How Wisconsin Republican Lawmakers Tweaked the State Aid Formula to Benefit GOP Communities

By Larry Sandler
For Wisconsin Watch

New analysis finds population tier formula Republicans crafted to deliver more local state aid has delivered a bigger boost to red parts of the state.

It was a big win for Wisconsin’s small towns.

Soon after the Legislature overhauled local government funding in 2023, reports surfaced of huge increases in state aid for tiny places. 

Shared revenue, the state’s primary local aid program, jumped thousands of percentage points for towns and villages with less than 100 residents, while percentage increases were far more modest for the largest cities.

On Wisconsin’s political map, the biggest cities are also the bluest, and those Democratic strongholds are frequently the targets of scorn from the Legislature’s Republican majority. By contrast, small towns are growing ever more red, particularly in rural areas.

An analysis for Wisconsin Watch finds a statistically significant correlation between how a community votes and how much its shared revenue increased under the legislation known as Act 12. 

On average, each percentage point of GOP vote share corresponds to a 2.1% increase in shared revenue, according to calculations by Phil Rocco, associate professor of political science at Marquette University.

To swing aid payments toward those small red towns, Republicans broke with the first century of shared revenue history and adopted a complex formula that divides Wisconsin communities into five tiers by their 2022 populations. Rocco found that formula resulted in average increases of 202% for communities of less than 5,000 people, but just 25% for cities with 50,000 to 110,000 residents and 35% for cities larger than 110,000.

Dale Knapp, research director for the Wisconsin Counties Association, drafted the formula using parameters set by lawmakers. Knapp said the initial goal was to give “a bigger bump” to communities that were getting less aid per capita under the old shared revenue formula, but as Republicans saw how specific communities would be affected by different versions of the new formula, they asked for more tweaks based on population size.

Only once before had the state used such an approach. In 2012, when the GOP controlled all of state government, Gov. Scott Walker’s budget also split communities into population tiers, slashing shared revenue more deeply for most big cities than for the smallest towns.    

In a state where Republicans notoriously gerrymandered legislative districts by tweaking the lines to lock in their majority, was shared revenue gerrymandered too?

Senate President Mary Felzkowski, R-Tomahawk, responded with a terse “no” when asked if she and her Act 12 co-author, Rep. Tony Kurtz, R-Wonewoc, had any partisan motive. They said they were correcting an imbalance that had shortchanged small communities.

“The new formula is trying to close these gaps between the communities who had done really well under the old formula and those who did poorly,” Kurtz testified at a committee hearing on the legislation. “The old shared revenue formula directed money at larger municipalities, so the new formula aims more funding at smaller municipalities to try to distribute aid a little better.”

But Democratic lawmakers have no doubt the formula was politically biased, said Sen. Kelda Roys, D-Madison.

“Clearly the way it was developed advantages Republican areas of the state and disadvantages larger urban areas like Milwaukee and Madison,” Roys said. “This Legislature has a history of punishing the biggest cities in the state.”

Democrats introduced several amendments that would have changed the formula to distribute shared revenue increases more evenly among communities of different sizes. All were defeated. That part of the debate received little public attention, overshadowed by clashes over other Act 12 provisions that granted new sales tax power to Milwaukee and Milwaukee County while sharply limiting how they and other local governments could spend taxpayer dollars. 

Yet the debate over state aid to local governments didn’t end with Act 12’s passage. Although the legislation was hailed as a historic turning point in public funding, many municipalities are still struggling with tight budgets more than a year later. Dozens appealed to voters to approve property tax increases over the past year.  

Instead of revisiting the shared revenue formula or the property tax levy limits that force communities to call those referendums, Democratic Gov. Tony Evers is recommending a different approach in his 2025-27 state budget: For any county or municipality that freezes or cuts property taxes, Evers proposes a new state aid payment equaling a 3% levy increase.

How we got here

All that is a long way from how shared revenue started in 1911. Right after adopting the nation’s first state income tax, the Legislature decided to distribute most of its proceeds to local governments, based on how much income tax their residents paid.

Starting in 1972, lawmakers switched to the first of a series of formulas that used factors such as population, equalized value and local property tax levies. The goal of those formulas was to ensure that all local governments could afford “minimum levels of public services, regardless of their ability to finance those services through their property tax base,” according to a Legislative Fiscal Bureau paper. Because the formulas directed more money to larger cities and to communities with lower property values, the Legislature added an extra boost for municipalities with populations under 5,000, starting in 1994. Similar formulas were used to cut shared revenue in 2004 and 2010, with payments frozen in between.

Back then, the size of a community’s population wasn’t strongly related to its partisan preferences, according to data compiled by John D. Johnson, research fellow at the Marquette Law School’s Lubar Center for Public Policy Research and Civic Education. Democrats like President Barack Obama, Gov. Jim Doyle and Sens. Herb Kohl and Russ Feingold regularly carried many smaller communities.

But in the “red wave” election of 2010, an overwhelming majority of communities with populations under 50,000 swung Republican to elect Walker as governor. That pattern has held for every gubernatorial election since then, and for most presidential and senatorial elections as well, Johnson’s data show.

Walker’s first budget, for the 2011-13 biennium, again cut shared revenue, but used population tiers that favored the smaller places that had fueled his victory. At the time, he linked the move to his controversial Act 10, which all but eliminated the power of most public employee unions to bargain for wages and benefits. Walker and his aides argued that Act 10 gave larger cities the “tools” to absorb the cuts through such tactics as shifting more health care costs to employees, while smaller communities with fewer workers couldn’t save as much that way.

However, the formula for the 2012 cut still retained some of the old formula’s factors. That allowed Milwaukee to escape with only a 4% trim to its shared revenue. By contrast, Madison’s shared revenue was chopped 25%, and reductions averaged 10% for the next 10 largest cities.

After that, shared revenue was frozen at 2012 levels. Without adjustments for changes in population and property values since 2003, disparities grew, while inflation ate away at the buying power of the stagnant allocations, said Knapp and Jerry Deschane, executive director of the League of Wisconsin Municipalities.

Walker’s 2011-13 budget also tightened the state’s limits on property taxes, blocking local governing bodies from approving tax hikes in most communities without new construction. That forced local officials to seek voter approval for any increases beyond the state limits.

Caught between limited taxing authority, frozen shared revenue and rising costs, Milwaukee and Milwaukee County found themselves careening toward a “fiscal cliff” that would force deep cuts in services. At the same time, Felzkowski said, town officials in her district were warning her that they and their counterparts across Wisconsin were having trouble paying for emergency medical service for rural residents.

Milwaukee Mayor Cavalier Johnson and Milwaukee County Executive David Crowley forged a coalition with other local governments to seek changes to the funding system. Evers responded by proposing a $576 million increase to the $753 million shared revenue program in his 2023-25 budget. Republicans shot down that plan, but started work on the legislation that became Act 12.

In discussions with local government leaders, GOP lawmakers made it clear they didn’t want to change the existing shared revenue formula, Deschane and Knapp said. Felzkowski said other Republican legislators with experience in local government told her the existing formula was “broken,” and they didn’t want to create the kind of “tweaked mess” that resulted from years of incremental changes to the state’s school aid formula.

Instead, Act 12 created a new formula to distribute increases, called “supplemental aid,” in addition to the shared revenue base payments that had been frozen since 2012. 

A thumb on the scale?

To analyze the legislation, Rocco developed a database of how much revenue each community would receive, compared with the Evers plan. Separately, Marquette’s Johnson had compiled a database of how every community in Wisconsin has voted in major statewide elections since 2000.

Wisconsin Watch asked the two scholars to merge their databases to determine whether Act 12 was politically neutral in distributing shared revenue increases of $206.9 million to municipalities and $68 million to counties.

Using Johnson’s data for gubernatorial races from 2010 through 2022, Rocco found a consistent and statistically significant bias toward Republican-voting communities in the percentage increases authorized by Act 12. The formula for counties — which didn’t include population tiers — showed no such bias, he said.

The largest proportional boost in municipal shared revenue was 5,748% for Rusk County’s town of Cedar Rapids, which at 36 residents is Wisconsin’s smallest community. The state’s second-smallest community, the town of Popple River in Forest County, scored a 5,070% increase for its 43 inhabitants.

By contrast, the smallest percentage increase, 10%, went to Milwaukee, although the legislation also authorized Wisconsin’s largest city to levy a new 2% sales tax. Shared revenue rose 56% for Madison, with no new sales tax power. Those two cities are the state’s biggest sources of Democratic votes.

Shared revenue increased around 20% for 10 predominantly blue cities with 2022 populations between 50,000 and 110,000, but a 67% boost went to Waukesha, the only red city of that size. Sen. Mark Spreitzer, D-Beloit, said he didn’t think the formula was engineered to favor Waukesha, although he expressed frustration that similarly sized cities like Janesville didn’t get more.

Drafting notes show the original version of the legislation would have given even lower increases to most cities between 50,000 and 110,000, before negotiations with the governor’s office and others. However, the increases of 22% for Janesville and 67% for Waukesha remained the same in the original and final versions.

Spreitzer said Assembly Republicans, led by Speaker Robin Vos, R-Rochester, “drew that line” between cities above and below 50,000 in population, directing the smallest increases to the bluest cities. A Vos spokesperson did not respond to emails requesting an interview.

Deschane, Knapp, Felzkowski and Spreitzer said percentage increases could be misleading because many smaller towns and villages were receiving such tiny sums to begin with that a gigantic percentage increase still would result in relatively modest dollar amounts. They said per capita figures and total allocations could be more telling.

However, Rocco’s findings for pro-Republican bias in Act 12 are almost identical when looking at the shared revenue increase per capita instead of the percentage increase. 

A separate analysis by the nonpartisan Wisconsin Policy Forum highlighted striking variations in per capita allocations among communities of different sizes, based on 2023 populations.

Before Act 12, per capita payments averaged $87 both for communities with less than 1,000 residents and for those with more than 20,000, except for Milwaukee, the Policy Forum found. But with the Act 12 increases, the smallest communities shot up to an average of $157, compared with $114 for the largest, again excluding Milwaukee, the Policy Forum calculated.

While Milwaukee’s per capita payment was $416, Madison’s $28 was the state’s third-lowest, compared with $34 for Waukesha, $76 for Janesville and more than $100 for each of Wisconsin’s seven other largest cities, the Policy Forum said. By contrast, the state’s smallest incorporated municipality, the village of Big Falls in Waupaca County, ended up with the largest total per capita aid: $1,040 for each of its 58 residents.

Rocco’s analysis cites research by other scholars who found that federal aid formulas “offer lawmakers a means of concealing bias” by using “ostensibly neutral” factors to “move aid toward communities they represent,” benefiting similar communities as well.

While Felzkowski denied trying to help red areas, she said her goal was to send more money to rural areas that can’t generate much property tax revenue, yet still must provide services to more remote locations than cities do.

“I’m a rural legislator,” Felzkowski said. “My largest community at the time was 9,000 people, and I represented my district.”

Overall, Act 12 boosted total shared revenue dollars for communities under 5,000 by 64%, compared with a 14% increase for cities of more than 50,000. Shared revenue payments to Wisconsin’s 13 largest cities dropped from 53% of the municipal total to 45%, while the slice for communities under 5,000 rose from 21% to 27%. One-third of the state’s population lives in those small communities, compared with 28% in the largest cities.

Rocco also found evidence of bias toward Democratic-voting cities in the per capita increases in shared revenue that Evers proposed in his 2023-25 budget. Unlike Act 12, the same bias wasn’t consistently statistically significant in percentage increases.

The Evers plan didn’t use population tiers. Instead, it revised the original shared revenue formula, with its per capita and equalized valuation factors, and added a boost based on local public safety spending. That would have benefited larger cities with bigger police and fire departments — the same kinds of cities that typically vote Democratic. 

“The partisan affiliation of Wisconsinites impacted or benefited is not a factor the governor or our office consider in making policy decisions,” Evers’ spokesperson said in an email. “The governor proposed more funds be distributed to local communities and consistently pushed for a fairer distribution to mid-major communities while continuing to invest in all towns, cities, and counties across the state.”

Unfinished business

Cities large and small applauded the financial lift they received from Act 12. Milwaukee pulled back from its fiscal cliff, keeping its services and workforce intact. Monona was able to cover inflationary cost increases and hand out 3% raises to its employees, said the Madison suburb’s former Mayor Mary O’Connor.

But it didn’t take long before those cities and others were again facing tough choices. Milwaukee officials said the city had to raise property taxes, fees, fines and borrowing for 2025 to avoid service cuts and layoffs while meeting the public safety spending requirements of Act 12. Monona found itself short of what it needed to keep up with inflation and to pay employees enough to keep other cities from luring them away, O’Connor said. 

And even though the Act 12 increases were earmarked for public safety and transportation, multiple communities still needed more to pay for emergency medical, fire and police services. Yet their leaders lacked authority to raise property taxes enough to cover those costs.

“Wisconsin has the strictest property tax limits in the country, and that is an ongoing challenge,” Deschane said.

Because property tax increases are tied to new construction, Monona officials estimate the city would need to attract a $20 million project every year to justify levy hikes sufficient to keep up with its costs, O’Connor said. That’s not realistic for a community with less than 9,000 residents and no vacant land, she added. The city along Lake Monona is hemmed in on all sides by Madison.

Monona, Madison and 40 other municipalities decided to ask permission for higher tax increases. Wisconsin voters last year approved 21 municipal tax referendums, including those in Madison and Monona, and rejected 15. That includes two communities that went to a second referendum after losing on their first try. Another nine such questions were on the April ballot, including a second bid for one community that lost on its first attempt in 2024. Voters approved four and rejected five.

“Were it not for (Act 12), the number of municipal and county referenda in 2024 might have been even greater — and it is notable that even with Act 12, these referenda still reached near-record levels,” the Policy Forum observed.

Act 12 provides for shared revenue to grow as state sales tax collections grow, Deschane noted. Evers is seeking some additional sweeteners in his 2025-27 budget, including a 90% increase in a fund that compensates local governments for providing municipal services to tax-exempt state buildings.

But the governor didn’t propose changing the Act 12 formula to address the inequities that larger cities cited. And the Legislature rejected his 2023-25 budget recommendation to ease the levy limits as many local officials are pleading. Instead, his latest budget calls for $339.8 million over two years in new incentive payments for frozen or reduced levies. Still, many local referendums are seeking larger increases than the 3% boosts that communities could receive from that incentive program.

Evers’ office called Act 12 “a bipartisan compromise” that “delivered a generational increase for shared revenue,” but acknowledged “more is needed to continue to support the sustainability and strength of our communities across the state.” The budget plan represents an attempt to address local concerns about levy limits “while holding the line on property taxes,” the statement said.

Felzkowski and Deschane said they don’t know if the Legislature would support revisiting these issues in the next budget. Both see Act 12 as a major accomplishment, but they agree local government finance reform will continue to be an issue in the future.

“It’s not done,” Felzkowski said. “It’s never going to be done.”