2013-15 Wisconsin State Budget Overview: Issues Important to NAIOP-WI Members
By Tom Larson
On February 20, 2013, Governor Walker officially introduced his 2013-15 State Budget. The state budget contains more than $630 million in tax relief for Wisconsin families and businesses, and general purpose revenue (GPR) spending increases at a moderate rate, rising 1.4% in 2013-14, and 3.5% in 2014-15.
Fortunately, our state’s budget situation is better than it was two years ago, when we faced a $3.6 billion budget deficit, property taxes had gone up 27% over the last decade, and the unemployment rate was at 7.8%. Today, Wisconsin has a $419 million budget surplus, property taxes have gone down each of the last 2 years saving the average homeowner a few hundred dollars each year, and the unemployment rate is down to 6.6%.
Over the next several months, the state budget will be reviewed, debated and likely amended by the legislature and it’s budget reviewing committee, the joint finance committee. Prior to the state-mandated, July 1st budget deadline, the state budget must be approved the joint finance committee and both houses of the legislature. When one political party controls both houses (like Republicans do today), the process is usually less contentious because the two houses generally share the same philosophy on taxing and spending issues. However, in Wisconsin politics, nothing can be taken for granted.
Some of the specific provisions in the proposed state budget that impact the commercial real estate development industry include the following:
Property taxes – Retains current law, which places a zero percent property tax cap on local levies, but would allow increases based upon net new construction and gives local governments the power to carry forward up to 0.5% of unused levy authority to the next year. In addition, local governments may exceed the levy limits if approved through local referendum.
County property tax rate limits – Repeals the county operating tax mill rate limit, which has been in effect since 1992. This will mean that counties, municipalities, and technical colleges will be subject to the same property tax controls.
Individual Income Tax Reductions – Decreases individual income tax rates for the first three income tax brackets. For couples who are married, filing jointly, the income tax rates will be reduced in the following manner:
1. For couples making less than $14.3K, the income tax rate will be reduced from 4.6% to 4.5%,
2. For couples making between $14.3K and $28.6K, the income tax rate will be reduced from 6.15% to 5.94%
3. For couples making between $28.6K and $214.9K, the income tax rate will be reduced from 6.5% to 6.36%
Broadband – Allocates $4.7 million for a broadband grant program to increase broadband access and capacity, and expand high speed Internet service access to underserved areas identified by the department and Public Service Commission.
Economic Development – Some of the economic development initiatives aimed at helping existing businesses grow and encouraging the creation of new businesses include:
1. Seed Accelerator and Capital Catalyst Programs: Investing nearly $6 million in FY 14 and $11M in FY 15 in Seed Accelerator and Capital Catalyst Programs at the Wisconsin Economic Development Corporation. These programs support high-potential entrepreneurs and businesses as they start and grow.
2. Wisconsin Economic Development Corporation Marketing Program: Providing $10.9 million over the biennium to support WEDC’s marketing program promoting Wisconsin as a great place to do business. WEDC marketing focuses on attracting businesses, promoting investment opportunities in Wisconsin, and changing the negative perceptions that may still exist about doing business in Wisconsin.
3. Economic Development Tax Credit: Providing an additional $75 million in available credits for the Economic Development Tax Credit program. This tax credit is aimed at encouraging businesses to make capital investments, expand and retain jobs, invest in job training, and locate or retain their corporate headquarters in Wisconsin.
4. Angel Investment Tax Credit: Lifting the cap on this tax credit program focused on encouraging private investment in start-up companies. The budget removes the maximum cap, which is currently set at $47.5 million, but retains the annual limit, effectively allowing this program to continue into the future.
Transportation – Increases funding for transportation-related projects by $824 million. Several of the specific transportation projects funded in the Governor’s budget are:
1. Zoo Interchange: Allocate $550 million toward the Zoo Interchange Project, which is the busiest interchange in the state. Primary construction will begin in 2015-2018 and will improve safety and reduce congestion.
2. Hoan Bridge: Utilize $236 million toward the Hoan Bridge and I-794 Freeway. This project will ensure convenient access to the Port of Milwaukee.
3. Routine Maintenance: Increase funding for routine maintenance agreements with counties by $55 million. Maintenance is vital to keeping our transportation system running smoothly and keeping long-term expenses down.
Sale of State-Owned Real Property – Modifies provisions related to the sale of state-owned real property to:
1. Require agencies to submit an inventory of all real properties to the DOA.
2. Allow the Building Commission or the DOA, with approval of the Building Commission, to offer for sale or lease any state-owned real property unless prohibited by the Wisconsin Constitution, federal law or other specific statutes (The DOA would obtain appraisals for any properties that may be offered for sale and report this information to the Building Commission.);
3. Direct net proceeds from a sale to refund general obligation or revenue bonds;
4. Allow the DOA to attach conditions to a sale or contract that are in the best interest of the state;
5. Allow a co-owning nonstate entity the right of first refusal to purchase the property; and
6. Allow the DOA Secretary to adjust positions and operating budgets of affected agencies.
Transfer of Programs To Different Agencies – To achieve greater efficiencies within state agencies, the transfer and consolidation of the following programs are recommended:
1. Commercial Construction Site Erosion – Transfer soil erosion control regulation for commercial sites from the DSPS to DNR.
2. Tank and Petroleum Testing — Transfer the Tank and Petroleum Testing program from the DSPS to DATCP, which would combine the program with the Weights and Measures program.
3. Consolidation of the PECFA Program — Transfer positions, expenditure authority and program responsibility for low- and medium-risk petroleum site cleanups from the DSPS to the DNR. The transfer will combine responsibility for all petroleum site cleanups in the DNR.
NAIOP-WI will continue to monitor the state budget process and the various provisions impacting the commercial real estate development industry. If you have questions, please feel free to contact Tom Larson (firstname.lastname@example.org) at (608) 240-8254.
NAIOP-WI Pursues Special Assessment B-Bond Legislation To Help Finance New Development Projects
One of the top legislative priorities of NAIOP-WI for the 2013-15 legislative session is the passage of legislation to make special assessment b-bonds a more attractive financing tool for economic development. Special Assessment B Bonds are bonds that can be issued by the municipality to finance public improvements for new economic development. The bonds are paid for through special assessments levied against the development or the individual lots or parcels created or sold within the development.
These bonds, however, are seldom used because current law requires the principal portion of each installment payment of the assessments to contain an equal principal payment amount, which puts the highest payments in the early years of the project and the lowest payment in the last years of the project. In the case of a new subdivision, the first yew years of the project are the most risky and many times may not allow adequate time for marketing and sales to develop, thereby putting more financial pressure on the proforma.
To make b bonds more attractive, NAIOP-WI is seeking to change the special assessment law to allow municipalities to use “tailored” principal payment structures for special assessments or, at minimum, level TOTAL principal and interest payments. This would be very similar to most residential mortgages where the property owner makes equal payments during the term of the mortgage, but the principal portion of the payment is lower at the beginning and greater at the end.
This change to the law would the payments associated with b bonds more manageable for new economic development projects without changing the ability of local communities to recover their costs to finance the related infrastructure.
As soon as the drafting of the legislation is complete, NAIOP-WI will be working closely with the League of Wisconsin Municipalities and other economic development groups to pass this legislation into law in the upcoming months.