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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.

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.”