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In February, reality hits you a little hard right in the kisser. The holidays are long over (except the bills), the snow that took a long time coming feels like it will never leave, and daylight is still in short supply. While you are calculating if you can afford a vacation, Uncle Sam and the state want you calculating your tax bill.
In these grumbling days, when the value of public schools, public works and public lands seem as slim as your wallet, perhaps a little positive news about taxes would cheer you up. A new Wisconsin Department of Revenue report examines what happens to community tax burdens as lands are purchased and become public.
Many people believe property taxes rise when lands in their communities are bought for public use. Though people appreciate the aesthetic and recreational benefits of public spaces, they believe taking these lands off the tax roll shifts the tax burden to property owners in the area. In fact, many programs combine to minimize the tax consequences of setting aside places for common enjoyment. To appreciate these programs, we have to delve a bit into Wisconsin's property tax system.
Several types of government in Wisconsin have the authority to levy property taxes. The state, counties and municipalities (cities, towns, and villages) can do so, as can technical college districts, school districts and special districts to manage sewage, provide drinking water, protect lakes or rehabilitate communities. In rural areas, the major taxing authorities are school districts, counties and towns.
Except for the state tax, each of these authorities can set its tax levy, which is usually adjusted annually. Most jurisdictions calculate this levy by determining how much money is needed to provide services for the coming year; subtracting expected revenue the community will receive from federal and state grants; and subtracting other fees, fines, interest and income. The difference between expenditures and revenue is the amount of money that needs to be raised locally through taxes.
To calculate the tax rate, the net cost of all public services is divided by the full market value of taxable property in an area to determine a tax rate in thousandths per each dollar of value (the so-called mill rate, from the Latin word for thousand).
Within a community the tax burden is distributed among property owners according to the assessed value of the property.
Federal, state and county governments use the market value of land in an area to determine tax levies for schools, colleges and taxes. The community tax assessor uses the assessed value to divide these costs among property owners in a community.
To understand the effect of public land on property taxes, we need to delve just a bit deeper.
School districts: Most state school aids are paid through a formula that guarantees each school district a certain amount per student to finance district schools. When public lands are taken off the tax base, the school aids formula compensates for any increase in the gap between taxable land values in a school district and a guaranteed minimum value per student. As a result, if the amount of public land in a school district increases, the state aid to the district will usually increase to offset most if not all of the loss in the local tax base. The school district's tax rate for local taxpayers will change at most by a very small amount as a consequence of public land purchases.
County taxes: Counties have a wide variety of revenue sources including user fees for some services, sales taxes, state reimbursements for some programs, are "shared revenue." One portion of the shared revenue takes a similar approach to the school aids by guaranteeing each county a certain tax base. If the amount of public land in a county increases, shared revenue may increase to compensate for the loss of taxable property. Practically speaking, since most counties cover several hundred square miles and have large tax bases, even large public land purchases lead to imperceptible changes in the county tax rate. Counties also receive special payments for public land purchases, as we will discuss.
Municipalities: As land in cities, towns and villages is made public property, the same market forces prevail, and public green space increases the value of nearby property. Obviously, towns with large tax bases can better absorb the "loss" in taxable property with the smallest tax changes, but shared revenues and special payments certainly offset most of the tax revenues lost.
Special districts: Taxing districts like sanitary districts, and lake protection districts typically serve the more densely-populated and developed parts of a community. Since the majority of public land purchases occur in the unpopulated, undeveloped areas of town, the taxes on special districts usually are not affected by public land purchases.
To provide further incentive to buy public lands and soften the tax burden on people living near public properties, state laws provide a variety of community payments in lieu of taxes when public lands are bought. County forests, private property enrolled in several forestry programs, DNR properties and federal lands all partially reimburse communities where public lands are bought.
County forests constitute the largest of public properties in Wisconsin, covering 2.3 million acres in 28 counties and more than 250 communities. Incentives to form county forests were born in 1928 when large tracts of northern Wisconsin had been cutover, farming failed, and counties were obligated to take title to abandoned lands. A succession of conservation laws encouraged county governments to reforest the land for timber, recreational use and wildlife habitat.
To bolster county forests, state law provides lots of incentives. Annually, the Department of Natural Resources pays municipalities 30 cents per acre for county forest lands maintained within their boundaries. Second, county boards can annually request interest-free loans from DNR for up to 50 cents per acre of county forest land to buy, preserve or maintain these forested acres. Third, when the county harvests timber from these lands, 20 percent of the proceeds are given to DNR to repay forestry loans; 10 percent goes to the local municipality and 70 percent is retained by the county.
The Forest Crop Law of 1927 (FCL) was the first of three major state laws to encourage private landowners to reforest their acres and maintain tree cover to prevent soil erosion, provide timber and keep lands productive. Until 1998, FCL was the largest tax program ever provided to Wisconsin's private property owners. More than 1.26 million acres in 67 counties are still enrolled.
Under the FCL, lands that were planted to trees are taxed at a very low annual rate and the timber is only taxed when it is cut. The program was designed to reduce tax delinquency, keep rural owners from going belly-up, slow the number of farms that were abandoned in the desperate days of the 1920s, and provide a stable supply of forest products for Wisconsin's growing forest products businesses. Those who owned at least a quarter of a quarter section (40 acres) could petition the Conservation Department to enroll in the program. If the land could grow marketable timber within a reasonable time, landowners would sign a contract agreeing to grow trees for either 25 or 50 years. Owners agreed to follow sound forestry practices, notify the Conservation Department of harvests and open their land for public hunting and fishing.
While FCL land is exempt from general taxes, the owners continue to pay the municipality either 10, 20 or 83 cents per acre annually, depending on when the property was enrolled in the program. DNR supplements this with a 20-cent per acre annual payment and a severance tax of 10 percent of the value of harvested timber. Landowners withdrawing from the program pay penalty taxes. The FCL program ended in 1986, but so many people enrolled for 50-year contracts that the program will continue until the year 2035.
The Woodland Tax Law, enacted in 1954, extended similar benefits to people owning smaller parcels of at least 10 acres. These landowners signed 15-year contracts with the Conservation Department to follow a forestry management plan and raise timber. These small parcels don't have to provide public hunting or fishing. Landowners also make a small annual payment of $1.67 per acre to the local municipality.
Since January of 1986, both the Forest Crop Law and Woodland Tax Law were replaced with the Managed Forest Land law (MFL), now the largest tax law benefiting private forestland owners. Over a million acres of Wisconsin in 71 of our 72 counties participate in this program. Any owner of 10 contiguous acres of forestland can apply for the program. Lands must be enrolled for 25 or 50 years and must follow a forest management plan. At least 80 percent of the enrolled property must be of good quality that can grow at least 20 cubic feet of marketable timber each year. Most land in the MFL is available for public hunting, fishing, hiking and other uses. If the landowner doesn't want to offer public access to the acres, the owner's tax payments are a bit higher on those acres; normal fees are now 74 cents an acre, but the landowner pays an additional dollar per acre for lands closed to the public.
Like the previous programs, when timber is harvested on these lands, the state receives a five-percent yield tax, which helps to fund the program. Portions also go to municipalities and counties to offset lost tax revenue.
Local government is also compensated when the state purchases parks, hunting grounds, fish hatcheries, game farms, natural areas and other land for recreation. For lands bought before July 1969, DNR pays 88 cents per acre. On lands bought between 1969 and 1991, DNR pays the full property tax the first year, then taxes are reduced by 10 percent each year for 10 years.
Thereafter, the state compensates locals at 10 percent of the first year's payment or at least 30 cents per acre. For lands purchased since 1992, the DNR compensates for the full amount of property taxes that would have been paid had the property been privately owned.
Each year the amount paid is adjusted to keep current with changes in local land value and local property tax rates.
The federal government also makes special annual payments to states and communities for lands owned in a region. In 1997, the most recent year for which figures are compiled, the federal government paid Wisconsin in lieu of tax payments on 1.3 million acres. These funds are distributed to communities from the federal Bureau of Land Management through the Wisconsin Department of Natural Resources to cover payments for National Park Service lands in six Wisconsin counties; the Chequamegon and Nicolet national forests; Army Corps of Engineers lands along the Mississippi River in 17 counties; and Fish and Wildlife Service properties including the federal portion of Horicon Marsh, the National Wildlife Health Laboratory in Madison and the National Fish Health Center in La Crosse. In addition, 25 percent of the gross proceeds from timber, mineral rights, grazing, and recreational fees on the national forests are returned to the counties where properties are located.
A little-known federal program in the Department of Education also compensates communities who educate the children of federal employees stationed in their districts. Twenty-four Wisconsin school districts receive such aids.
Aside from these tax compensations, public lands are a tremendous asset to communities. Public protection preserves many of our finest parcels for parks, fishing, hunting, hiking and natural beauty. Certainly the people who live near these natural gems are more likely to visit the properties on a regular basis and enjoy them as a local playground.
Public protection preserves regional green space and provides a permanent buffer from further development. Adjoining property owners know their parcels will only increase in value because they abut land that will remain open. A peaceful quality of life will be perpetuated in many of these areas.
Public lands are also economic magnets. People visiting parks and natural attractions purchase fuel, food, lodging and other services locally as they enjoy a day, weekend or a longer vacation in the surrounding community.
So the next time someone grumbles about "tax loss" from public lands, tell them to find something else to grouse about. When is spring coming anyway?
David L. Sperling edits Wisconsin Natural Resources magazine; Daniel Huegel is an economist with the Wisconsin Department of Revenue.
A complete copy of the report "Public Land and Property Taxes" will be available after March 1, 1999. Write: