implementation of regulations nationwide. 

7. IRS Resources for Farmers: Various IRS resources are available to farmers, including the Farmers Tax Guide, tax tips for farmers, and an online Agricultural Tax Center. These tools help farmers navigate tax complexities, especially regarding crop insurance, disaster payments, and updated provisions like mileage rates and self-employment tax thresholds. 

The two-hour discussion, including the audience question and answer session, was recorded and is archived on the Farm Foundation website.  

Please note: This summary was created with the help of ChatGPT. Please refer to the recorded session for full details. 

The post Farm Foundation Forum Detailed Possible Impacts of Upcoming Changes to Taxation Policy appeared first on Farm Foundation.

Wisconsin Examiner photo

The Wisconsin Policy Forum recently reported that property tax bills mailed out to Wisconsin taxpayers this month will show the biggest tax increase from a previous year since 2009.

Assembly Speaker Robin Vos wasted no time in assigning blame. On X, Vos wrote: “When you receive your property tax bill this month, please remember it was Governor Evers who used his line item veto to create a 400 year guaranteed property tax increase.”

It’s true that Evers’ headline-grabbing partial veto of the last state budget extended the two-year tax increase the Legislature approved for school districts. The Legislature allowed schools to raise another $325 per pupil per year from local taxpayers for each year of the 2023-25 budget. By deleting some digits, Evers stretched that out until the year 2425. 

But Vos’ accusation is fundamentally misleading in a couple of ways. First, the Legislature approved the increase for the duration of the current budget cycle. The fact that Evers extended it for centuries into the future made a big splash, but it didn’t add a penny to anyone’s property taxes this year. 

Second, and more important to understand, as we begin another budget cycle and another slugfest over spending on schools, is that the Legislature’s stinginess when it comes to the state’s share of school funding is a major driver of property tax increases. 

As the Wisconsin Policy Forum points out in its report, one key reason for the recent spike in property taxes is the historic number of school district referenda passed by local communities. Local property taxpayers voted to raise their own taxes. And why is that? Because the Legislature refused to give school districts enough money in the state budget to cover their costs.

But, you might object, Vos and other Republicans made a big point of touting their last budget’s “historic” $1.2 billion increase in funding for schools. Unfortunately, that claim is as misleading as Vos’ effort to blame Evers for your property tax bill.

To understand why school districts are begging local taxpayers for money at the same time Republicans claim they gave schools a “historic increase,” take a look at how little of that $1.2 billion in “education spending” actually went to schools. 

For each budget cycle, the Legislative Fiscal Bureau produces a detailed summary of budget items by category. In the “Public Instruction” category, the Fiscal Bureau reports that “total school aid” in the 2023-25 budget came to $625 million. 

Where did the rest go? To find out, you have to look down the list of Fiscal Bureau categories to “shared revenue and tax relief.” There, under the heading “school levy tax credit” you will find the missing $590 million in so-called school funding, in the form of a rebate to property taxpayers. Schools never get to touch that money. It is an oddity of Wisconsin law that the school levy tax credit is labeled as school funding.

The school levy tax credit puts school districts in an awkward position every year. At the end of October, every district sets its levy. People believe, based on that number, that they know what their tax bill will be. But later, on Nov. 20, the Wisconsin Department of Revenue tells each municipality the amount of the school levy tax credit that will be applied to local property tax bills and the number is readjusted. The state calls this tax credit money for schools, but it’s actually just a straight-up discount for property tax payers. 

Now, had the Legislature actually put $590 million into school funding, schools would have been in a much better financial position, and we probably would not have seen a record-breaking number of districts asking property taxpayers to hike their own taxes to keep their local schools afloat. 

The backdrop to all this was a huge, historic cut to school funding in Wisconsin back in 2012, followed by a decade and a half in which schools never recovered. Wisconsin has not given schools enough funding to keep pace with inflation for the last 15 years, state schools superintendent Jill Underly pointed out when she released her $4 billion 2025-27 budget proposal.

Vos dismissed Underly’s budget proposal as completely unrealistic. But in truth, it would pretty much restore Wisconsin schools to the level of funding they enjoyed right before the brutal cuts of former Gov. Scott Walker’s administration.

One of Underly’s top budget priorities is asking the state to meet its neglected commitment to cover 90% of special education costs, instead of the current 32%, which forces schools to raid general funds and cut programs to cover this unavoidable, federally mandated expense.

Another sensible idea, endorsed by the Legislature’s bipartisan Blue Ribbon Commission on School Funding in 2017, is to end the deceptive practice of putting money into the school levy tax credit and pretending that it funds schools.

Instead of playing a shell game with school funding and pointing fingers as local taxpayers continue to shoulder more and more of the cost, Wisconsin should use a portion of the state’s massive budget surplus to adequately fund schools.

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Sen. Dianne Hesselbein now has four newly-elected Democrats in her caucus, eliminating the previous Republican supermajority and giving Democrats a greater say in what happens to the state budget.

The post State Senate minority leader says budget surplus should be used in part for K-12 education appeared first on WPR.

Republicans lawmakers, who pushed repeatedly last legislative session for tax cuts, celebrated the report’s findings.

The post Wisconsinites pay less of their income in taxes than ever, report says appeared first on WPR.

A shrinking share of income from Wisconsin residents and business goes to education and other public services, while corrections and police costs increase. (Getty Images)

Wisconsin residents and businesses pay less than 10% of their income on state and local taxes, according to a new report published Friday, continuing a trend that has been underway for more than two decades.

The report, produced by the Wisconsin Policy Forum, credited rising incomes, a 2021 state income tax cut and state limits on local property tax increases for helping to reduce Wisconsin’s state and local tax burden.

Wisconsin residents and businesses paid 9.9% of their income to cover state and local taxes in 2022, the report finds. That’s a drop from 10.3% in 2021 and from 12.5% in the year 2000.

The trend might not last, however. Initial information on collections suggest little change in the state and local tax burden for 2023, which could continue in 2024 and 2025, the report states. While income growth has been strong, “taxes have also grown in at least some areas.”

On average nationwide, state and local taxes amounted to 11.1% of individual and business income in 2022, according to the report — 1.2 percentage points more than Wisconsin. The share of Wisconsin income going to those taxes “has never been so far below that of the nation,” the report states.

The report reflects only state and local taxes, not federal taxes, which the Wisconsin Policy Forum analyzes separately.

While Wisconsin taxpayers are paying a little less, the state is also spending a smaller share of its income, particularly for education, the report finds.

Direct state and local spending grew by 7% in 2022, reaching $65.06 billion. But spending fell as a share of state income, to 18.3% in 2022 from 18.6% in 2021.

“Overall K-12 spending in Wisconsin rose 4.4% in 2022, but that was less than half of the 9.8% increase nationally,” the report states. Spending on K-12 education was 5.1% of state income in 2000 — the eighth highest among states. By 2021 it had dropped to 3.9%, and by 2022, to 3.8% — ranking 31st from the top.

“This represents a major shift in the single largest area of state and local spending,” the report states.

The report sets the stage for the top priority for lawmakers and Gov. Tony Evers in the coming year — drawing up Wisconsin’s 2025-27 state budget, with likely debates over school funding and the state’s projected surplus of about $4 billion.

A trend for two decades

In the year 2000, Wisconsin ranked third among the 50 states in the share of personal income going to state and local taxes, according to the Wisconsin Policy Forum. By 2022, the state’s rank had dropped to 35, an all-time low.

Wisconsin’s ranking in taxes per capita has also fallen. In 2021, when the total annual state and local tax bill averaged $5,689 per capita, the state was in 24th place. In 2022, Wisconsin’s fell to 29th place, with an average bill of $5,966 per capita.

The single largest contributor to Wisconsin’s lower tax burden was a change in the state income tax brackets included in the 2021-23 state budget, reducing the third bracket from the bottom to 5.3% from 6.27% — reducing state tax revenue by $1 billion in 2022.

The report points out that its calculation “shows only a drop in Wisconsin’s average tax burden — some taxpayers here benefited less and others more.”

Legislative Fiscal Bureau estimates compiled when the change in the third bracket took effect “showed 98.9% of the total decrease was expected to go to tax filers with state Adjusted Gross Income of more than $40,000 and 74% of the total to filers with income of more than $100,000,” the report states.

In 2020, before the change took effect, Wisconsin ranked 13th among states for the share of personal income going to the state income tax. By 2022, with the tax cut in effect, the state’s rank fell to 30th.

Two other changes may have contributed to that shift, according to the report. One affected business owners who received Paycheck Protection Act pandemic relief loans, but then were allowed to keep the money instead of repaying it to the federal government. In 2021 Wisconsin enacted legislation waiving state income taxes on those funds.

In addition, Wisconsin revised its income tax tables for 2022, reducing the amount of tax money the state collected that would subsequently be refunded to taxpayers.

Corporate income and general sales tax revenues also grew more slowly in Wisconsin compared to nationally, the report said, also likely contributing to the state’s lower relative tax burden.

The report found that property taxes, which fund public schools and local and county government, grew 2.9% in 2022, keeping pace with the national average.

Wisconsin’s 2021-23 state budget included a freeze on per-pupil revenue caps to local school districts. That limited how much local districts could raise property taxes without getting  voters’ permission through a referendum, as well as how much state aid they could collect. As a result, the share of Wisconsin income paid to property taxes dropped to 3% in 2022 from 3.2% in 2021, “contributing a significant share of the overall decrease in the state’s tax burden,” the report states.

“The state’s higher than average property taxes — particularly on homes — remain the most salient tax for most state residents,” the report states. “That may keep some taxpayers from grasping the overall decrease in taxes that has taken place over the past two decades.”

Where costs are rising

Higher education spending has risen slightly in recent years, from 1.8% in 2021 to 1.9% in 2022, and Wisconsin’s rank has risen, too, to the 20th highest state on that measure.

Spending by state and local government on the prison system, jails and other corrections costs rose 11.3% in 2022, with Wisconsin ranking 9th among states in its corrections spending as a share of state income, according to the report.

Police spending in Wisconsin rose 5.8% in 2022 — ahead of the national average of 3.8%, and putting the state at 27th highest for police spending. Fire protection spending has fallen, however, both in the amount of money allocated and the state’s ranking for firefighter spending as a share of income.

Public social services spending, such as for Medicaid, increased 6.5% in 2022. Wisconsin ranks 21st nationally for that spending as a share of state income.

Looking ahead, the report suggests that the 2024 wave of successful referendum measures, primarily for public schools, will lead to property tax increases by the end of this year.

“These increases should also help to counteract at least somewhat the drop in K-12 spending levels as local school leaders try to rebuild their budgets after the two recent years of frozen revenue limits,” the report states.

But it also forecasts conflicts ahead between lawmakers who have continued to press for reducing Wisconsin taxes and the Evers administration as well as local taxpayers who approved school referendum questions and want to see increased financial support for public schools in the 2025-27 budget.

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In January, Republicans will have control of both the House of Representatives and the Senate along with the Presidency. Wisconsin Democratic Rep. Gwen Moore weighs in on some of the tax proposals likely to come up in the new Congress.

The post Rep. Gwen Moore predicts President-elect Trump’s tax proposals will need bipartisan support appeared first on WPR.

A Connecticut Department of Transportation crew works on an Interstate 95 bridge on Nov. 05, 2023, in Westport, Connecticut. The Federal Reserve’s rate cut earlier this month could mean lower borrowing costs for state and local governments and bring changes for housing development, tax revenue and road, water and sewer construction. (By John Moore/Getty Images)

The Federal Reserve’s second consecutive key rate cut could mean more than just lower borrowing costs for the average consumer — state and local governments stand to benefit, too.

Lower interest rates may bring changes for housing development, tax revenue, debt refinancing and bread-and-butter projects like roads, water and sewer, state and local government officials told States Newsroom.

The Fed’s cut earlier this month followed an aggressive rate-hiking campaign to beat down inflation, and it came years after the last time the U.S. central bank lowered interest rates. Key borrowing rates now stand at 4.5 to 4.75%, and inflation has cooled to 2.7%. Economists expect another rate cut in December.

“On average, the lower the interest rates are expected to help stock market returns if historical trends hold,” said Liz Farmer, who focuses on budgets, fiscal distress, tax policy and pensions at The Pew Charitable Trusts. “So generally, you would expect a more positive effect on your average pension portfolio that has a good amount invested in equities.”

This change means states and localities will have lower borrowing costs, which will make it easier to make big long-term changes in infrastructure, to see higher sales tax collections as a result of more spending, and it is likely to result in better pension performance in an environment where stocks tend to respond to lower rates, fiscal policy experts at Pew say.

In 2021 and 2022, states had record high revenue growth due in part to federal pandemic aid and the impact of the federal aid on workers and businesses, according to Pew. But that kind of growth was unsustainable.

Recently, nearly all states have entered into a slower revenue growth environment, said Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers, a professional membership group for budget and finance officers. More than three dozen states had a fall in revenue in fiscal year 2023,  Pew’s analysis found. At least five states experienced budget shortfalls in fiscal year 2024, the think tank explained.

“States overall are remaining in a strong fiscal position. It’s just that we’re starting to see slower growth compared to what we did see for those a couple of years after the start of the pandemic,” he said. “That was really a unique set of circumstances where we had the additional federal aid provided by all the different COVID relief bills and at the same time where state revenue growth was growing so strongly, and that led to very strong growth in tax collections.”

Sigritz said that states, which have to almost entirely use borrowing for infrastructure and capital projects, will benefit from lower borrowing costs as a result of the Fed rate cuts.

David Schmiedicke, finance director for the city of Madison, Wisconsin’s finance department, said he’s hopeful that the lower cost of borrowing will reduce the cost of public infrastructure when seeking construction bids.

“We’re seeing a lot of development, even with the higher rates. Madison is an attractive place to live. People from around the country are moving here,” he said.

Rebecca Fleury, the city manager for Battle Creek, Michigan, said interest rates affect key services the public relies on, including fire departments.

“[Interest rates] have an impact on our ability as a city of 52,000 to provide the full services that we do. Every little bit impacts us, because we have to buy fire trucks,” she said.“If there’s a decrease in one of our three largest revenue sources, we feel it.”

But there are both pluses and minuses to the cut in the federal funds rate, Schmiedicke said, as it brings down the interest income states receive.

“It probably will reduce the amount of investment income the city receives on its cash balances. We saw that go up dramatically in 2022 and 2023, so that’ll probably come down as the Fed cuts rates,” Schmiedicke said.

Different tax policies also change how states and localities experience the Fed rate cuts.

H.D. Palmer, deputy director for external affairs and principal spokesman on fiscal and financial issues for California Gov. Gavin  Newsom, said that the lower interest rates are overall positive for the nation’s largest state because of the concentration of technology firms there, its progressive tax rate, and the taxing of capital gains and stock options as personal income.

“When the markets are doing well, those types of firms that are concentrated in California do well and in consequence, our revenues do well,” Palmer said.

The Alabama Department of Finance told States Newsroom that it is closely following the Fed’s actions as it “closely follows all actions that could impact our citizens and the State’s revenues.”

But the state agency said it may take some time to see any of the effects of recent rate cuts.

“While recent changes in the federal funds rate may lead to increased state revenues, absent a significant change in the rate, the impact on revenues and expenditures would not likely be seen immediately. We will continue to monitor and assess all economic indicators to ensure steady, sustainable, conservative growth for the benefit of all Alabamians,” the department said in a statement.

Schmiedicke said Wisconsin is very reliant on property taxes because although state law allows a statewide sales tax and counties can impose a 0.5% sales tax, cities other than Milwaukee have not been able to do so. The state also has strict limits on property tax increases.

“We could see more development in the city and that could definitely help with our overall property tax base, as well as if it results in more travel and room taxes,” he said.

As states and localities wrestle with how to provide more affordable housing, with nearly half of renters having to spend more than 30% of their income on housing, lower interest rates could help spur more building. Fleury said the costs of loans and labor and materials has been “astronomical,” making it hard for developers to build. Although she said Battle Creek would love to take advantage of Low Income Housing Tax Credits, it’s challenging to fund projects.

“I think that a lower interest rate could really help us get farther along in our housing plans,” she said “If you can’t get your project to pencil within what they’re able to fund or finance, we just never make the list.”

Despite lower interest rates creating a better environment for affordable rent and homes, states will likely continue to spend a lot of energy on housing programs, Sigritz said. Governors’ budget proposals and state of the state speeches have prioritized affordable housing more and more in the past few years, he said, and he expects this to continue.

“Housing affordability is not an issue that’s going to go away overnight, and there’s still a need for more housing,” Sigritz said. “It takes a while to build additional housing even in the lower-interest environment.”

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