Squeezed by inflation and limits on growth, more Wisconsin municipalities turning to referendums

As city officials struggle to figure out how to close a projected $22 million budget shortfall, municipalities across Dane County, including the cities of Monona and Fitchburg and the village of Oregon, are discussing introducing referendums to raise property taxes beyond state limits to address budget shortfalls or maintain current service levels.

State law limits how much municipalities can raise through taxation. Combined with rising costs due to persistently high inflation, a competitive labor market that drives staff turnover and growing populations that require more services, many local governments say they are struggling to fund current service levels.

“It’s kind of a snowball,” Monona City Administrator Neil Stechschulte said. “When you get put in this position where you just kind of keep trying to do the bare minimum, you don’t ever get caught up to it, let alone out in front of it.”

Under state revenue limits, municipalities can increase their property tax levies each year by no more than the growth in the value of net new construction. If a local government wants to raise property taxes beyond that limit, voters must approve the increase through a referendum.

Commonplace among school districts, referendums to raise levy limits are fairly new to Dane County. In November 2022, the city of Middleton and the village of Shorewood Hills comfortably passed property tax referendums to cover rising service costs.

Shared revenue — money the state gives to municipalities each year that they can use for any purpose — is another key source of funding. The total amount of shared revenue distributed to municipalities was stagnant or declined from 1996 until a recent change in state law substantially increased the amount given to local governments for their 2024 budgets.

Combined, property taxes and shared revenue make up the majority of most Wisconsin municipalities’ revenue.

Most municipalities are also barred from implementing a local sales or income tax, leaving them without revenue sources local governments in other states draw from. Some have imposed additional fees, such as a “wheel tax” on vehicle registrations, that bring in relatively small amounts of money.

“The levy limits, combined with what until this year was little increases in state aid, put a gradually tightening financial pressure on local governments,” said Jason Stein, vice president and research director of the nonprofit policy research organization the Wisconsin Policy Forum.

When the limits were first imposed in 2005, they forced local governments to reduce spending they deemed unnecessary, said Martin Shanks, the Oregon village administrator. But nearly 20 years later, municipalities now face growing budget shortfalls that can no longer be made up relatively easily.

“There was a period of time where communities sharpened their pencils, got rid of the fluff, trimmed the fat, maybe changed some of their services,” Shanks said. “Then, they pulled on different sources of revenue that might be out there. Now you add the pandemic inflation on top, and it just broke the back for everybody.”

Monona struggles to retain, recruit staff

Monona, south of Madison along Lake Monona with a population of 8,500, added nearly 1,000 residents since 2010. Monona and neighboring Madison’s recent growth drove up demand for municipal services, including police, fire and medical response teams, and strained a city staff that has traditionally relied heavily on part-time employees or volunteer help during peak periods, Stechschulte said.

The city is also experiencing high turnover and difficulty recruiting and retaining new employees. Last year, Monona’s 72 full-time staff saw a turnover rate of 22%. Wages lag behind those of nearby municipalities, causing staff to leave for other communities, and new recruits are relatively inexperienced and need of expensive training, Stechschulte said.

“We already have experienced some loss in staff simply because of competitiveness in pay,” Stechschulte said. “We would suspect that would probably accelerate, which means all our services actually become more expensive, and we can’t do them as efficiently and effectively as we can because we have less-experienced folks doing those jobs.”

Locked between Madison, the Beltline and Lake Monona, the city can’t annex nearby land to build its property tax base. The city’s solution is to grow up instead of out, with several higher-density apartment projects set to open in the near future. But those will not generate nearly enough property tax revenue to keep up with costs, Stechschulte said.

On Tuesday, the city outlined three potential referendum proposals asking residents to pay anywhere from $720 more in city property taxes on the median home, valued at $377,000, to $1,015 more. The cheapest option would allow Monona only to maintain current service levels by covering operating costs and giving employees cost-of-living raises, while the most expensive one would pay for additional firefighters, emergency medical responders and other city positions.

If a referendum is not passed and Monona sees no growth in its property tax levy, the city council will need to choose between maintaining current service levels at the risk of exacerbating turnover or making cuts to services in order to better pay staff, Stechschulte said.

Oregon faces service, wage freezes

South of Madison, the village of Oregon is looking to introduce a property tax levy referendum on the April 2025 ballot to shore up an estimated $250,000 to $500,000 budget shortfall next year, said Shanks, the village administrator.

If no action is taken, the shortfall will balloon to a $550,000 to $700,000 gap in 2026, eventually eclipsing the village’s entire general fund by as early as 2028.

Inflation in everything from services and construction to salaries has outpaced revenue brought in by property taxes, which the village has been able to raise around 1% to 3% annually.

Oregon’s heavily residential neighborhoods don’t generate as much property tax revenue as busier commercial districts of equivalent size, Shanks said.

“Even if you’re growing rapidly, that doesn’t translate into a very high percentage increase in the levy,” Shanks said.

The village board has been discussing the possibility of a property tax referendum for a few years, after it became clear that other avenues of generating revenue — such as the wheel tax it adopted in 2022 — would not go nearly far enough to close projected budget gaps.

Oregon could weather a projected shortfall next year if voters reject the referendum, Shanks said, but it would likely come at the cost of falling behind growing demand for city services or cutting regular employee pay raises to keep up with rising cost of living.

“We know that we can’t add anything more, otherwise we are going to be thrown into a really serious deficit,” he said.

“If we want to make sure that we maintain the level of our public safety services, something has to give somewhere else,” Shanks said.

Fitchburg constrained by levy limit

Just north of Oregon, Fitchburg is also looking to put a property tax levy referendum to voters in November.

In addition to feeling the effects of high inflation, the rapidly growing suburb is eyeing the construction of a new police services building and an expansion of the city’s transit service in response to rising interest from residents and businesses, said Chad Brecklin, the city administrator.

“We need growth just to maintain existing services, so the double-edged sword of needing growth in order to maintain services, but not being able to use the growth from the net new construction to add the staff that’s needed, is really the challenge here,” Brecklin said.

Based on a survey of than 2,000 residents in the spring, the city council is discussing putting a $3 million referendum on the ballot in the fall, Brecklin said.

That money could allow Fitchburg to hire six firefighters and five police officers, make some transit improvements, fund operations at the new police services building and add a few more staff positions, according to an assessment released by the city in February.

In the past few years, Fitchburg could raise its property tax levy by 3.5% to 4% due to high net new construction, Brecklin said. Projections for this year would give the city an increase of less than 2%, though he stressed that number could change when the state releases its final projections in August.

The city received $800,000 in shared revenue that allowed it to add some staff in its 2024 budget, but Brecklin said it only “delayed the inevitable that we were going to need to go to referendum.”

The city is projected to receive an increase of $20,000 to $25,000 in shared revenue for the upcoming year, Brecklin said.

“We’re grateful for any increase, but it’s certainly not going to allow us to add even one position,” he said.

More referendums expected

The Wisconsin State Journal attempted to contact Assembly Speaker Robin Vos, R-Rochester, and the Legislature’s budget committee chairs, Rep. Mark Born, R-Beaver Dam, and Sen. Howard Marklein, R-Spring Green, about whether lawmakers foresee any changes to the levy limits or additional increases in shared revenue, but none responded.

But municipal officials say residents can expect to see more referendums, even where they’ve been tried or passed before.

Monona’s city council is discussing a property tax increase for three years, after which the city will have to decide whether it needs to raise taxes again to keep up with costs.

“It’s a tough situation for the taxpayer, and we certainly understand and respect that,” Stechschulte said.

But another referendum in Monona is likely within the next three to five years if state law does not change to allow municipalities to raise more revenue, Stechschulte said, because costs will continue to rise faster than the city’s revenue.

The tax increases on Oregon’s proposed referendum would not expire. Next year, the village hopes to pass a referendum that allows it to keep services funded for the next five to 10 years without having to go back to voters for more money, Shanks said.

But, like Monona, Shanks said, Oregon will eventually have to hold another referendum if state law doesn’t change.

“Moving forward, it’s going to be a series of, ‘Are you willing to maintain the services that you have, or do we have to have a conversation about eliminating or significantly reducing services?’” Shanks said.

Though it has no plans to introduce a referendum next year, Sun Prairie will likely need one “within the next two years,” Finance Director Kristin Vander Kooi said.