Bambi L. Statz
Member of the Faculty in the College of Business and Economics and Coordinator
of the School Business Management Program at the University of Wisconsin - Whitewater,
Education Consultant, and former Assistant State Superintendent, School Financial
Resources and Management Services, Wisconsin Department of Public Instruction.
January 1997
During the 1994 and 1995 legislative sessions, Wisconsin policymakers enacted major changes in the state school finance system. This legislation included expanded reliance on state funding for schools and a complicated formula for property tax relief. Additional state money, derived from state income and sales tax collections, is now being devoted to state school aids and to school levy tax credits. These policies were designed to reduce the funding conflicts which have pitted the education needs of Wisconsin children against the demands for lower property taxes by area residents in recent years. The result? There is minimal tax relief for taxpayers living in moderate or property-poor school districts and increased inequality in the state school financing structure, which benefits residents of wealthy school districts.
While the state of Wisconsin has contributed to local districts' educational costs through a system of state aids since 1929, property owners throughout the state have carried the primary responsibility for school costs. Since 1974, residential property owners have carried an even greater tax burden with the reduction in manufacturing property tax revenue due to the establishment of the Machinery and Equipment deduction (M&E exemption) which eliminated as much as 50% of the property tax revenue in some communities. In 1994, Wisconsin policymakers determined that this reliance on local property taxes placed an unfair burden on residential property owners and voted to remove a substantial portion of school costs from the property tax rolls, shifting 2/3 of the cost of public schooling to the state. Following this decision, the legislature passed Wisconsin Act 27, a new school financing system to provide property tax relief through an elaborate formula that fused property tax relief to school aid.
Initial analysis of the 1995 school finance legislation has raised serious questions regarding the efficacy and equity of the new school finance/tax relief scheme. This study examines the new property tax relief plan on a district-by-district basis using tax revenue data from 1995 under the new formula to determine the impact of the 1995 legislation. This analysis generated the following conclusions:
The new formula for school funding disproportionately benefits wealthy districts. The impact of removing a significant portion of educational costs from the property tax rolls and the 1995 school finance legislation were purported to generate significant tax relief for Wisconsin residents. While many Wisconsin residents have received some tax relief this year, the overall formula is skewed to benefit the wealthy at the expense of the districts of moderate wealth, exacerbating the inequity in state property tax burdens over time. Because of the influx of new state dollars this year, this shift is not readily apparent, but the transfer of support is demonstrable. Moreover, if there is a shortfall in state funding to cover the 2/3 costs of school funding in the future, the 35 wealthiest districts in the state are guaranteed this new level of aid, while districts of moderate and low property wealth will experience further cutbacks in property tax relief.
The state minimum aid and "equalization" formulas have been changed to benefit wealthier districts, redistributing over $19 million from districts of moderate and low property wealth to the 35 wealthiest districts in the state.
Districts with high property values and low tax rates receive higher amounts of per pupil school levy tax credit than districts with low property wealth and higher tax rates. As a result, wealthier districts receive a disproportionate benefit from the tax credit. The additional allocation of $150 million to school levy credits in the 1995 legislation moved resources away from equalization efforts toward tax relief for wealthy districts in direct contradiction to the goal of equalization.
There is a strong relationship between the school levy credit per member and allowable debt per member. Districts with greater wealth receive higher amounts of credit. Since districts are allowed to incur debt in proportion to their wealth, wealthier districts are permitted to borrow more, increasing their capacity to meet their district's capital needs.
There is a significant relationship between property wealth and tax rates: wealthier districts with larger tax bases have lower tax rates. As property values decrease, local property tax rates increase. The reliance on such regressive district-based property tax funding formulas for schools perpetuates educational inequality.
Taxpayers in the majority of Wisconsin school districts (74%) are worse off under the new state financing formula than under the old rules. The combined effects of 1995 Wis. Act 27 (changes in general aid formula and the increase of $150 million in the School Levy Tax Credit) were compared to the previous two-tiered state formula to determine the effects on 1994-95 circumstances. The results: 316 districts (74%) are worse off while 111 districts (26%) gain from the changes in distribution method.
Taxpayers have recently received their property tax bills. For most taxpayers, their bills were reduced slightly. For others, the reduction was greater. Unfortunately, significant property tax relief accrues to those who need it least. Without substantial modification, this tax relief increases the tax inequities between citizens of this state, maintains unequal access to educational resources and penalizes the majority of taxpayers for living in the wrong school district. Under the 1995 legislation, geography, not parity determines the tax burden for Wisconsin families.
Statz, B. L. (1997, January). Windfall for the wealthy: The impact of 1995 property tax relief legislation on Wisconsin households. Milwaukee, WI: Institute for Wisconsin's Future.
To obtain a printed copy of the full report, order online or contact IWF at 414-384-9094 or iwf@wisconsinsfuture.org.
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