A municipal spending quandary

Awash in federal bailout cash, some Wisconsin cities ask for a property tax hike 

By Mark Lisheron

July 27, 2022 — On the same day last week, Eau Claire city officials asked taxpayers to support a property tax increase while approving spending another $537,701 to operate a cooling and warming center for the homeless.

Like counties and cities all over Wisconsin, Eau Claire is awash in cash. The homeless cooling center, open at a cost of $2,000 a day, is being paid for from the $13.5 million the city got from the federal Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program.

SLFRF is a $350 billion part of the $1.9 trillion American Rescue Plan Act, passed by Congress in March of 2021. Wisconsin’s share of that program is $2.53 billion, according to data compiled by the U.S. Treasury Department.

Like many communities, Eau Claire has had trouble figuring out ways to spend that federal largesse. While this might seem to the public to be a disconnect, local officials are in the unusual position of trying to spend large sums like crazy at the same time threatening to slash city services unless voters allow them to jack up property taxes.

As the Badger Institute has discovered in its ongoing investigation into ARPA spending at the local level, those rules have been interpreted broadly and largely without complaint by the federal government. 

Treasury department rules require only that funds be used for:

  • Responding to the COVID-19 public health emergency or its negative economic impacts.
  • Premium pay for essential workers needed during the COVID-19 public health emergency.
  • Offsetting the reduction in revenue or reduction of services caused by the COVID–19 public health emergency.
  • Necessary investments in water, sewer, or broadband infrastructure.  

And the Treasury Department’s final rule assures “substantial discretion to use the award funds in the ways that best suit the needs of your constituents.”

A Badger Institute review of the most recent Treasury Department data shows the state, counties and communities are taking full advantage of the substantial discretion.

What the state allotments mostly have in common is repairing the economic damage done during the wholesale economic shutdown mandated by the state and local governments.

The state of Wisconsin has so far allotted $10.8 million to promote tourism, $10 million to support movie theaters and $2.8 million to boost minor league baseball teams in the state. 

At the local level, Dane County has so far spent $1 million to support its local artist community. The city of Racine spent $500,000 on $50 gift certificates as incentives to people to be vaccinated.

The city of Waukesha is spending nearly half of its $10.8 million ARPA allotment on capital projects, including $1 million toward expanding its soccer complex to 12 fields. 

Eau Claire is using some of its discretion to spend $450,000 in ARPA money to operate the homeless center, a downtown building originally loaned to the city by the Christ Church Cathedral during a cold snap in December 2019, for the next three years.

The council had originally included another $38,000 to keep the center open on additional hot days this summer, but on July 12, added more than $49,000, to be paid for from the second round of Fiscal Recovery funds yet to come.

Like most of the local officials contacted by the Badger Institute, Stephanie Hirsch, Eau Claire’s city manager, said it would be bad policy to use ARPA funding to increase pay and benefits for government employees or create new programs. Taxpayers would be on the hook when the ARPA money ran out.

“The ARPA funding was spent only on initiatives that were one-time costs or had a path to sustainability,” Hirsch told the Badger Institute.

It isn’t clear what happens to the homeless center and the city’s other plans “to develop and carry out a strategy for how our community can reduce long-standing hardships experienced by its most vulnerable residents” when ARPA is gone.

Taylor County, with a population of 26,000 northwest of Wausau, received nearly $4 million, “far and away” the biggest federal windfall Larry Brandl can recall in his 40 years of doing budget work for Taylor County.

The county’s budget director for many years told the Badger Institute that the state’s property tax levy limits are particularly hard on a small, largely rural area. Flush with federal cash, Brandl said he was sure his county board would not consider spending any of it on a program that would have to be supported later with local tax money.

Instead, the county used ARPA to tick off a list of backed up capital projects, $100,000 to upgrade the county’s radio system, buy new dump trucks and put $150,000 toward rebuilding the county boat landing at Miller Dam.

None of it has anything really to do with COVID, but every project meets the ARPA guidelines. “These are projects that would have gotten pushed down the road,” Brandl said. “But I would never have advocated for something that wasn’t sustainable. And I don’t think the board would approve anything that would have to go to a referendum.”

Counties and cities all over the state are in the process of creating their fiscal 2023 budgets while most of the first round of ARPA funding has not been spent. At the end of 2021 more than $930 million of the first $1.47 billion remained to be spent, according to State Auditor Joe Chrisman. The Badger Institute has made a formal request of the auditor and the state Department of Administration to bring those figures up to date through June 2022.

Late last month, the state Department of Revenue announced the start of the second round of ARPA distributions, more than $200 million of a total of more than $1.2 billion, to more than 1,800 municipalities with populations under 50,000 in Wisconsin.

While the final figure isn’t set, it’s clear Eau Claire will be getting millions more in ARPA funds. But it will be voters in November who will decide whether or not to give themselves a property tax increase.

Without it, Hirsch told the city council on July 12, "We will have to find ways to make cuts to the services we provide. And we will be really strategic about that and try to do it in a way that minimizes the impact to the residents,” according to a Wisconsin Public Radio story.

It’s unclear just how ARPA will change the calculation of local communities and their property taxes. However, Wisconsin Public Radio reported in January that the number of cities like Eau Claire opting to put the levy question to voters was on the rise.

The story cites a study by the La Follette School of Public Policy at the University of Wisconsin-Madison that 70 of 108 such referendums were rejected by voters between 2006 and 2018.

When the Racine City Council went to voters in November 2020 for a levy increase to cover health care costs for city employees, the referendum was crushed by a nearly two-to-one margin.

When the Badger Institute asked if the city of Eau Claire would prefer to direct ARPA money to its budget difficulties so a property tax increase referendum wasn't necessary, Hirsch deflected the question.

“Wisconsin municipalities need long-term changes to state finance laws that very greatly limit municipalities’ local options for creating budgets that address basic service-delivery requirements of the community,” she said. “The most important change would be this kind of reform, with input from stakeholders like local government officials, residents, and finance experts.”

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