Wisconsin governor says budget means property tax reform.

CHICAGO -- Gov. Tommy Thompson of Wisconsin yesterday signed into law a $30.4 billion fiscal 1994-95 biennial budget, saying it will reform the state's property tax system.

"This budget I am signing is a budget that limits property tax increases, greatly increases state aid to schools and local governments, and funds programs that meet our most pressing needs," Thompson said in his veto message. "It will help make sure that Wisconsin continues to enjoy a strong economy and a high quality of life in future years."

The budget for the biennium that began July 1 contains a property tax reform package aimed at reducing tax increases on the part of counties, school districts, and cities and towns. The legislature passed the budget last month.

The reforms freeze counties' tax rates at the December 1992 levels, but exempt levies for existing general obligation and refunding debt. New debt will have to be approved by voter referendum or by 75% of a county board. A county will also be able to issue new debt if the county board has the "reasonable expectation" that debt service can be accommodated within the tax freeze.

In return, the budget gives counties more than $41 million over the two years in additional state funding to cover court-related and other state-mandated costs.

Under the reforms, school districts have an annual per pupil spending increase cap of $190 or the rate of inflation, whichever is greater. The districts' existing GO and refunding debt is exempted from the cap and any new GO debt will need voter approval.

The budget gives the districts $142 million more in state funds in fiscal 1994 and $97 million in fiscal 1995. The reform package also includes arbitration and mediation reforms that expire on July 1, 1996.

Wisconsin municipalities, meanwhile, will be rewarded with more state aid if they keep their annual spending increases below the rate of inflation. The Expenditure Restraint Program is funded with $42 million in fiscal 1995.

Earlier this year, Thompson proposed a property tax freeze for all local governments at December 1992 levels. Rating agency officials had raised concerns about the impact on outstanding debt, which had not been grandfathered under the original proposal.

Paul Devine, a vice president and manager of the Great Lakes region at Moody's Investors Service, said yesterday that the reforms in the signed budget resolve those concerns "without being detrimental to bondholders." Any effect on credit quality from the reforms now in place will "relate to management's ability to work within the constraints," he said.

John Fargnoli, a director at Standard & Poor's Corp., said the agency will have to see how the reforms "will play out" on local governments.

Thompson made only 78 vetoes in the budget, compared to the 457 vetoes he made in the fiscal 1992-93 budget. He said the vetoes will improve the balance at the end of the biennium by $2 million. Prior to the vetoes, the balance at the end of fiscal 1995 had been estimated at $77 million, which includes a statutorily required balance equal to 1% of the federal revenue budget.

John Montgomery, the state's deputy budget director, said only 10 of the 78 vetoes reduced spending to gain the $2 million, while the remainder dealt with language or intent in the budge bill and had no fiscal impact.

The budget contains a $60 million reserve for litigation purposes, Montgomery said. In June, state officials appealed a Wisconsin Tax Appeals Commissions decision that ruled that the state owes federal retirees about $100 million in state income tax refunds.

The budget calls for $7.4 billion of general purpose revenue spending in fiscal 1994 and $7.8 billion of spending in fiscal 1995.

The budget also includes $572 million in new GO bond authorization and nearly $285 million in new revenue bond authorization.

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