By Tom Larson, Senior Vice President of Legal and Public Affairs, WRA and Tracy Johnson, President and CEO, CARW
On July 3rd Governor Evers signed the 2019-21 State Budget into law. The budget spends $82 billion over the biennium. The governor vetoed 78 items in the budget put forward by the Republican-controlled legislature. Despite the changes made by both Governor Evers and the legislature to each other’s budgets, the final budget includes a number of bipartisan priorities such as a middle-class tax cut, water quality initiatives, health care improvements, and increased education and transportation funding.
For the Commercial Real Estate industry, this is considered a good budget because a) it does not include major changes to items that would ‘harm’ the industry, and b) offers changes in some areas that will benefit communities and the real estate industry’s ability to be successful.
Key Provisions Included in The State Budget Below are some of the most significant provisions included in the final state budget that impact commercial real estate:
- Income taxes – Reduces income taxes by approximately $450 million when combined with a separate bill passed by the legislature. Together, income taxes would be reduced, on average, by $75 per person in 2019 and by $136 in 2020 (married-joint filers will see a reduction of $182 annually).
- Property taxes – Maintains strict levy limits on local governments and technical colleges by allowing levies to increase by the change in equalized value due to net new construction or by referendum. Property taxes would increase for the average homeowner ($174,000 median value home) by only $56 in the first year of the budget and $48 in the second year.
- Transportation – Provides $465 million in overall revenue for transportation projects across Wisconsin, funded primarily through a $95 increase in vehicle title transfer fees (from $69.50 to $164.50) and a $10 vehicle registration fee increase (from $75 to $85). The plan would also include $326 million in bonding over the biennium, which is the lowest amount in decades.
- Milwaukee mega-transportation projects – Expands I-43 in Milwaukee and Ozaukee counties from 2 to 3 lanes in each direction. Specifies that the Zoo Interchange will be completed within the next 2 years. Initiates plans to widen I-43 from Silver Spring Drive in Glendale to Highway 60 in Grafton.
- Wisconsin Center District – The Wisconsin Capitol Budget includes a $100 million increase in the state’s existing moral-obligation pledge for new debt issued by the Wisconsin Center District, the entity that oversees the Wisconsin Center convention space and other downtown event venues. The increase means up to $300 million in bonding from WCD would be backed by the state. This backing is essentially a pledge by the state to appropriate money toward debt-service payments if the district ever was not able to do so for its bonding.
Key Provisions Removed From The Budget
The following provisions were removed by the legislature from either the original state budget introduced by Governor Evers or by the version of the state budget adopted by the joint finance committee:
- Tax increment financing – Proposed to limit the percentage of tax incremental district project costs that may be allocated for developer grants to 20 percent of total project costs to focus tax incremental finance policy on public infrastructure development. Also, would have required that project plans include sensitivity analyses (“stress tests”) for alternative projections of a district’s finances under different economic situations, including a slower pace of development and a lower rate of property value growth than expected in the district.
- Capital gains tax – Proposed to limit the current 30 percent long-term capital gains exclusion to those taxpayers with adjusted gross incomes below $100,000 for individuals and $150,000 for married-joint filers.
- Prevailing wage – Proposed to restore the state’s prevailing wage law, which sets minimum pay requirements for construction workers on public works projects.
- Levy limits – Proposed to allow county and municipal governments and technical colleges to increase levies by the greater of the percentage change in equalized value due to new construction less improvements removed or 2 percent beginning with levies set in 2019. Eliminates requirement for municipalities to reduce levy limits by revenues generated through certain fees.
- Stormwater management fees – Proposed to exempt new or increased stormwater management fees from a corresponding reduction in the community’s allowable levy. The proposal would have significantly increased stormwater management fees for residential and commercial development.
- Dark store – Proposed to incorporate provisions from the “dark store” bill, which was introduced as separate legislation earlier this session. Under the proposal, property would be assessed at its “highest and best use” and would remove vacant properties, or “dark stores,” as comparable sales for the purposes of property tax assessment, thus allowing assessors to value occupied property more solely because of its occupancy.
- Manufacturing and agriculture tax credit—Proposed to limit the manufacturing portion of the credit to only apply to the first $300,000 in qualified production activities income for each firm qualifying for the credit Several components that were eliminated from the original budget proposed by governor Evers includes changes to the MAG (Manufacturing and Agriculture Tax; Changes to Capital Gains Tax and changes to TIF (Tax Increment Financing).
More information will be shared in the coming weeks and months.