1. Presentation to the Wisconsin Department of Revenue
The School Property Tax and Homestead Credits: Accuracy, Equity, and Contribution to Overall Fiscal Relief
Vanessa Allen
Danielle Fumia
Kelly Krupa Rifelj
Matthew Steinberg
Presentation to the Wisconsin Department of Revenue
Friday, May 4, 2007

2. Overview of Talk Research questions Property tax relief in Wisconsin
Analytical methodology
Conclusions
Recommendations
Limitations of the analysis
Concluding remarks

3. Research Questions
Does Wisconsin accurately estimate the Property Tax Equivalent (PTE) for renters?
Does the percentage differential for renters in their PTE estimates accurately measure the cost of heat?
How is individual property tax relief distributed across income levels and tenure status?
What is the composition of overall fiscal relief – local assistance plus individual relief – realized by a median-valued home?

4. Property Tax Relief in Wisconsin
Relief to Local Governments
Funds local government functions and offsets need for higher property taxes (59% of GPR)
Aid to schools, shared revenue, credits applied to tax bills, & fiscal controls
Individual Relief
Income tax credits for homeowners and renters
School Property Tax expenditures in 2006: $373 million
Homestead Credit expenditures in 2006: $114 million
Classification laws (farmland) and tax deferrals (elderly)

5. School Property Tax Credit
Enacted in 1989
Design:
12% of first $2500 in property taxes or PTE
Eligibility: homeowners and renters
No income limit
Non-refundable
Maximum award: $300

6. Homestead Credit
Circuit-breaker program pioneered by Wisconsin in 1964 out of a concern for the low-income aging population
18 states now have circuit-breaker programs
Design:
Calculation: see page 6 of report
Eligibility: all homeowners and renters age 18+
Refundable
Income limit: $24,500
Maximum award: $1160
The credit limits are not adjusted annually.

7. Estimating the PTE Percentages for Renters
Estimate of the property taxes renters pay or percent of rent which equals property taxes (100% incidence assumed)
PTE percentage = 20% for renters with heat in their rent and = 25% for those without
Calculation: Total Property Taxes/Total Rent
From Census and City Assessor’s data
Findings
Milwaukee = 22% Madison = 13%

8. Estimating the PTE Percentages for Renters
PTE Percentage Equation:
Estimate property taxes paid for apartment buildings (5+ units) from city assessor’s office
Property Taxes Paid = Property Value x Net Mill Rate
Estimate contract rent paid and rent asked for on apartment buildings of five units or more
Total Property Taxes Paid
Total Contract Rent + Total Rent Asked for on Vacant Apartments

9. Evaluating the Heat Differential
Assumption
Rent with heat included = Rent with heat separate + heat paid (for equivalent properties)
Implications if assumption is accurate:
Heat = 25% of rent if heat is not included
Heat = 20% of rent if heat included
Renters with heat included would pay 25% more than those without heat included

10. Distribution of Relief
Analyzed the equity impacts of the credits
SPTC
Adjusted gross income class and tenure status
Homestead Credit
Tenure status

11. Distribution of Relief (cont.)
Findings
Claimants distributed proportionately by tenure status
Low-income claimants use less of their SPTC
Distribution of SPTC Credit Claimants and Credit Amounts by Income
Income
Percentage of Claimants Using Some Portion of the SPTC
Average Credit Claimed
Average Credit Used
Less than $10,000
13.7%
$154.15
$26.73
$10,000 – 14,999
72.3%
$164.36
$103.20
$15,000-24,999
95.2%
$176.23
$157.81
$25,000 – 39,999
99.8%
$200.34
$199.92
$40,000 – 59,999
99.9%
$237.65
$237.61
$60,000 – 79,999
100.0%
$264.97
$264.96
Source: Created by authors using tax return data provided by the Wisconsin DOR for 2005(06)

12. Distribution of Relief (cont.)
Findings (cont.)
Renters receive a smaller credit than homeowners
Renters credits constitute a larger share of their PTE
Distribution of SPTC and Homestead Credits by Tenure Status
Homeowner
Renter
SPTC
Average Credit Claimed
$250
$143
Average Credit Used
$248
$140
Percentage Using Some Portion of Credit
92%
83%
Percentage of property taxes or PTE paid 7% 9%
Homestead
Average Credit
$540
$475
27%
44%
Source: Created by authors using tax return data provided by the Wisconsin DOR for 2005(06)

13. Composition of Overall Fiscal Relief
Local Assistance
Applied rate of state aid to median-valued home
Local assistance programs with appropriations above $100 million
Full value of taxable real estate property in Wisconsin
Added lottery and gaming credit as provided by LFB Info. Paper 13
Individual Property Tax Relief
Median-income & low-income homeowners
SPTC – Property taxes, income tax liability
Homestead Credit – Property taxes, household income

14. Individual Property Tax Relief as a Percentage of Overall Fiscal Relief

15. Conclusions
Variation in the estimates of the PTE percentages for Madison (12.7) and Milwaukee (21.6)
The non-refundability of the SPTC may create some inequities in the distribution of property tax relief based on income and tenure status
The Homestead Credit may alleviate income disparity but inequities may remain based on tenure status
Composition of overall fiscal relief has remained constant over the last 15 years (for a median-income family in a median-value home)

16. Recommendations
To more accurately calculate the PTE percentages across municipalities and statewide, we recommend that the DOR disaggregate rental properties
The DOR should survey property owners and management companies to acquire:
Total residential units in the property
Total contract rent on these units
Property taxes on the residential rental portion of these properties

17. Recommendations (cont.)
Wide variance in the PTE percentages in Madison and Milwaukee call for a further analysis investigating the causes of this disparity
The Wisconsin DOR should support legislation that would annually adjust the Homestead Credit formula limits for inflation

18. Limitations of the Analysis
Property tax data for rental units unavailable statewide
Prohibits a systematic and comprehensive estimate of PTE for renters
Data unavailable for the number of rental units with and without heat included in their contract rent, and for the approximate cost of heat for renters paying heat separately
This analysis was unable to estimate whether (and to what extent) differences may exist in the PTE percentages among renters

19. Concluding Remarks
Thank you
Questions