On Wednesday, July 3, 2019, Gov. Tony Evers signed the 2019-21 state budget into law in 2019 Wis. Act 9. Before doing so, the governor used his partial-veto authority to change 78 provisions adopted by the Republican-controlled legislature. In total, the state budget spends approximately $82 billion over the biennium, which is an increase of approximately 5.4 percent from the previous budget.

Background

The state budget process began on February 28 when Evers introduced the state budget. After the budget’s introduction, the legislature’s Joint Finance Committee (JFC) spent the next three and a half months holding public hearings around the state, receiving input from all sectors of the public.  

After receiving public input, Republican lawmakers made significant changes to the original budget introduced by Evers at the end of February. The legislature removed numerous tax increases and the proposed repeal of significant regulatory reforms enacted by Republicans over the last eight years.   

The Assembly passed the budget with a 60-39 vote, primarily along party lines, with all Democrats voting against the budget along with several Republicans such as Reps. Janel Brandtjen (R-Menomonee Falls), Rick Gundrum (R-Slinger) and Timothy Ranthum (R-Cambellsport). In the Senate, the bill passed 17-16 with all Democrats voting against the budget along with Republican Sens. David Craig (R-Big Bend) and Steve Nass (R-Whitewater).

Additions: key provisions included in the state budget

Despite the changes made by both 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. In addition, many of the provisions included and removed from the budget have a direct impact on the real estate industry.

The following are some of the most significant provisions impacting the real estate industry

1. 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.
2. 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, which is the owner of a $174,000 median-value home, by only $56 in the first year of the budget and $48 in the second year
3. DSPS website modernization: Allocates $5 million to update and modernize the Wisconsin Department of Safety and Professional Services (DSPS) website, credentialing systems and consumer portals.
4. K-12 funding: Increases funding for K-12 schools by approximately $570 million over two years.
5. 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.
6. Stewardship: Extends the Knowles-Nelson Stewardship program for two years.
7. Broadband: Provides $48 million throughout the biennium to expand the broadband expansion grant program to reach more underserved areas of the state.
8. Milwaukee mega-transportation projects: Expands I-43 in Milwaukee and Ozaukee counties from two to three lanes in each direction. Specifies that the Zoo Interchange will be completed within the next two years. Initiates plans to widen I-43 from Silver Spring Drive in Glendale to Highway 60 in Grafton.   
9. Rainy day fund: Maintains a relatively healthy $423 million balance, which was previously $617 million, in Wisconsin’s “rainy day fund” at the end of the biennium.  

Deletions: key provisions removed from the budget

The following provisions were removed by the legislature from either the original state budget introduced by Evers or by the version of the state budget adopted by the JFC:

1. First-time homebuyer savings accounts: Proposed to create a state tax-preferred savings accounts that would allow first-time homebuyers to subtract from their adjusted gross income up to $5,000 in contributions for single filers and up to $10,000 in contributions for married-joint filers. Earnings on those accounts would also have been exempt from state taxation.
2. 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. This provision also would have required that project plans include sensitivity analyses, or “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
3. 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. 
4. Prevailing wage: Proposed to restore the state’s prevailing wage law, which set minimum pay requirements for construction workers on public works projects. 
5. Levy limits: Proposed to allow county and municipal governments as well as 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. This proposal would have eliminated the requirement for municipalities to reduce levy limits by revenues generated through certain fees.
6. 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
7. 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.
8. 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. 

In summary, the final state budget is a positive budget for REALTORS^® and the real estate industry as it accomplishes three major goals of the WRA. First, the budget did not contain any changes that were harmful to the industry. No policy or programs that are beneficial to the real estate industry were eliminated or negatively changed, and no harmful regulations were adopted. Second, the budget made housing more affordable. By holding the line on property taxes and reducing income taxes by $450 million, housing will be more affordable for Wisconsin’s families and workforce.

Affordability would have been further improved if the governor’s proposed first-time homebuyer savings account had been adopted. Lastly, Wisconsin made major and necessary investments in improving infrastructure. More money for a modernization of the DSPS website, along with a greater investment in K-12 education and broadband, is good news for real estate across the state. Also, this budget invests more in transportation than the previous state budget and uses less bonding to do so.

Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.