How the sausage was made

Republican tweaks to shared revenue benefited GOP communities more

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It was a big win for Wisconsin’s small towns.

Soon after the Legislature overhauled local government funding in 2023, shared revenue, the state’s primary local aid program, jumped thousands of percentage points for towns and villages with fewer than 100 residents, while percentage increases were far more modest for the largest cities.

The biggest cities are also the most Democratic, while small towns are growing ever more Republican.

An analysis for Wisconsin Watch finds a statistically significant correlation between how a community votes and how much its shared revenue increased under the legislation known as Act 12.

On average, each percentage point of GOP vote share corresponds to a 2.1% increase in shared revenue, according to calculations by Phil Rocco, associate professor of political science at Marquette University.

That happened after Republicans broke with the first century of shared revenue history and adopted a complex formula that divides Wisconsin communities into five tiers by their 2022 populations. Rocco found that formula resulted in average increases of 202% for communities of less than 5,000 people, but just 25% for cities with 50,000 to 110,000 residents and 35% for cities larger than 110,000.

Dale Knapp, research director for the Wisconsin Counties Association, drafted the formula using parameters set by lawmakers. Knapp says the initial goal was to give “a bigger bump” to communities that were getting less aid per capita under the old shared revenue formula, but as Republicans saw how specific communities would be affected by different versions of the new formula, they asked for more tweaks based on population size.

Only once before had the state used such an approach. In 2012, when the GOP controlled all of state government, Gov. Scott Walker’s budget also split communities into population tiers, slashing shared revenue more deeply for most big cities than for the smallest towns.

In a state where Republicans notoriously gerrymandered legislative districts by tweaking the lines to lock in their majority, was shared revenue gerrymandered too?

Senate President Mary Felzkowski, R-Tomahawk, responded with a terse “no” when asked if she and her Act 12 co-author, Rep. Tony Kurtz, R-Wonewoc, had any partisan motive. They say they were correcting an imbalance that had shortchanged small communities.

But Democratic lawmakers have no doubt the formula was politically biased, says Sen. Kelda Roys, D-Madison.

“Clearly the way it was developed advantages Republican areas of the state and disadvantages larger urban areas like Milwaukee and Madison,” Roys says. “This Legislature has a history of punishing the biggest cities in the state.”

Although the legislation was hailed as a historic turning point in public funding, many municipalities are still struggling with tight budgets more than a year later. Dozens appealed to voters to approve property tax increases over the past year.

Instead of revisiting the shared revenue formula or the property tax levy limits that force communities to call those referendums, Democratic Gov. Tony Evers is recommending a different approach in his 2025-27 state budget: For any county or municipality that freezes or cuts property taxes, Evers proposes a new state aid payment equaling a 3% levy increase.

How we got here

All that is a long way from how shared revenue started in 1911. Right after adopting the nation’s first state income tax, the Legislature decided to distribute most of its proceeds to local governments, based on how much income tax their residents paid.

Starting in 1972, lawmakers switched to the first of a series of formulas that used factors such as population, equalized value, and local property tax levies. The goal of those formulas was to ensure that all local governments could afford “minimum levels of public services, regardless of their ability to finance those services through their property tax base,” according to the Legislative Fiscal Bureau. Because the formulas directed more money to larger cities and to communities with lower property values, the Legislature added an extra boost for municipalities with populations under 5,000, starting in 1994. Similar formulas were used to cut shared revenue in 2004 and 2010, with payments frozen in between.

Back then, the size of a community’s population wasn’t strongly related to its partisan preferences, according to data compiled by John D. Johnson, research fellow at the Marquette Law School’s Lubar Center for Public Policy Research and Civic Education.

But in 2010 an overwhelming majority of communities with populations under 50,000 swung Republican to elect Walker as governor, a pattern that has held for every gubernatorial election and most presidential and senatorial elections since, Johnson’s data shows.

Walker’s first budget, for the 2011-13 biennium, again cut shared revenue, but used population tiers that favored the smaller places that had fueled his victory. The 2012 formula still retained some of the old formula’s factors, which allowed Milwaukee to escape with only a 4% trim to its shared revenue while Madison’s was chopped 25%.

After that, shared revenue was frozen at 2012 levels. Without adjustments for changes in population and property values since 2003, disparities grew, while inflation ate away at the buying power of the stagnant allocations, says Knapp and Jerry Deschane, executive director of the League of Wisconsin Municipalities. 

Walker’s 2011-13 budget also blocked tax hikes in most communities unless voters approved them in a referendum.

Caught between limited taxing authority, frozen shared revenue, and rising costs, Milwaukee and Milwaukee County found themselves careening toward a “fiscal cliff” that would force deep cuts in services. At the same time, Felzkowski says, town officials in her district were warning her that they and their counterparts across Wisconsin were having trouble paying for emergency medical service for rural residents.

Evers responded by proposing a $576 million increase to the $753 million shared revenue program in his 2023-25 budget. Republicans shot down that plan, but started work on the legislation that became Act 12.

In discussions with local government leaders, GOP lawmakers made it clear they didn’t want to change the existing shared revenue formula, Deschane and Knapp say. Felzkowski says other Republican legislators with experience in local government told her the existing formula was “broken,” and they didn’t want to create the kind of “tweaked mess” that resulted from years of incremental changes to the state’s school aid formula.

Instead, Act 12 created a new formula to distribute increases, called “supplemental aid,” in addition to the shared revenue base payments that had been frozen since 2012. 

A thumb on the scale?

The largest proportional boost in municipal shared revenue was 5,748% for Rusk County’s town of Cedar Rapids, which at 36 residents is Wisconsin’s smallest community.

By contrast, the smallest percentage increase, 10%, went to Milwaukee, although the legislation also authorized Wisconsin’s largest city to levy a new 2% sales tax. Shared revenue rose 56% for Madison, with no new sales tax power.

Shared revenue increased around 20% for 10 predominantly blue cities with 2022 populations between 50,000 and 110,000, but a 67% boost went to Waukesha, the only red city of that size.

At the request of Wisconsin Watch, Rocco used Johnson’s data for gubernatorial races from 2010 through 2022 to determine whether Act 12 was politically neutral in distributing shared revenue increases of $206.9 million to municipalities. Rocco found a pro-Republican bias in Act 12 when looking at both the shared revenue percentage increase and per capita increase. 

Rocco’s analysis cites research by other scholars who found that federal aid formulas “offer lawmakers a means of concealing bias” by using “ostensibly neutral” factors to “move aid toward communities they represent,” benefiting similar communities as well.

While Felzkowski denied trying to help red areas, she says her goal was to send more money to rural areas that can’t generate much property tax revenue, yet still must provide services to more remote locations than cities do.

“I’m a rural legislator,” Felzkowski says. “My largest community at the time was 9,000 people, and I represented my district.”

Rocco also found evidence of bias toward Democratic-voting cities in the per capita increases in shared revenue that Evers proposed in his 2023-25 budget. But the same bias wasn’t consistently statistically significant in percentage increases.

The Evers plan didn’t use population tiers. Instead, it revised the original shared revenue formula, with its per capita and equalized valuation factors, and added a boost based on local public safety spending. That would have benefited larger cities with bigger police and fire departments — the same kinds of cities that typically vote Democratic. 

“The partisan affiliation of Wisconsinites impacted or benefited is not a factor the governor or our office consider in making policy decisions,” Evers’ spokesperson says in an email. “The governor proposed more funds be distributed to local communities and consistently pushed for a fairer distribution to mid-major communities while continuing to invest in all towns, cities and counties across the state.”

Unfinished business

Cities large and small applauded the financial lift they received from Act 12. Monona, for example, was able to cover inflationary cost increases and hand out 3% raises to its employees, says former Mayor Mary O’Connor.

But it didn’t take long before those cities and others were again facing tough choices. Monona found itself short of what it needed to keep up with inflation and to pay employees enough to keep other cities from luring them away, O’Connor says. 

And even though the Act 12 increases were earmarked for public safety and transportation, multiple communities still needed more to pay for emergency medical, fire and police services. Yet their leaders lacked authority to raise property taxes enough to cover those costs.

Because property tax increases are tied to new construction, Monona officials estimate the city would need to attract a $20 million project every year to justify levy hikes sufficient to keep up with its costs, O’Connor says. That’s not realistic for a community with less than 9,000 residents and no vacant land, she added.

Monona, Madison and 40 other municipalities decided to ask permission for higher tax increases. Wisconsin voters last year approved 21 municipal tax referendums, including those in Madison and Monona, and rejected 15. That includes two communities that went to a second referendum after losing on their first try. Another nine such questions were on the April ballot. Voters approved four and rejected five. 

Wisconsin Watch is a nonprofit, nonpartisan investigative newsroom.