Strategies for Sustaining Local Revenues
By Harry Allen, Municipal Advisor
Communities across the state are faced with the challenge of working within Wisconsin’s restrictive levy limits while sustaining service levels. Understanding your levy limit flexibility and alternative methods to generate revenues is critical for long term sustainability.
The Basics and Why They Still Matter
Since 2005, levy increases have generally been limited to the prior year’s levy adjusted by the rate of net new construction in your municipality. While simple in theory, the calculation includes numerous adjustments that can either increase or decrease your allowable levy.
As a result, accurately completing the levy limit worksheet and fully leveraging allowable adjustments remains essential.
The Structural Challenge
A central issue facing municipalities is the growing gap between revenue growth and expenditures. Since the inception of levy limits the average annual net new construction across the state has been 1.55% (Source: Wisconsin Department of Revenue Net New Construction Report) but the increase in the Consumer Price Index has averaged 2.57% (Source: U.S. Bureau of Labor Statistics Consumer Price Index for All Urban Consumers).
This mismatch continues to create structural budget pressure, making it difficult to maintain services without new strategies.
Using Adjustments Strategically
The levy limit statute exempts increases in the levy for the payment of general obligation (GO) debt from the net new construction limitation. This makes debt a powerful tool for your budget. Many municipalities have tuned to funding capital projects through the issuance of short-term GO debt which creates levy capacity for projects.
This technique, when used appropriately, enables municipalities to still fund capital projects on a cash-like basis while limiting interest cost. That said, this approach should be used cautiously if needed for ongoing operating costs.
Expanding Revenue Options
Communities are increasingly turning to alternative revenue sources to reduce reliance on the levy:
Public Fire Protection (PFP) Conversion
Communities can shift fire protection costs from the general levy to direct water utility charges. This approach frees up levy capacity by removing general fund expenditures and has the benefit of avoiding any negative levy adjustments. This move also help to improve equity by distributing costs across all utility users (tax-exempt properties pay their fair share).
A quick way to check if your community charges this through utility rates or general fund is to pull your water utility’s tariff from the Public Service Commission. If any amount of the Public Fire Protection Service is listed as a “Municipal Charge” that means the general fund is paying for a portion of these costs. This can be converted to a direct charge during a PSC Conventional Rate Case (CRC), or up to 5 years following the last CRC.
Special Charges
Innovative fee structures can move funding for services off the levy, much like a utility operates. Common fees include:
Urban forestry special charges (to cover tree maintenance, pest control, etc.)
Streetlight and traffic signal special charges
These tools have the benefit of generating additional fee revenue without causing a related decrease in the allowable levy. They also have the benefit of spreading the costs over a larger base as they can capture tax-exempt properties.
Careful controls should be maintained to ensure the fee revenues are being spent on appropriate purposes. Municipalities must also consider how to establish the fee structure with a common practice being a fixed fee by development type. Typically these fees are included in local utility bills (such as the water bill).
Wheel Tax (Vehicle Registration Fee)
A relatively simple option, the wheel tax institutes a municipal charge annually for vehicle registrations. The tax generates stable, transportation-dedicated funding in perpetuity (unless repealed by a future governing body). It is easy to implement as it only requires a municipal resolution and application to WisDOT. The administration for collecting the fee is all handled by WisDOT who makes monthly disbursements to the municipality thereby alleviating any local administrative burden.
However, officials should be mindful of its relatively limited revenue yield and potential equity concerns as it disproportionately impacts residential properties. Current wheel tax fees range from $10-$50.
Special Assessments
Special assessments allow Wisconsin municipalities to charge property owners for all or a portion of the cost of public improvements that provide a direct benefit to their property, such as streets, utilities, or other local infrastructure. These assessments are levied on properties within a defined area based on the value of the benefit received and become a lien on the property. The assessments may be collected over time or placed on the tax roll if unpaid. Municipalities often issue debt or create an interfund loan to fund the project costs now with the intent to abate the debt service/repay the interfund loan with the future special assessment revenues.
A municipality must follow a formal process to implement which includes adopting an initial resolution, preparing a report detailing project scope, costs, and proposed allocations, providing notice and holding a public hearing, and lastly, approving a final resolution to levy the assessments. The methodology used must be reasonable and equitable, with costs allocated among benefited properties in proportion to the benefit received, and property owners retain the right to appeal the assessment. These mechanisms are particularly valuable for financing growth-related projects without burdening existing taxpayers.
Impact Fees
Impact fees allow Wisconsin municipalities to charge developers for a proportionate share of the capital costs needed to support new development, including highways, as defined in Wis. Stat. § 340.01(22), and other transportation facilities, traffic control devices, facilities for collecting and treating sewage, facilities for pumping, storing, and distributing water, parks, playgrounds, and land for athletic fields, solid waste and recycling facilities, fire protection facilities, law enforcement facilities, emergency medical facilities, and libraries. If it’s not listed in the prior sentence, those costs are ineligible to be recovered through impact fees.
To implement, a community must complete a public facilities needs assessment that inventories existing infrastructure, identifies deficiencies, and estimates the cost of improvements required to serve growth, all tied to defined service level standards. A well-supported impact fee study is critical, as it documents the methodology, justifies the fees, and identifies eligible projects. Ongoing administration is equally important, including tracking collections and expenditures, ensuring funds are spent on approved projects within statutory timelines, and regularly updating the study to reflect changing costs, growth assumptions, and completed projects.
When structured and maintained properly, impact fees can provide a dedicated revenue source to help fund growth-related capital needs and reduce pressure on the property tax levy.
Managing Covered Services
Covered services are certain municipal functions defined by Wisconsin law that, when shifted from the tax levy to a user fee, require a corresponding reduction to a community’s levy limit. Eligible services include garbage collection (excluding recycling), fire protection (excluding public fire protection charge), snow plowing, street sweeping, and stormwater management, provided they were supported by the 2013 levy (for the 2014 budget). When a new or increased fee is implemented, the municipality must take a negative adjustment on its levy limit equal to the projected fee revenue, capped at the amount of levy support for that service in the 2013 levy (for the 2014 budget). While this reduction can appear to offset the benefit, the cap is key, because most service costs have increased significantly since then, allowing municipalities to generate additional net revenue through fees. Implementation requires identifying an eligible service, establishing a fee structure to replace some or all levy funding, and applying the adjustment through the levy limit worksheet.
Levy Limit Referendums
When levy capacity simply isn’t enough, municipalities may turn to a referendum under Wis. Stat. §66.0602(4). Levy limit referendums allow Wisconsin municipalities to exceed state-imposed levy limits with prior voter approval, providing a direct way to increase property tax revenues to support services or capital needs. While they can be an important tool, they require careful planning and timing, including meeting strict election deadlines and aligning the question with specific statutory requirements. Communities also need to consider how the purpose of the request may influence voter support and be able to effectively community the tax impact to constituents. Given these factors and the uncertainty of voter approval, referendums are often best evaluated alongside other revenue options to ensure service levels can be maintained if a referendum is unsuccessful.
A More Strategic Approach
Ultimately, there is no single solution to the structural challenges created by Wisconsin’s levy limits. Instead, long-term sustainability requires a thoughtful, multi-pronged approach that balances strategic use of levy limit adjustments, careful consideration of referendums, and the intentional use of alternative revenue sources. Each tool comes with its own tradeoffs, statutory requirements, and administrative considerations, so success depends on understanding how they work together within your community’s broader financial plan. By taking a proactive and informed approach, municipalities can better position themselves to maintain service levels, manage financial pressures, and adapt to changing economic conditions over time.
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