A new analysis concludes that two Wisconsin property tax credits are not only expensive — nearly $900 million per year out of a$13 billion general fund budget — but they are a highly inefficient means of delivering property tax relief to the Wisconsin homeowners and renters for whom the property tax creates the greatest economic hardships.
Government spending on the two property tax relief programs —the school levy credit and the first dollar credit — has nearly doubled since 2005. The new study is the first ever conducted of the two credits.
"A substantial proportion of the credits goes to non-residents, to high-income individuals, and to others not in serious need of property tax relief," says the study's author, Andrew Reschovsky, an economist and school finance expert at the La Follette School. "Conversely, only a small share of the credits end up benefiting those whose property taxes are high relative to their incomes."
Background on credits
Andrew Reschovsky draws much of the background on the operation of the school levy and first dollar credits from an information paper written by Legislative Fiscal Bureau analyst Al Runde, a 1987 La Follette School alum. In addition to property tax credits, Runde specializes in the state's bonding and building program, local option taxes, and transportation, including local aids and the motor fuel tax. Fiscal Bureau Information Paper #21 is titled "State Property Tax Credits; (School Levy, First Dollar, and Lottery and Gaming Credits)."
Reschovsky finds that on a per-student basis, property owners in school districts with the highest property values receive school levy credits that are nearly seven times larger than those going to property owners in districts with the lowest property values.
Created by the Legislature in 2007, the first dollar credit results in larger percentage reductions in property taxes for owners of less valuable properties, Reschovsky says. Nevertheless, using data from the Wisconsin Department of Revenue, he finds that the first dollar credit results in above-average property tax relief on a per student basis in school districts with the highest property values and below-average property tax relief in the state's poorest school districts.
Based on the findings from his research, Reschovsky suggests that "the Wisconsin Legislature may want to phase out the school levy credit and the first dollar credit and use the resulting budgetary savings to help finance the reform of education funding and to expand the existing homestead credit."
Andrew Reschovsky's analysis of the school levy credit and the first dollar credit is available as La Follette School Working Paper No. 2010-003.
State Tax Notes published the study in its February 8, 2010, issue.
The homestead credit provides limited property tax relief to owners and renters who have low incomes and whose property tax liabilities are high relative to their incomes. Reschovsky argues that with money freed up by phasing out the school levy and first dollar credits, the state could expand the number of families eligible for the homestead credit and the amount of property tax relief provided to these families.
The school levy tax credit is based on funding the state passes on to municipal governments, basing each municipality's amount on a three-year average of the municipality's proportion of the statewide school property tax levy. The municipality in turn passes the credit on to taxpayers via a reduction in the school property tax mill rate. The size of the individual school levy credit depends on the value of the property. The more expensive a property, the greater the credit the taxpayer receives.
All owners of property in Wisconsin receive the credit, whether they are Wisconsin residents or not. Reschovsky finds that only 51 percent of the total school levy credit reduces property taxes of Wisconsin homeowners on their primary residences.
Fred Clark: Tax relief begins at home, February 16, 2010, Baraboo News
Property tax credits offer inefficient tax relief, study says, January 28, 2010, University of Wisconsin-Madison News