2019-2020 Legislative Agenda
Repeal Wisconsin’s Personal Property Tax
The personal property tax is Wisconsin’s oldest tax. When Wisconsin was admitted into the Union, nearly all personal possessions were subject to property taxation. Since then, state lawmakers have systematically scaled back the scope this tax.
Most personal property – household furniture and furnishings, machinery and equipment used in manufacturing, computer equipment, and inventories – are exempt from taxation. In fact, the term personal property tax is misleading. The Wisconsin Taxpayers Alliance has better description – “the personal property tax covers a smattering of items owned largely by businesses. More than anything, it is a tax on retailers and other commercial owners.”
The only types of personal property currently subject to taxation are: boats and other watercraft owned by businesses; machinery, tools, and patterns; furniture, fixtures, and equipment, and other personal property not specifically exempted that does not belong under any of the other three categories.
The burden of this tax on small, independent businesses is more than just financial. It’s also a paperwork nightmare. Most assessors rely upon self-reporting by the owners (businesses) of personal property. The Statement of Personal Property form is distributed shortly before the January 1 assessment date, and personal property owners are required to complete and return the form prior to March 1.
In 2017, with the support of WIB, state lawmakers approved the most significant reduction in Wisconsin’s personal property tax in nearly forty years. Machinery, tools and patterns, not including such items used in manufacturing, are now exempt from taxation. Approximately $3.35 billion worth of personal property was taken off the tax rolls and on a statewide basis, this partial repeal of the personal property tax is projected to save businesses about $75 million annually.
WIB is a member of the Coalition to Repeal Wisconsin’s Personal Property Tax – an ad hoc group of 51 statewide organizations that represent nearly every business sector.
For the 2019-2020 legislative session, we have united behind a common goal – repeal the remnants of Wisconsin’s personal property tax. To prevent a shift in the property tax burden to other classes of property, we advocate for state reimbursement to local municipalities for the loss of property tax revenue resulting from the repeal of the personal property tax.
Long-Term, Sustainable Transportation Plan
Wisconsin’s transportation infrastructure network consists of roads (114,800 miles), bridges (13,700), rail lines (3,600 miles), airports (131) and ports (29). The financing for the construction, repair and maintenance of this multimodal system is a shared responsibility between the federal, state and local units of government.
A combination of federal aid, state gas taxes, annual vehicle registration fees and bond proceeds finance nearly all transportation infrastructure-related projects. Local property taxes are used to fund a portion of local road and transit programs. The allocation of these revenues is set forth by lawmakers through the enactment of the state’s biennial budget.
Roads and bridges are the primary components of Wisconsin’s transportation infrastructure network. Moreover, the costs associated with the construction, repair and maintenance of state and local roads and bridges are significant. For these reasons, WIB focuses its advocacy efforts on the state highway program and local transportation aids.
The State Highway Program (SHP) is responsible for the construction, improvement, and maintenance of Wisconsin’s 11,196-mile trunk highway system and for improvement on 550 miles of connecting highways under local jurisdiction. Local governments have jurisdiction over the majority of roads and bridges in Wisconsin. General transportation aid (GTA) is paid by the state to local governments (counties, cities, villages, and towns) to assist in the maintenance, improvement, and construction of local roads and bridges.
For the 2019-2020 legislative session, WIB advocates for the enactment of long-term, sustainable transportation plan. Moreover, we believe the plan should be consistent with the following principles:
1. Create a 10-year Transportation Plan with Predictable Funding Sources
It has been nearly thirty years since the State of Wisconsin operated under a comprehensive transportation plan that aligned project priorities with predictable funding sources. From our perspective, reinstituting this approach will provide the Wisconsin Department of Transportation and local governments with the flexibility to prioritize infrastructure projects and complete them in a timely manner.
2. Reduce Costly Construction Delays
When ongoing highway projects are delayed, the overall cost of the project rises. Construction inflation, for example, has averaged around 5% a year since 2000.
Project delays can also lead to “throw away” costs – temporary repairs to keep the roadway safe and commercially viable before the project can be completed.
3. Reduce Reliance on Borrowing
According to the non-partisan Legislative Fiscal Bureau, the issuance of bonds for transportation projects allows the benefits of the projects to be realized earlier than would be the case with cash financing, while spreading out the costs, through the payment of debt service, over the life of the improvement. However, continued reliance on bonds over a sustained period can result in debt service costs that consume an increasing share of transportation revenue.
In fiscal year 2017-2018, debt service as a percentage of gross transportation revenues was 18.7%. In other words, nearly $0.20 cents out of every transportation dollar is being used to pay existing debt. This level of borrowing is unsustainable.
Regulatory Relief for Small, Independent Businesses
According to a September 2010 report by the federal Small Business Administration entitled “The Impact of Regulatory Costs on Small Firms,” small businesses with fewer than 20 employees, spend more than $10,500 per employee every year to comply with government regulations. Reducing this financial burden remains a top priority.
For the 2019-2020 legislative session, our regulatory relief efforts are focused on Wisconsin’s Unemployment Insurance (UI) program as well as labor and employment laws and regulations. In consultation with WIB members, we have developed a set of core principles to guide our UI advocacy efforts. They are:
- reduce the UI tax burden on small employers;
- increase accountability on the part of UI claimants;
- improve program integrity and reduce the incidence of UI fraud;
- provide clarity to the enforcement of existing UI laws and regulations; and
- transition UI claimants to gainful employment as quickly as possible.
With respect to labor and employment laws and regulations, we favor greater uniformity and conformity between federal and state laws to ease the compliance burden for small employers.
Small Business-Specific Workforce Development
Small employers are struggling to operate in a labor-constrained economy. Long-time employees are retiring at an accelerating pace, the pool of qualified, job-ready applicants is shallow and larger competitors who can offer more generous compensation (wages and benefits) successfully recruit the best and brightest available workers.
These real-world circumstances are profoundly detrimental to small employers. Critical jobs are left unfilled, existing workers take on more duties and hours and new business opportunities are shelved.
Solving this multifaceted problem will require a coordinated public policy response. For the 2019-2020 legislative session and beyond, WIB is eager to work with state lawmakers to address the unique workforce needs of small employers.
Broadband Deployment and Expansion throughout Rural Wisconsin
In its 2018 report on deployment of broadband service, the Federal Communications Commission (FCC) found that broadband deployment in Wisconsin was below the national average. Of note:
– 13.7% of the population in Wisconsin (or 783,000 people) lack access to at least one broadband service with a speed of 25/3 Mbps or better, compared to the national average of 7.7%; and
– 43.1% of Wisconsin residents living in rural census blocks (or 748,000 people) lack access to at least one broadband service, compared to the national average of 30.7%.
High-speed Internet service is a necessary tool of commerce and communication. It is readily available and accessible in urban and suburban areas of this state, but far less so in rural Wisconsin.
Closing this “digital divide” is a long-term lobbying objective of WIB. From our perspective, achieving this goal will require additional public and private investments in broadband infrastructure as well as a regulatory framework which facilitates the deployment of broadband service.
In 2013, with the support of WIB, state lawmakers created the Broadband Expansion (BEX) Grant program administered by the Public Service Commission (PSC). This matching grant program provides reimbursement for equipment and construction expenses incurred to extend or improve broadband telecommunications service in underserved areas of the state.
Since then, state lawmakers have increased BEX grant funding and enacted statutory changes to make this program more effective. The results of these efforts are encouraging.
Between fiscal year 2014 and fiscal year 2018, the PSC funded 55 BEX grant projects which have connected or will connect 600 businesses and over 20,000 homes to high-speed Internet service. Late last year, the PSC awarded $7.68 million in BEX grants to fund 46 projects that will extend high-speed Internet access to as many as 1,600 business locations and 18,000 residential locations.
In the 2017-2019 budget, state lawmakers allocated an additional $14 million for rural broadband expansion projects through the BEX Grant program. From our perspective, a larger state investment in this program is needed in the 2019-2021 state budget.
Reduce Employer Healthcare Costs in Worker’s Compensation Program
Wisconsin’s Worker’s Compensation law requires an employer to compensate an employee for any injury suffered on the job, regardless of the existence of any fault. In return, there are limits on the amount of compensation that the employee can recover. Workers are only entitled to certain wage loss benefits, the cost of medical treatment and certain disability payments.
State law requires an employer to carry a Worker’s Compensation insurance policy if the employer usually employs three or more persons full-time or part-time; or has one or more full-time or part-time employees and has paid gross combined wages of $500 or more in any calendar quarter for work done in Wisconsin. Nearly all Wisconsin employers meet these threshold requirements.
The Worker’s Compensation Advisory Council (WCAC) advises the Wisconsin Department of Workforce Development (DWD) – the state agency which administers the program – and the Wisconsin State Legislature on policy matters concerning the development and administration of Wisconsin’s Worker’s Compensation program.
The WCAC is comprised of five voting representatives from organized labor; five voting management representatives; three non-voting representatives from the insurance industry; and one representative from the DWD. The Council also has liaison representatives from the medical community. Every two years, the WCAC submits its recommendations to the Wisconsin State Legislature for review and consideration.
In many respects, Wisconsin’s Worker’s Compensation program functions well – a relative low number of claims with lost time greater than one week; a lower utilization of temporary disability; a lower utilization of services; and an average cost of all claims below the median among the states. However, Wisconsin’s Worker’s Compensation program is an “outlier” when it comes to meaningful medical cost containment for the treatment of injured workers.
Forty-four states utilize medical fee schedule that limits the amount billed for Worker’s Compensation medical treatment. The rest have a form of employer-directed care, allowing employers to negotiate with health care providers on cost. Many states have both. Wisconsin has neither and small, independent businesses suffer the consequences.
Medical costs for the treatment of injured workers are driving up the cost of Worker’s compensation insurance. To keep premiums in check, Wisconsin employers have made significant investments in workplace safety and training. These investments are producing the desired result – fewer workplace injuries – which should translate into cost-savings to employers on their Worker’s Compensation costs. They have not.
The following statistics are illustrative:
– Between 1994 and 2014, the amount of money spent of Worker’s Compensation medical bills more than doubled – $314 million to $648 million; and
– In 1994, there were 219,975 workplace injuries reported in Wisconsin. By 2014, the number of workplace injuries dropped to 93,228 – a $58% reduction.
Two years ago, the WCAC unanimously recommended that the DWD establish a medical fee schedule which approximates the average negotiated price of group health insurance. The medical fee schedule would include an increase of at least 2.5% but no higher than 10% above the average negotiated group health price to reimburse medical providers for administrative expenses associated with Worker’s Compensation claims.
WIB supported this consensus proposal and will continue to do so during the 2019-2020 legislative session.
Require Assessors to Value Real Estate, Not the Business Occupant
State law requires municipal assessors to value real property in a manner specified in the Wisconsin Property Assessment Manual developed by the DOR. The assessment of real property is also guided by the Uniformity Clause of Wisconsin’s Constitution which requires all property to be assessed in a uniform manner.
Assessors are required to use a three-step process when assessing a property to determine its full value at its highest and best use. The first step is to base the assessment on any recent arm’s-length sale of the subject property. If the property has not been recently sold, an assessor must next consider sales of reasonably comparable properties. If an assessor determines that no comparable sales are present, an assessor may use either the cost or income assessment approach.
Over the past two years, local elected officials throughout Wisconsin have been lobbying to change Wisconsin’s property assessment laws. They claim “big-box retailers” are taking advantage of “loopholes” in state law to have their property assessed at below market value. Their two-part plan would make the following changes to Wisconsin’s property assessment laws:
– Assessors would be permitted to consider the value of lease arrangements that are transferable with the subject property.
– When assessors use sales of comparable properties for determining the value of a property, a vacant or unoccupied property may not be considered as comparable.
WIB along with advocacy groups representing restaurants, retailers and manufacturers oppose this plan. Our opposition is guided by the following concerns:
– Allowing assessors to consider the value of lease agreements in the assessment of property would overturn a unanimous ruling by the Wisconsin Supreme Court in Walgreen Company v. City of Madison (2008). In its ruling, the Court said, in part, “[a]n assessor’s task is to value the real estate, not the business concern which may be using the property.”
– Wisconsin’s Uniformity Clause requires all property to be assessed in a uniform manner. There is no exception that allows property owned by small businesses to be assessed differently from so-called “big box” retailers.”
During the 2017-2018 legislative session, state lawmakers failed to reach consensus on these legislative proposals. To break the impasse, legislative leaders created a Legislative Council Study Committee on Property Tax Assessment Practices and directed the committee to recommend legislation relating to the role of comparable sales and market segments in assessments and the assessment of leased property.
WIB supported the creation of this Study Committee and we were pleased that legislative leaders appointed two public members with expertise in commercial real estate, generally accepted appraisal practices and property tax law to serve on the committee. Don Millis, a Madison-based real estate attorney and former Wisconsin Tax Appeals Commissioner, has decades of courtroom experience litigating property assessment disputes. Jeff Hoffman is a commercial real estate broker and past Chair of the Commercial Association of Realtors.
Since its inception, WIB has been closely monitoring the activities of the Study Committee. We anxiously await the Committee’s final recommendations which will be available for legislative review and consideration soon.