UW study: Local spending, taxing under control

As Wisconsin legislators debate the balance between spending and taxes at the state level, a University of Wisconsin–Madison study has found no indication that the cities and villages tax or spend excessively.

And comparisons between taxes in Wisconsin and other states fail to account for what local residents want and expect from their government, says Steven Deller, a UW–Madison economist and the study’s lead author.

“We wanted to determine if cities and villages are spending too much and taxing too much,” says Deller, a community development expert with the College of Agricultural and Life Sciences and UW Extension. “Our analysis says ‘no,’ we are not overspending and overtaxing at the city and village level.”

Deller is quick to point out that the study does not address the overall issue of taxation at the state, county and school district levels. The analysis examined spending and taxing by 554 Wisconsin villages and cities during 1995, 1996 and 1997.

Deller has spent much of the last eight years meeting with local groups who want to attract new businesses and strengthen their local economies. His views on services and taxes have been influenced by studies of how businesses look at local communities when they expand.

“When businesses locate in a community they need services from that community and they want them supplied in an efficient manner,” Deller says. “In debates about spending and taxation, the first thing we should be asking is what services we want and how can we get those services at the lowest cost.

“When I meet with community members to discuss economic development, I often hear people say their taxes are too high,” says Deller. “But if you ask people which services they can no longer afford, the discussion changes. Rarely are people willing to accept poorer roads, less police and fire protection, reduced sanitary services, or fewer parks and recreational facilities.

“In general, Wisconsin citizens have grown to expect high-quality services and have been willing to pay relatively high taxes to receive them.”

Rather than compare Wisconsin taxes to those in other states, the study evaluated if cities and villages were providing the services people wanted at the right level, and if cities and villages provide those services efficiently.

The analysis relied heavily on a comparison of spending, tax rates and property values across the 554 local governments. Deller says that property values can be the single best economic indicator of a healthy local economy. In essence, the researchers argue that if spending is too high property values may stagnate and fall.

“Our results suggest that reducing expenditures at the local level, and hence reducing taxes, would reduce property values. That would not make the residents of Wisconsin’s cities and villages better off,” Deller says. “Although local governments may not be perfectly efficient, cutting local taxes doesn’t seem to be the answer to fostering better local government.”

The new study is the first in a series that will examine spending and taxation issues at the local government level. The current study, with graduate student Victor Lledo, will appear as one of a series of papers published by the Department of Agricultural and Applied Economics.

The research was supported by state funding to the UW–Madison College of Agricultural and Life Sciences and the UW-Extension, grants from the Wisconsin League of Municipalities, and Hatch funds from the College of Agricultural and Life Sciences.