By Todd Taves, Senior Municipal Advisor

Key Considerations for Preparing & Submitting This Year’s Worksheet

Wisconsin cities, villages, towns, and counties have operated under levy limits since the 2006 budget year. Prior to developing budgetary goals and objectives, it is important to understand what constraints your projected allowable levy poses. The following is a brief overview of a few key aspects of the levy limit law and commonly used adjustments.

Base Increase to Allowable Levy

The first step in determining the allowable increase to the levy for the next year’s budget is to calculate the prior year’s adjusted actual levy. The adjusted actual levy is the prior year’s total levy reduced by any amounts claimed in that year for:

• Payment of general obligation debt authorized after July 1, 2005
• Payment of unreimbursed emergency expenditures
• Utility revenue bond or special assessment B bond payment shortfalls
• A one-time (non-recurring) increase approved by referendum

The following is an example of this calculation as it appears on the levy limit worksheet (DOR Form SL-202m for cities, villages, and towns). Note that personal property aid amounts are added to the prior year levy total so that the percentage increase calculation considers amounts that were previously received as levy:

Example:

The adjusted actual levy is then increased by a percentage based on net new construction as determined by the Wisconsin Department of Revenue. Net new construction is the amount of new construction that occurred within the municipality in the prior year less the value of any demolition. This net amount is divided by the prior year’s total equalized value to determine the applicable percentage. This percentage, along with any increase that may result from terminating or removing territory from a tax incremental financing district, determines the levy limit before adjustment as shown below.

Example:

In this example, the governmental unit would be permitted to increase its levy by $25,200 over the prior year before claiming any adjustments. (The 2023 levy was $2,000,000, and the permitted 2024 levy before adjustments is $2,025,200). Because personal property aid payments are added on Line 1, they are removed on Line 8. Due to the exemption of all personal property as of January 1, 2024, many municipalities will see an increase in their aid payments, and in some cases, this increase may be larger than the allowable increase due to net new construction, which would result in a lower levy limit before adjustments than the prior year. While the allowable levy decreases because of the increased aid payment, the aid payment increase offsets the loss in levy capacity. Lines 1-8 on the levy limit worksheet are calculated and pre-filled on the worksheet by the Department of Revenue, but these calculations should be checked for accuracy.

Debt Service Adjustments

General obligation (G.O.) debt service principal and interest payments are exempt from levy limits. The law treats G.O. debt service payments differently depending on whether the debt was authorized before July 1, 2005 or on or after that date. A municipality may claim up to the full amount of the debt service payment due on G.O. debt authorized on or after July 1, 2005 as an adjustment. However, whatever amount is claimed is deducted in the following year. It is essential that this adjustment is not overstated: claiming an adjustment but not actually levying the full amount will result in a permanent reduction in levy capacity. In some cases, a local government may be paying some or all its post-July 1, 2005, G.O. debt service from within its unadjusted levy base. In such cases, this affords a measure of flexibility as the claimed adjustment amount could be increased. By moving levy for post-July 1, 2005, G.O. debt outside of the base levy by claiming a larger adjustment, a greater amount of levy capacity becomes available to support other types of expenditures. Caution should be exercised, however, when the additional debt service adjustment claimed is being paid from non-tax levy sources such as utility fees or tax increments. Relying on such an adjustment to support ongoing operating expenses like staff costs will result in an eventual budget deficit if the non-levy paid debt service diminishes or is retired. This exposure does not occur if the entire amount of the debt adjustment claimed is fully levied for, or if the increased capacity is used to fund non-recurring or non-operating expenses such as capital equipment purchases and projects.

Carryover

If the actual amount levied in the prior year was less than the allowable levy as was calculated on Line 8 of the levy limit worksheet, a carryover will be available. This residual unused levy capacity can be claimed and used in the next budget cycle, but is limited to the actual unused amount or 1.5% of the prior year’s actual levy, whichever is less. Claiming the carryover requires governing body action. For a carryover of up to 0.5%, approval by a simple majority vote is required. To carry over a greater amount (up to the 1.5% maximum) requires approval by a three-fourths super majority vote, or a two-thirds super majority if the governing body has fewer than five members. The State’s 2015-2017 budget further modified the carryover provision to permit unused levy capacity to be carried forward for a period of up to five years. This multi-year carryover is subject to a cap of 5% and can only be claimed if the local government did not increase its total outstanding G.O. debt principal in the year the carryover is claimed, as compared to the prior year. If available, a municipality may claim the prior year carryover, or the multi-year carryover, but not both in the same year. If a carryover is available, it is important to ensure that the carryover was not artificially created by claiming an unnecessarily large adjustment for G.O. debt in the previous year (Adjustment E on the levy limit worksheet). If a municipality is claiming Adjustment E, it should only claim the exact amount needed to cause its calculated allowable levy to equal what it plans to levy. If this guidance is used to determine the amount claimed for Adjustment E, no carryover should be available. If you find that a carryover is available as a result of overstating Adjustment E, you may be able to amend your prior year worksheets to correct this.

Covered Services Negative Adjustment

The law specifies that a local government must reduce its levy limit if, on or after July 2, 2013, it puts into place a user fee for:

• garbage collection (excludes recycling)
• fire protection (excludes public fire protection charge)
• snow plowing
• street sweeping
• stormwater management.

It must also be the case that the service for which the user fee is implemented was funded in whole or in part by the 2013 tax levy for the 2014 budget year. A negative adjustment may also apply when a user fee for any of the listed services is subsequently increased. The amount of the negative adjustment is equal to the projected revenue resulting from the implementation of a user fee, or the increase in the user fee amount.  However, 2017 Wisconsin Act 317 limits the required negative adjustment to no more than the amount of total levy support provided for that covered service in the 2013 budget year. While the negative adjustment applies in the case of a fee increase (subject to the maximum adjustment limitation), it does not apply if revenues increase because of additional service units without a fee change. The following table provides additional clarification based on the four possible scenarios:

The effect of this provision is to preclude a local government from implementing a new user fee for any of the five covered services to free up levy limit capacity to fund other operating purposes. Note again, however, that the total negative adjustment cannot exceed the amount of levy support that the covered service received in the 2013 budget. Once an initial conversion to a covered service user fee is made, the limitation on the total negative adjustment will afford a municipality additional flexibility in the future.

As your community prepares for the December 15, 2024, deadline for submitting levy limit worksheets to the DOR, Ehlers’ Municipal Advisors are happy to answer questions or assist with document completion.  We also invite you to view our recently held Virtual Levy Limit Workshop for more in-depth instruction on how to complete your community’s annual worksheet. In addition, we’ve prepared an FAQ document for your reference. If you have any questions or need additional assistance, please contact:

Joe Murray
Municipal Advisor
jmurray@ehlers-inc.com
262-796-6196

-OR-

Ariana Schmidt
Senior Financial Specialist
aschmidt@ehlers-inc.com
262-796-6181

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