CHICAGO -- The Wisconsin Legislature passed a $30.4 billion two-year all-funds budget last wee that includes a property tax reform package aimed at reducing local tax increases.

Gov. Tommy Thompson is expected to sign the budget into law next month, according to state officials. Wisconsin's fiscal 1994-95 biennium began July 1.

Lawmakers, who missed the July 1 deadline to approve a budget by 16 days, passed a freeze on counties' property tax rates, a cap on school spending, and an incentive program to hold down spending in cities.

The plan would freeze counties' tax rates at the December 1992 level, but would exempt existing general obligation and refunding debt from the freeze. New debt would have to be approved by referendum or by 75% of the county board. A county would 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 exchange for the freeze, the Legislature gave counties more than $125 million over two years in additional state funding to help cover court-related and other state-mandated costs.

Mark O'Connell, legislative director for the Wisconsin Counties Association, said the budget may be "the best budget ever for Wisconsin counties." He said, however, that the counties may seek exemptions for bonding for capital projects that can result from court mandates on jails or from compliance with the federal disabilities act.

The tax reform package places an annual per-pupil spending cap on school districts of $190 or the rate of inflation, whichever is greater, according to Richard Chandler, the state's budget director. School districts' existing GO and refunding debt would be exempted from the cap, and any new GO debt would have to be approved by voters.

To offset the spending cap, schools would be given $142 million in state funds in fiscal 1994 and $97 million more in fiscal 1995. In addition, lawmakers approved arbitration and mediation reforms regarding teachers that would allow districts to avoid arbitration. The reforms expire on June 30,1996.

Senn Brown, director of legislative services for the Wisconsin Association of School Boards, said the impact of the caps will differ among districts.

Wisconsin municipalities that keep their annual spending increases below the inflation rate will be rewarded with more state aid under an Expenditure Restraint Program that is funded with $42 million in fiscal 1995, Chandler said.

"The people of Wisconsin have a budget that will actually begin to control property taxes in the state." the governor said in a statement.

Calling the plan a first step. Thompson said he intends to continue to control property taxes. The governor proposed a property tax rate freeze at December 1992 levels for all local governments as part of the two-year budget he unveiled in February.

Rating agency officials have expressed concern about Thompson's tax cut plan, saying it could reduce revenue flexibility and weaken the credit worthiness of some governments.

Paul Devine, a vice president and manager of the Great Lakes region at Moody's Investors Service, said the expiration of the arbitration and mediation reforms could cause teacher-related costs to "bottle up" for the school districts in 1996.

Ken Gear, an associate director at Standard & Poor's Corp., said the agency will have to review the new package before making a comment.

As for the overall budget, Chandler said the Legislature made few changes to Thompson's proposed spending plan. The Legislature passed a $7.4 billion general purpose revenue budget for fiscal 1994 and a $7.9 billion budget for fiscal 1995 that include no general tax increases, he said.

The yearend balance for fiscal 1995 is estimated at $77 million, including a statutorily required balance equal to 1% of the general revenue budget.

Gear said the new budget would probably not affect Wisconsin's credit quality because no new revenues were added and no expenditures have been eliminated in order to build up the state's reserves. Standard & Poor's officials have cited the lack of a larger cash reserve as an impediment to upgrading the state's AA GO rating.

Catherine Fleischmann, an assistant vice president in the state ratings group at Moody's, said the agency will review the budget after Thompson takes action on the budget plan. Moody's rates the state's GO debt Aa.

Chandler said Thompson will make less than 100 vetoes in the budget, compared with the 457 he made in the fiscal 1992-94 budget.

The budget includes $554 million in new GO bond authorization.

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