Complex system insulates districts that agree to raise taxes the fastest
You might be paying higher school property taxes this year because of a referendum to exceed a school district’s revenue cap — one that you did not get a vote on in a district your kids do not attend.
That’s because of the structure of Wisconsin’s school levy tax credit, under which property owners in some school districts have seen their school levy tax credits shrink to subsidize additional spending in other districts where they have no vote and no representation.
And if Gov. Tony Evers’ latest proposal to spend the state’s surplus on a tax credit bonus prevails, the one-time spree would be funneled disproportionately to districts that already tax the most and increase their levies the fastest.
Legislative Fiscal Bureau Assistant Director Al Runde confirmed that the tax credit structure rewards districts that increase their levies at the expense of those that do not, writing in a memo obtained by the Badger Institute, “With no additional funding, taxpayers with school districts whose three-year average school levy do not keep pace with the three-year average school levies statewide will generally see a decrease in their school levy tax credit.”
To say that Wisconsin’s public school financing system is complex is an understatement. School districts costs are primarily financed by local property tax levies and state aid, along with a variety of categorical aids and grants. The state imposes a revenue limit that caps local districts’ authority to levy taxes, but districts may ask residents via a referendum for permission to increase their property tax levy above the limit.
School districts don’t send out tax bills: Their tax levies are included on the tax bills sent out by municipalities. A school district apportions its levy among the municipalities in its boundaries based on the equalized valuation of property in those municipalities.
Separately, the state provides a school levy tax credit to municipalities to offset some the school property taxes paid by the municipality’s residents — an example of the way much of the money that Wisconsin spends on public education is really just property tax reduction.
The total amount of the credit statewide is predetermined by the Legislature. It currently is set at $1.275 billion. The Wisconsin Department of Revenue distributes this total to municipalities proportionally to school property tax levies paid over the last three years, according to this formula:
Since school district tax levies that are collected by municipalities vary over time, a municipality’s share of the total statewide tax credit can change from one year to the next. Indeed, it is possible for a municipality’s credit to decline even if levies increase. This occurs when the increase in the school levy in a municipality does not keep pace with the rest of the state. For example, if a town saw its three-year average school levy increase by 2 percent, but the statewide three-year average school levy increased by 4 percent, the town’s share of the statewide tax creditwould decline.
The amount of property tax a district collects is partially within its control because of its ability to seek higher taxes by referendum. Many school referendums are to increase debt service for new borrowing, often for new construction or building improvements. More recently, many districts have passed proposals to exceed the revenue cap just to provide increased taxes for operations, such as staff salaries.
As a result of higher levies, municipalities that overlap with such cap-exceeding districts will receive a higher share of the statewide credit than they otherwise would have. In years when the statewide total credit remains the same as the year prior — which happens often — one municipality’s increase in the tax credit necessarily comes at the cost of another municipality’s decrease.
In such a scenario, voters in frugal districts who did not vote for a referendum to increase their levy may nevertheless pay more in net property taxes — because they receive less of the offsetting school tax credit — effectively subsidizing the higher spending of other districts. The losing taxpayers have no direct say in this process. They do not get a vote on the increasing district’s referendum, and they do not benefit from the increased spending.
The only way for a district to defend against this extraction would be to raise its own levy at the same rate as the rest of the state, thereby maintaining its share of total levies collected. This leaves districts without much of a choice: Either voluntarily spend more on your own schools or watch a portion of your tax credit get redirected elsewhere.
Data provided by the Department of Revenue demonstrates this. Between the 2024 and 2025 property tax years, the statewide tax credit was the same, $1.275 billion. Any changes in a municipality’s tax credit from one year to the next were necessarily caused by changes in its share of levies.
Out of a total of 1,913 municipalities, 895 saw their credit decrease, while 1,018 saw it increase or remain constant. That represented a net shift of about $22,466,000, or 1.8 percent of the total credit.
The statewide average change in school levies was a 4.22 percent increase. That represents the “hurdle rate,” or the rate by which a municipality would have to see its school levy rise to maintain its share of the tax credit. Any slower, and that municipality’s slice of the pie would shrink.
In the 2025 property tax year, the municipalities with the largest school tax levies were the cities of Madison and Milwaukee. In Madison, the three-year average school levy was $387,750,293, about 6.7 percent of the statewide total. In Milwaukee, the three-year average school levy was $351,777,551, or 6.1 percent of the total. This entitled Madison and Milwaukee to tax credit payments of $85,321,961 and $77,406,390 respectively.
Between 2024 and 2025, Milwaukee saw the largest year-over-year increase in its three-year average school levy, increasing by $36.3 million or 11.5 percent. The fastest year-over-year gain was in the City of Pittsville in Wood County, where the three-year average school levy increased by 51 percent from 2024 to 2025. This caused its share of the school credit to increase by nearly $31,000 to $100,346.
The largest decrease occurred in the City of Brookfield. Its share of the statewide credit dropped by about 8 percent to $14,041,004, caused by a 4.1 percent decrease in its three-year average school levy.
Of the 895 municipalities that saw a lower tax credit, 532 still experienced an increase in their three-year average school property tax levy. In other words, nearly three-fifths of municipalities saw their tax levies increase at the same time their offsetting state tax credits decreased. Even though their levies went up, they lost out because their levies did not go up fast enough.
Each district is unique, so apples-to-apples comparisons are difficult, but one example is illustrative: Waterloo School District in Jefferson County versus Mayville School District in Dodge County.
In the 2021-22 school year, Mayville School District had a “membership” (the number of pupils for which the district is responsible) of 1,052 and an equalized property value of $697,700,000, or about $663,000 per pupil. It received $6,428 in general aid per pupil.
Meanwhile, the Waterloo School District had a membership of 800, an equalized property value of $465,500,000, and a similar property value per pupil of $582,000. It received $7,068 in general aid per pupil.
In many respects, the districts are similar. But there is one important difference: In April 2023, voters in Waterloo approved a referendum to exceed the revenue limit by $590,000 for more operating funds.
The levy had its effect. For the 2024 credit, the Waterloo School District’s average school levy over the years 2021 through 2023 was $9,540,000. For the 2025 credit, the rolling average for the window from 2022 through 2024 went up by $457,707 to $9,997,000, an increase of 4.8 percent. As a result, the sum of tax credits to municipalities in the Waterloo district increased on net by 0.6 percent from $2,188,000 to $2,200,000, an increase of $12,084.
By raising their taxes, voters in the Waterloo School District were able to win back a portion of that money in additional tax credit from the state. Because the statewide total tax credit was fixed between those two years at $1.275 billion, Waterloo’s increase necessarily came from other districts.
On the other hand, the Mayville School District, which did not propose or approve any referendum, saw its average school levy increase by just 1.5 percent from $10,975,000 to $11,140,000, a change of $165,566. For its relative restraint, the district was rewarded with a decrease in credits to its municipalities by 2.6 percent, from $2,517,000 to $2,451,000, a loss of $65,530.
In this example the amounts are small, but they show how two otherwise similar districts are treated by the school levy tax credit system, based on referendum votes.
The bottom line is that when the total tax credit amount is held constant, the fight for credit funding becomes a zero-sum game that tends to reward spenders at the expense of those who opted to spend within their means.
In the face of rising property tax burdens due to his 400-year revenue limit increase, Evers has proposed a one-time increase of $550 million to the tax credit, a 43 percent increase over the current $1.275 billion. Republican lawmakers countered with an offer of a $500 million increase to the credit. Negotiations were ongoing Thursday afternoon.
If approved, that increase in the credit would be distributed based on current shares of levies. That would mean that most municipalities would see net increase in their credit, but the largest windfall would go to districts that already collect the most in levies.
Furthermore, unless the increased credit is made permanent at the expense of the Wisconsin taxpayer, that relief would be short-lived. Unless the funding level is maintained by statute in future years, taxpayers would see a future hit to their property tax bills when the credit recedes to its current level.
Wyatt Eichholz is the Policy and Legislative Associate of the Badger Institute.
Any use or reproduction of Badger Institute articles or photographs requires prior written permission. To request permission to post articles on a website or print copies for distribution, contact Badger Institute President Mike Nichols at mike@badgerinstitute.org or 262-389-8239.
Submit a comment
Go to the full page to view and submit the form.
