County Executive Falk: Joint Finance Committee Tax Freeze Proposal May Eliminate Local Government’s Ability to Borrow for Capital Projects

June 13, 2003
Sharyn Wisniewski (608) 267-8823
County Executive

Following is a two-page letter Dane County Executive Kathleen Falk delivered today to Senate and Assembly Leadership, stating her concerns about the potential impact a tax freeze may have on local government’s ability to issue bonds. The County Executive is concerned that a tax freeze might eliminate local government’s ability to issue General Obligation bonds, or to make that borrowing more expensive. # # # June 13, 2003 Speaker John Gard 211 West, State Capitol Madison, Wisconsin Majority Leader Mary Panzer 211 South, State Capitol Madison, Wisconsin Minority Leader James Kreuser 201 West, State Capitol Madison, Wisconsin Minority Leader Jon Erpenbach 202 South, State Capitol Madison, Wisconsin Dear Speaker Gard, Majority Leader Panzer, Minority Leader Kreuser, and Minority Leader Erpenbach: I write to alert you to potentially very serious problems created by the property tax freeze as approved by the Joint Finance Committee (JFC). I believe that the proposed freeze might well eliminate local governments’ ability to borrow for almost all capital projects or to make that borrowing more expensive. Because the Legislative Reference Bureau language of that legislation is not yet available, our bond counsel cannot confirm with certainty that this problem will exist. In light of its seriousness, however, I have a responsibility to notify you of this problem so that you can prevent it. As a result of several discussions between our Controller and bond counsel, I am concerned that the JFC motion conflicts with local governments’ authority to issue general obligation bonds as granted in Wis. Stats 67.05 (10) and 67.06. In essence, general obligation debt requires a pledge of a local government’s “full faith and credit,” including a pledge of its unlimited taxing authority. The property tax freeze makes it impossible to offer that last pledge. If this conflict is present, Dane County could be prohibited from issuing any kind of bonds for other than revenue-supported debt for the County’s enterprise activities such as the airport or landfill. In the cases where the County might issue such revenue-supported debt, it would pay a much higher interest rate than if the debt were issued with the County’s AAA rated GO credit securing the debt. It is possible that Dane County and other local governments could issue general obligation debt after passage of a referendum. Even in that case, because of the state-imposed restriction on our taxing ability, there is a strong possibility that our bonds would not have a AAA rating, despite Dane County’s having achieved and maintained that credit rating. Finally, if borrowing depends on a referendum, there is no possibility under the JFC motion of scheduling one until next year -- again, this would cause an expensive delay in already commenced projects. These doubts and problems generate the following practical problems: Dane County is in the midst of two major, complex capital projects, extending over several years: the new Courthouse (debated and planned for over ten years and much reduced from original plans) and the expanded and remodeled Airport terminal. We have also started to make huge changes in our 911 system, a project necessitated by requirements in federal regulations. In light of at least $7 million in cuts in state revenues in our operating budget, we cannot divert operating funds for these projects if bonding is not possible. Because all these projects are already underway, major problems with bonding means that they will be completed later and at much greater expense. If we are able to borrow, but are unable to use our AAA bond rating, we will face higher interest rates than would be the case without the tax freeze, all to the expense of Dane County property taxpayers. This would be an unfair outcome. While the state mishandled its budget and witnessed the degradation of its bond rating, Dane County budgeted responsibly and maintained ours. To be denied the benefit of that frugality and prudence is unfair to Dane County taxpayers. As you know, I am opposed in principle to the property tax freeze. I believe that local taxes should be the responsibility of the local officials elected by local taxpayers to make those decisions. Regardless of any disagreement that might exist between some of you and me on that point, I respectfully submit that you should prevent the property tax freeze from creating uncertainty, additional expense, and unfairness for long-planned and important local government capital projects. Thank you for your attention to this problem. Sincerely, Kathleen M. Falk Dane County Executive KMF:gh cc: Governor Jim Doyle Dane County Legislative Delegation