CHICAGO -- The future credit quality of counties and school districts in Wisconsin could be "negatively affected" by property tax reforms in the state's fiscal 1994-95 biennial budget, according to a credit report from Moody's Investors Service.
The report, released on Friday, said that reforms restricting property tax increases will affect, in different ways over time, the 149 school districts and 40 counties Moody's rates.
Paul Devine, a vice president and assistant director of the Great Lakes region at Moody's, said the key question will be the ability of the counties and districts to manage their finances within the tax constraints. Moody's will be evaluating the credits within the context of the restrictions, he said.
"One fear is that because of the restrictions on their ability to raise revenues, there will be an incentive to draw upon existing balances in order to cushion the effect of the restrictions," Devine said.
The two-year budget passed by the Wisconsin Legislature in July and signed into law by Gov. Tommy Thompson in August contained a reform package aimed at reducing tax increases by local governments. The reforms freeze counties' tax rates at the December 1992 levels, but exempt levies for existing general obligation and refunding debt.
New debt has to be approved by voters or by 75% of a county board. A county can also issue new debt if the county board has the "reasonable expectation" that debt service can be accommodated within the tax freeze.
Moody's said that counties "with slower growing tax bases are likely to be impacted by the tax rate freeze to a greater extent than faster growing counties."
In addition, counties that have yet to approve a one-half cent optional sales tax will have "more financial flexibility than counties that have already tapped this revenue source."
Forty-three of the state's 72 counties already have implemented the optional sales tax, including two of the largest counties -- Milwaukee and Dane.
Moody's said that as a result of the restrictions, counties may structure their debt "less favorably," with slower payout or ascending debt service as a way of financing near-term capital needs within the tax rate freeze.
For school districts, the state budget imposes 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 needs voter approval. The budget gave the districts more state funding and put into place arbitration and mediation reforms that expire on July 1, 1994.
The Moody's report said that districts with longer-term labor agreements may exceed the spending limits, and that fast growing districts "may find it difficult to stay within the revenue limit." If districts are forced to draw down their reserves as a result of the limits, they "may be forced to borrow or increase the level of borrowing for liquidity, resulting in added costs and increased vulnerability to interest rate conditions," the report said.
Devine said there is some question as to whether school districts will need voter approval to borrow from the state trust fund for small-scale capital projects.
Richard Chandler, Wisconsin's budget director, said that while he was not familiar with the question of voter approval, the Thompson administration is willing to look at legislation that would make any technical correction needed for the tax reforms.
As for the concerns raised by Moody's, Chandler said that counties and school districts are implementing the reforms "with very little trouble at all." He said the reforms are important for the long-term health of the state and local governments.
Property tax restrictions were not placed on cities, villages, and towns in Wisconsin. They were given the incentive of more state aid if they keep their annual spending increases below the rate of inflation.