By Tom Larson
On July 12, 2015, Governor Walker signed the 2015-17 state budget into law. While the state budget has generated a lot of media attention and public interest because of delays in the approval process and provisions related to funding for the University of Wisconsin, K-12 schools, and transportation infrastructure just to name a few, the budget also contained a number of less publicized initiatives that have a direct impact on the real estate industry including regulatory reforms, property tax reductions, and funding for economic development and real estate programs.
The following is a list of 9 state budget provisions that will likely have a significant impact on the commercial real estate industry:
- Time of Sale Requirements – Prohibits local units of government from requiring inspections, property maintenance or payment of related fees at the time of sale (TOS) or title transfer. By preventing transfers of title until various property maintenance items are performed (e.g., updating properties to meet various building code requirements), TOS requirements have become a headache for many commercial property owners and can add delays and significant costs to a transaction.
- Shoreland Zoning Changes – Makes a number of changes and clarifications to the state shoreland zoning regulations including:
- Preventing counties from adopting shoreland zoning regulations that are more restrictive than the state shoreland zoning regulations (NR 115) (Note – does not prohibit counties from enacting regulations that are not covered by NR 115)
- Prohibiting county shoreland zoning regulations from applying vegetative buffer zone standards to existing homes
- Requiring county shoreland zoning ordinances to allow view access corridors to run contiguously (rather than separated by a certain distance).
- Prohibiting state and county shoreland zoning regulations from:
- Prohibiting or regulating outdoor lighting
- Prohibiting, regulating or imposing a fee for maintenance, repair, replacement of nonconforming structures that do not increase the size of the footprint, unless expansion is necessary to comply with state or federal requirements
- Prohibiting, regulating or imposing a fee for vertical expansion of a nonconforming structure, unless the vertical expansion is 35 feet above grade level
- Establishing impervious surface standards unless those standards take into consideration systems or discharges that allow for infiltration
- Applying protections for nonconforming principal structures to nonconforming accessory structures (e.g., garages, boathouses, sheds)
- Prohibiting counties from adopting more restrictive regulations than those in the state shoreland zoning regulations relating to the construction of structures on substandard lots.
- Property taxes – Further reduces property taxes in Wisconsin by modifying the school levy tax credit, resulting in a property tax reduction for property owners over the biennium. As originally proposed, the property tax reduction would have resulted in a decrease in funding for public schools in the first year of the biennium by an estimated $127 million. However, during the budget process, the funding for schools was increased to maintain current funding levels in year one and an increase in funding by approximately $69 million in year two.
- Local levy limits – Limits property tax increases by maintaining the current property tax controls for school districts, counties, municipalities, and technical colleges, which:
- places a zero percent property tax cap on local levies,
- allows increases based upon net new construction,
- authorizes local governments the power to carry forward up to 5% of unused levy authority for up to 5 years, and
- enables local governments to exceed the levy limits if approved through local referendum.
- Historic Rehabilitation Tax Credits – Maintains the 20% state tax credit with no overall caps or per project caps for historic rehabilitation projects which have generated approximately 2,800 jobs and $353 million in economic development activity since the tax credit was increased from 5% to 20% in 2013. As originally proposed, the state budget placed a $10 million overall cap on the amount of historic rehabilitation credits that could be awarded over the biennium, along with several other onerous provisions that could have had a significant impacts on the continued viability of historic rehabilitation projects in Wisconsin.
- Lead Paint – Federalizes Wisconsin’s definition of “lead bearing paint,” which had a lower lead-content threshold than the definition provided for under federal law. This existence of lead bearing paint triggers various remediation requirements for residential renovations and remodeling, but could very soon impact the same activities for commercial and government buildings under proposed EPA rules.
- Transportation – Provides $850 million for transportation projects without increasing taxes or fees, but delays various road projects including the final phase of the Zoo interchange project beyond its anticipated 2018 completion date and rejects a plan to expand I-94 between 16th and 70th
- WHEDA/WEDC Merger – Maintains the independence of both the Wisconsin Housing and Economic Development Authority and the Wisconsin Economic Development Corporation by eliminating the proposed merger of the two agencies. Critics maintained that a merger of the two agencies would negatively impact the reputation and solvency of WHEDA, which oversees various affordable housing, economic development, and agricultural loan programs.
- Prevailing Wage – Repeals significant portions of the state’s prevailing wage law by eliminating the requirement for locally-funded work to pay prevailing wage, while retaining the prevailing wage standard for any projects that receive state funding. Proponents of eliminating prevailing wage for locally-funded projects maintain that this change will result in significant cost reductions for local governments, which should lead to reductions in property taxes.
NAIOP-WI worked together with lawmakers and the governor’s office on many these and other items in the state budget (e.g., state funding for the Milwaukee Bucks arena, transportation funding) to help improve the regulatory environment, reduce the costs of property ownership, and maintain programs that promote economic development and preserve the quality of life that we enjoy in Wisconsin. In addition, several of these issues were on the agenda for Government Day, which brought approximately 30 commercial real estate industry leaders to the Capitol to meet with state lawmakers to discuss the importance of these issues to the real estate industry.