On February 8, Gov. Walker introduced the 2017-19 budget for the state of Wisconsin. The proposed budget contains approximately $76 billion in spending and nearly $600 million in tax cuts, including numerous programmatic changes and reforms.
For the next several months, the Wisconsin legislature will be reviewing the state budget, holding public hearings and making changes. Most of the detailed review and modifications will be performed by the legislature’s Joint Finance Committee (JFC), which consists of legislators from both houses and both parties. After the JFC reviews the budget, each house, both the Senate and Assembly, will review and consider making additional changes before approving the budget. After being approved by both houses, the budget will go back to the governor, who will make a final review and possible vetoes, before signing it into law. Lawmakers generally hope to complete the budget process by early July.
Because it controls the spending for every state agency, program and service for a two-year period, every state budget contains numerous provisions impacting the real estate industry. And this state budget is no exception. Following is a list of some of the key provisions in the 2017-19 proposed state budget impacting the real estate industry.
1. State property tax: Gov. Walker’s proposed budget permanently reduces property taxes by approximately $90 million per year, beginning in 2017, by eliminating the state portion of the property tax that is used to fund the state forestry program. By permanently removing the state’s forestry program from the property tax, which is the only state program currently funded by the property tax, the governor’s proposal takes a step toward permanent and meaningful property tax reform. As a result, property taxes for the median value home will decline by approximately $27 per year, and the savings will increase in the future as the value of the home increases. See this month’s WRA Legislative Alert on page 32 for more information about the proposed removal of the forestry tax.
2. School funding: The budget proposal increases funding for K-12 schools by approximately $650 million over the biennium, which would be the most state aid provided to K-12 schools during the last decade. The proposal includes increasing per pupil aid payment by $250 in fiscal year 2016-17, $450 in fiscal year 2017-18, and $654 in fiscal year 2018-19.
3. Property tax controls: In addition to reducing the state property tax, the governor’s budget continues his commitment to keeping property taxes low by:
- Maintaining the levy limits on local governments, which control how much local governments can charge property owners to pay for local government spending.
- Increasing the school levy tax credit by $87 million in fiscal year 2018-19 to pay for credit distributions in the 2017-18 property tax year.
- Increasing school equalization aids by over $72 million.
Through these property tax controls, the property taxes on a median value home are expected to be $139 lower in December 2018 than they were in December 2010.
4. Historic tax credits: The proposed budget seeks to place some significant limitations on the state historic tax credit program by:
- Limiting the credit to annual awards of $10 million.
- Requiring credits to be awarded through a competitive process based on, among other things, the number of potential jobs that will be created.
- Creating a clawback provision to require the credit recipient to pay back the credits if the potential job projections are not met.
These same changes were proposed during the 2015-17 budget process but were removed by the legislature due to the detrimental impact they would have on redevelopment efforts across the state.
5. Rental weatherization program: The proposed budget eliminates the rental weatherization program, which requires weatherization of rental units to save energy and requires certification before the property is sold or transferred. The weatherization program, adopted in 1979 and amended in 1999, is largely considered outdated because of the prevalence of property inspections, increased energy efficiency standards, and the fact that most rental properties have likely already been certified. Nevertheless, the certification requirement has created tremendous confusion for buyers, sellers and REALTORS® due to the significant number of exclusions in the law, and the fact that most parties are unaware of the requirements when a home is purchased and used as a rental.
6. Roads: As promised, the governor’s proposed budget does not include any increases in the gas tax or vehicle registration fees to help fund the projected $1 billion shortfall in needed transportation funding. Rather, the proposed budget relies on approximately $500 million in bonding, a transfer of $30 million from the petroleum inspection fund, and other efficiencies at the Wisconsin Department of Transportation to fund the transportation program. In addition, the proposed budget increases funding for general transportation aid and road maintenance to local governments by approximately $77 million, and the budget continues funding for most major road projects, including the Milwaukee Zoo Interchange project, the I-94 north-south project in southeast Wisconsin, the Highway 151 Verona Road interchange in southwest Madison, and reconstructing 11 miles of Highway 15 near New London in Outagamie County. However, the proposed budget eliminates funding for the Milwaukee I-94 east-west expansion project.
7. Income taxes: The proposed budget cuts income taxes by $100 million in each of the next two years by reducing the income tax rates of the two lowest individual income tax brackets by 0.1 percent each to bring them to 3.9 percent and 5.74 percent, respectively, while also expanding the second bracket to bring more income into a lower tax bracket. These changes are especially beneficial to the middle class and build on prior individual income tax rate reductions in the 2013-15 biennium. These modifications would apply to the first $37,500 of income for married people filing jointly and $28,090 for single filers. The proposed tax cut would save a median-income family of four approximately $69 per year.
8. Professional licensing: While the governor’s proposed budget was rumored to include an initiative to eliminate some or possibly all professional licenses — including real estate licenses — in Wisconsin, the budget as proposed recommends creating a 13-member licensing review council that will review professional licenses and produce a report on possible changes for the governor and legislature by December 31, 2018, with legislation drafted and acted upon by the legislature by June 30, 2019.
9. DSPS information technology modernization: The proposed budget allocates $2.2 million in funding for technology upgrades and modernization for the Department of Safety and Professional Services (DSPS). This technology upgrade is long overdue and will hopefully be used to improve the accuracy of real estate licensee information on the DSPS website regarding type of license, name of firm, address and trust account status.
10. Department of Natural Resources (DNR): The governor’s proposed budget recommends reorganizing and restructuring the DNR. However, it does not recommend splitting the DNR into two or more separate agencies as some lawmakers had recommended.
Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.