Wisconsin Budget Repair Update

Update: June 2, 2008

In mid-February 2008, the Legislative Fiscal Bureau released revenue estimates that predicted a $652.3 million state deficit at the close of the current biennium, which ends June 30, 2009, and possibly more depending on the outcome of three court cases. The deficit is the result of a decrease in estimated tax collections of $586.5 million; a decrease in departmental revenues of $34.9 million; and an increase of net expenditures of $33.6 million.  At that time, the Secretary of the Department of Administration indicated that short-term general obligation borrowing that would otherwise be paid off in the current biennium would be rolled over. This action reduces debt service payments by $125.4 million for the biennium. Thus, the projected deficit would be reduced by $125.4 million to $526.9 million.

In response to this news, on March 11, 2008, Governor Jim Doyle released a budget repair bill that was meant to fix the state’s budget deficit and called the Legislature into special session the next day to consider it.  The bill was then amended by both the Assembly and Senate, with each house passing very different versions.  At that point, legislative leadership and the Doyle administration began several weeks of negotiations to produce a compromise budget repair bill.  On Monday, May 12, Assembly and Senate leadership announced that a deal had been reached.  You can view a 22-page summary of the compromise legislation prepared by the Legislative Fiscal Bureau.

After clearing the formality of a Conference Committee on a 5-1 vote later the same day (Senator Scott Fitzgerald, R-Juneau, voting no), the bill was sent to the Senate, which passed it on a 17-16 vote.  The vote followed partisan lines with Democrats voting for the bill and Republicans voting against, with the exception Senator Tim Carpenter (D-Milwaukee), who voted against.  After passage in the Senate, it was immediately sent to the Assembly, which passed the bill on a 56-41 vote.  In the Assembly, there was opposition to the bill by both Republicans and Democrats.

Then, on Friday of the same week, Governor Doyle announced his vetoes of the budget repair bill.  Regarding issues of particular interest to WJC, Governor Doyle eliminated a provision to provide a property tax exemption for low-income housing, saying it was a laudable goal that needed a full public hearing and legislative debate.  However, he let stand a provision on exempting non-profit youth camps from certain town sanitary district and town special assessments (more information on both provisions below).  You can view more detail (11 pages) on the Governor’s veto.

The Governor also eliminated a move to push a school aid payment into the next biennium and ordered another $270 million in lapses (on top of the $200 million already in the budget) from state agencies, including the transportation fund, to help fix the state's budget problems.  At his press conference, he indicated that transportation would be called on for approximately $100 million in cuts.  However, these cuts are offset by additional federal money coming into the program, and no road projects would be cancelled.  He reminded people that in the current biennial budget, transportation spending was up approximately $350 million over the previous budget, and the Legislature's budget repair bill would have increased that spending by an additional $180 million, for a total increase of $530 million, or 22 percent, over the last biennium.  In addition, Governor Doyle criticized the Legislature for making only $69 million in cuts through lapses to address a $652 million shortfall.

The Governor blasted Assembly Republicans for failing to agree to his proposal for a hospital assessment, which would have been used to increase hospital reimbursement rates under the Medical Assistance program and generate significant federal matching funds.  He promised to push hard for the assessment in the next state budget.

Governor Doyle reduced a transfer from the REAL ID fund from $22 million to $2 million but left in place a corporate tax increase.

In order to put the State on more stable footing, Governor Doyle restored the statutory balance to $65 million.  With the vetoes, the bill will leave a total estimated general fund balance of approximately $100 million at the end of the biennium.

Any veto override attempt would likely occur during the Legislature's veto override review floor period on May 27-28. 

Below are a few items in the budget repair bill that is of some interest to the WJC.

PROPERTY TAX EXEMPTION FOR LOW-INCOME HOUSING (VETOED)

Toward the end of the 2007-08 session, the Legislature considered a bill offered by Senator Lena Taylor (D-Milwaukee) that represented the latest attempt to clarify Wisconsin’s property tax exemption for low-income housing.  That bill (Senate Bill 403) unanimously passed the Senate but died in the Assembly after being voted out of committee, but not receiving a vote on the Assembly floor.  The budget repair bill resurrects a slightly modified version of SB 403.  The highlights include defining “low-income housing, excluding low-income housing from the “rent-use” requirements in Wisconsin law, and increasing the current acreage limitation for exempt property from 10 acres to 30 acres.  This effort attempts to clarify the law for the less controversial types of non-profit housing—that for low-income residents—while leaving the more controversial housing projects that include residents with higher incomes for another day.

Here is a summary from the Legislative Fiscal Bureau on the provision:

Modify the property tax exemption for educational, religious and benevolent institutions, women's clubs, historical societies, fraternities, and libraries to extend to low-income housing and exclude low-income housing from the "rent use" requirement under current law. (Current law limits the use of income from exempt, leased properties to the property's maintenance or the retirement of any construction debt.) Define low-income housing as any housing projects financed by the Wisconsin Housing and Economic Development Authority (WHEDA) or any residential unit within a low-income housing project that is occupied by a low-income or very low-income person or is vacant and is only available to such persons. Define "housing projects financed by the Wisconsin Housing and Economic Development Authority" as all property of a housing project that is: (a) owned by a corporation, organization, or association described in section 501(c)(3) of the Internal Revenue Code and is exempt from taxation under section 501(a) of the Internal Revenue Code; (b) financed by WHEDA under current law provisions; (c) subject to a first-lien mortgage security interest held by WHEDA; and (d) in existence on January 1, 2008. Define "low-income housing project" as a residential housing project where at least 75% of the occupied residential units are occupied by low-income or very low-income persons or are vacant and available only to low-income or very low-income persons and at least one of the following applies: (a) at least 20% of the residential units are rented to persons who are very low-income persons or are vacant and are only available to such persons; or (b) at least 40% of the residential units are rented to persons whose income does not exceed 120% of the very low-income limit or are vacant and only available to such persons.

In addition, for purposes of the exemption, require the determination of low-income persons and very low-income persons to be made in accordance with the income limits published by the federal Department of Housing and Urban Development (USHUD) for low-income and very low-income families under the National Housing Act of 1937 and provide that all properties included within the same USHUD contract or within the same federal Department of Agriculture (USDA) rural development contract be considered as one low-income housing project.

USHUD determines low-income and very low-income limits for purposes of extending certain income tax credits and determining if organizations are charitable and qualify for tax exempt status. Low-income families are defined as families whose incomes do not exceed 80% of the median family income for an area, and very low-income families are defined as families whose incomes do not exceed 50% of the median family income for an area.  These limits vary both by geographic area and by family size. Based on data collected by the U.S. Bureau of the Census in the American Community Survey, the median income in Milwaukee County equals $67,700 for 2008. Consequently, for Milwaukee County, the limit for low-income families equals $54,150, and the limit for very low-income families equals $33,850. These amounts are for four person families.

Except as noted below, provide that leasing property that is exempt from taxation as low-income housing does not render it taxable if the lessor uses all of the leasehold income from the property for any of the following reasonable expenditures directly related to the low-income housing project to which the property belongs: (a) maintenance; (b) capital replacements; (c) insurance premiums; (d) project management; (e) debt retirement; (f) moneys reserved for project-related purposes; (g) general and administrative expenses; (h) social services and other resident services provided at the project; (i) utilities; (j) financing costs; (k) any other expenditure related to preserving and managing the project; and (l) any other similar project-related expenditure. Permit a lessor to use up to 10% of the leasehold income for any of the preceding reasonable expenditures directly related to any other low-income housing project under common control with that project and located in Wisconsin. In addition, permit a lessor to use any of the leasehold income for debt service for any other low-income housing project under common control with that project, under the same mortgage, and located in Wisconsin and provide that such amount is not considered for purposes of the 10% maximum.

Require each person who owns a low-income housing project to annually file, no later than March 1, with the assessor of the taxation district in which the project is located, a statement that specifies which units were occupied on January 1 of that year by persons whose income satisfied the income limit requirements under the exemption, as certified by the property owner to the appropriate federal or state agency, and a copy of the USHUD contract or USDA rural development contract, if applicable. Extend the current law provision that authorizes the Department of Revenue to prescribe tax forms to the format and distribution of the statements. Authorize the taxation district assessor to require that a property owner submit other information to prove that the person's property qualifies as low-income housing that is exempt from taxation. Require the taxation district assessor to send a property owner a notice, by certified mail, to the owner's last known address of record, if the assessor has not received a statement by March 1. Require the notice to state that failure to file a statement subjects the owner to penalty. Provide that a person who fails to file a statement within 30 days after notification shall forfeit $10 for each succeeding day on which the form is not received by the taxation district assessor, but not more than $500.

Increase the current acreage limitation for exempt property owned by churches or religious or benevolent associations that is used for low-income housing from 10 acres to 30 acres, but provide that no more than 10 contiguous acres may be exempt in any one municipality. Extend these limitations to all low-income property under common control. Provide that current law provisions related to the taxation of omitted property do not apply to property that is exempt as low-income property for the years before 2009. Extend these provisions to property tax assessments as of January 1, 2009.

There have been a couple pieces in the press regarding the property tax exemption for low-income housing provision.

The first is an unfavorable editorial in the Wisconsin State Journal that urged the Legislature to reject the provision.

The second is an article in the Capital Times that explains the exemption and some of the politics around it.

EXEMPTION FOR NONPROFIT CAMPS FROM TOWN SANITARY DISTRICT OR TOWN SPECIAL ASSESSMENTS (NOT VETOED)

Also toward the end of the legislative session, Representative Samantha Kerkman (R-Genoa City) introduced a bill that would exempt nonprofit camps from certain town sanitary district or town assessments.  The bill (Assembly Bill 803) passed the Assembly on a voice vote, but did not receive a vote on the Senate floor before the session ended.  The provision has now been inserted into the budget repair bill.

Here is a summary from the Legislative Fiscal Bureau:

Extend the current law exemption for eligible farmland from special assessments for the construction of a sewerage or water system by a town sanitary district or a town to camps. Define "camp" as all real and personal property of any camp conducted by a nonprofit corporation, a charitable trust, or other nonprofit association that is described in section 501 (c) (3) of the Internal Revenue Code and is exempt from federal tax under section 501 (a) of the Internal Revenue Code and that is organized under the laws of Wisconsin, so long as the property is used primarily for camping for children and not for pecuniary profit of any individual. In addition, extend to camps the following current law provisions providing exceptions to the exemption: (a) for property that is connected to a sanitary sewer or public water system at the time or after the time that a special assessment is first imposed; (b) for property that is subsequently divided into two or more parcels; and (c) for property that does not subsequently qualify for the exemption. Extend these provisions for special assessments levied on the first day of the fourth month beginning after the bill's effective date.

OTHER PROVISIONS

Here are brief summaries of other issues you may be of interest:

  • MA benefits funding reduction. Reduce funding for MA benefits by $24.4 million to reflect savings DHFS (renamed Dept of Health Services, effective 7/1/08) is expected to be generated in the program.  At yesterday’s conference committee, Representative Kitty Rhoades asked the Legislative Fiscal Bureau staff if this is purely from savings or if this could be accomplished with cuts to the current program.  The answer was that the $24.4 million is from savings within the existing program and should not result from cuts.  In addition, note that the total amount includes savings of $10 million in General Purpose Revenue and will result in the loss of nearly $14.4 million in federal matching funds.  Thus, the provision reduces Wisconsin’s budget shortfall by $10 million, but will cost the program $24.4 million when the federal funds are considered.
  • Transfer of Real ID implementation funds. Transfer $22 million of Real ID implementation funds from the transportation fund to the general fund.  The Governor’s veto reduced the transfer to $2 million.
  • Child care subsidies. Provide $18.6 million for direct child care subsidies under the Wisconsin Shares program. The money is for an anticipated shortfall in the program and covers holding of slots. 
  • Tobacco use control grants. Increase funding for the grants by $250,000 in 08-09. (Current base is $15 million annually).

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