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Big Box Stores Gird for Battle with Wisconsin Cities

Posted on March 20, 2017 by

A battle pitting big-box retail giants including Menards and Wal-Mart against Wisconsin towns and cities is headed to the Legislature.

Republican-backed proposals, written in conjunction with the League of Wisconsin Municipalities, are designed to close the so-called dark store loophole and increase how much the mega-retailers pay local communities in property taxes.

The bills come in reaction to court rulings in Wisconsin and nearby Midwestern states — starting in Michigan — that have helped the retail giants lower the value placed on their stores for levying property taxes. The retailers have successfully challenged their tax assessments in communities across Wisconsin, and the Midwest, by arguing they are overtaxed and should pay the same rate as a store that is closed and vacant.

That results in a shift of the property tax burden to smaller retail stores and property owners, said Jerry Deschane, executive director of the League of Municipalities.

“We just think that's fundamentally unfair,” he said. “The bottom line with the property tax is it has to be uniform.”

The cities will have to overcome opposition from the powerful state chamber of commerce and deep-pocketed retail giants that stand to lose millions from a change in current practice.

Wisconsin Department of Revenue rules require that assessments be based on the fair market value of a property. The stores argue that the value of the underlying real estate should be determined by looking at comparable building sales, prices that usually fall far below the assessment of an operating store.

Assessing the building as if it were empty has long been the standard in Wisconsin for determining its value, said Don Millis, a Madison attorney who has represented Target and other retailers in assessment challenges. Millis is also lobbying for the Wisconsin Manufacturers and Commerce against changes to the law.

“You value the sticks, bricks and mud,” Millis said. Cities have been incorrectly assessing the property based on the potential lease value, he said.

“We don't think they're being undervalued,” he said. “We think assessors are being overly aggressive.”

But Republican state Sen. Duey Stroebel, who plans to introduce a bill next month addressing the issue, said the potential lease value of the property should be considered when valuing it for tax purposes. That is what the bill he and others are working on will do, he said.

Millis warned that changing the law “could have long-term unintended consequences” affecting how all property is valued.

Big box stores including Menards, Lowe's and ShopKo have filed more than 20 lawsuits against Wisconsin municipalities in the past year challenging their property assessments.

In one, Menards successfully argued last year that the value of its store in Fond du Lac assessed by the city at $9.2 million should be no more than $5.2 million. A similar lawsuit from Target argues that Fond du Lac should reduce its taxes on the retailer by about a third.

The dilemma for small cities is that the cost of defending lawsuits can equal or exceed the amount of property tax revenue at play, so they are more inclined to settle than fight it, said Deschane, who's with the League of Municipalities.

Lawmakers in nearby states have had mixed success in tackling the issue.

A proposal in Michigan that attempted to require the taxable value to be based on the highest and best use of a property failed to pass last year. But in Indiana, the Republican-controlled Legislature, along with then-Gov. Mike Pence, enacted legislation to block what opponents call a tax loophole. The Wisconsin bill is modeled after the Indiana law.

Total Netted from State’s Misclassification Fight Exceeds $1.1 million

Posted on March 16, 2017 by

State officials’ efforts to crack down on companies that misclassify direct employees as independent contractors has generated more than $1 million for the state’s unemployment-benefits system over the past few years.

The state began stepping up its enforcement of misclassification laws several years ago. Since then, those efforts have recovered nearly $1.13 million worth of in unpaid unemployment-insurance taxes, penalties and interest, according to a report on the state’s unemployment fund released by the Wisconsin Department of Workforce Development on Wednesday.

Worker misclassification is believed to be particularly rampant in the construction industry, where frequent seasonal layoffs can blur the line between a permanent employee and someone hired for a particular job. Industry officials say deliberate misclassification not only deprives the state of unemployment taxes and other resources; it also gives dishonest companies an advantage by enabling them to avoid the sort of costs that their more scrupulous rivals often end up rolling into bid prices.

The state reported Wednesday that auditors found 8,613 misclassified workers at Wisconsin companies last year. The same year saw tipsters use a state-run website to report 59 instances of suspected misclassification.

Those tips led to 44 separate investigations, according to the DWD. On average, every audit conducted by the DWD discovers 10 workers who have been misclassified and recovers $3,605 in unpaid unemployment taxes, according to the Wednesday’s report.

Last year saw state legislators pass a law increasing the penalties for companies that misclassify workers. Violators can now be forced to pay $500 for every employee who was misclassified, although no more than $7,500 for a single incident of misclassification.

Employers who end up having to pay those administrative penalties and nonetheless go on to misclassify workers again are then subject to criminal fines. They can be made to pay $1,000 for every employee who is found to be misclassified, not to exceed a total of $25,000.

Wisconsin's Push to Combat UI Fraud & Support Re-employment of Claimants Produces Results

Posted on March 15, 2017 by

Today, the Department of Workforce Development (DWD) presented the 2017 Unemployment Insurance (UI) Fraud Report to members of the Unemployment Insurance Advisory Council (UIAC), covering DWD’s efforts to combat fraud against the UI program in calendar year 2016 and support re-employment of UI claimants. The report shows that the rate of fraud being committed against the UI program dropped by more than a third, while Wisconsin ranked best in the Midwest and second nationally under a federal measure of UI claimant re-employment outcomes.

“Today’s report shows that our efforts to ensure that the UI program supports those who lose their employment through no fault of their own and move quickly to re-employment are working,” DWD Secretary Ray Allen said. “By instituting strong measures to prevent, detect and take action against attempts to defraud the UI system, we are supporting a strong UI Trust Fund, which helps employers who pay UI taxes and claimants who utilize the system properly. Additionally, Wisconsin ranks second nationally at re-employment outcomes for UI recipients, which is a testament to the strong work ethic of Wisconsinites, the continuing improvement of the labor market and our success in developing and connecting där skilled talent to new opportunity.”

Highlights of the 2017 UI Fraud Report include:

  • Total UI benefit payments in 2016 dropped 15.5 percent, while fraudulent payments dropped by 35.3 percent.
  • DWD’s efforts to rapidly reemploy individuals who must rely on UI benefits during a career change are helping to ensure Trust Fund solvency. According to the United States Department of Labor, Wisconsin ranked 2nd among states when measuring the rate of UI claimants who were reemployed in the quarter following a first UI payment.
  • DWD’s efforts to educate claimants and provide free, fast, secure and easy-to-use online services are paying off as non-fraud overpayments dropped by 25 percent in 2016.
  • Wisconsin’s efforts to enforce the state’s worker misclassification laws are helping to level the playing field for Wisconsin employers who participate in the UI program. Since its launch, the program has generated over $1.1 million in UI tax revenue from employers who were previously misclassifying their employees as independent contractors.

The report also highlights DWD’s efforts to modernize its online systems and provide UI claimants and employers convenient and easy-to-use online systems. Since the launch of DWD’s modernized online initial claims system in 2014, 93 percent of UI claimants who begin their initial claim online are able to complete the claim without contacting a claims specialist by phone and four out of every five UI claimants accessed DWD’s online portal at least once in 2016. DWD is moving to retire its 1990s-era automated phone system this year as online claim filing activities gain popularity.

Secretary Allen noted the decline in UI payments and growth of the Trust Fund are due in large part to the success of Wisconsin’s economy under Governor Scott Walker’s leadership. Key economic indicators include:

  • Initial UI claims ended 2016 at their lowest level since 1988. Continuing unemployment claims ended 2016 at their lowest level since 1973.
  • Wisconsin’s labor force participation rate outpaced the national rate and ranked among the best in the United States.
  • After adjusting for inflation, total private sector wages in 2015 grew 5.1%, the best growth since 2001, and average weekly wages in 2015 increased 3.6%, also the best growth since 2001.

Higher Interest Rates Could Explode Budget Deficits and Our National Debt

Posted on March 14, 2017 by

The Federal Reserve is expected to raise the target interest rate next week, continuing its long climb back to traditional levels. While the economic impact of rate hikes is intensely debated, less attention has been focused on the extraordinary impact they will have on federal spending and the national debt.

The short answer is that higher interest rates can cost taxpayers trillions of dollars.

The budget outlook is already perilous: After gradually declining since 2010, annual budget deficits are projected by the Congressional Budget Office (CBO) to soar past $1.4 trillion a decade from now, and then keep growing thereafter. And that is the rosy scenario; it assumes no recessions, wars, terrorist attacks, tax cuts, or federal spending expansions.

It also assumes only modest interest rate increases, which is important given that the national debt already sits at $20 trillion and is slated to increase by another $10 trillion over the next decade. CBO estimates that each one-point rise in interest rates adds $1.6 trillion to the ten-year budget deficit — $262 billion of which comes in the tenth year, as costs accelerate. Thus, a four-point interest-rate hike would cost taxpayers $6.4 trillion over the decade, and more than $1 trillion in the tenth year alone — far more than the cost of defense or Medicaid spending.

But now, CBO’s rosy assumption that rates will remain low seems mistaken.
First, the Federal Reserve is expected to continue phasing out its policy of keeping interest rates extraordinarily low, meaning rates should normalize over the next few years.
Second, interest rates have been constrained by the weak recovery that followed the Great Recession. If the economy eventually returns to its more typical 3.0 to 3.5 percent growth rate, demand for business, auto, and home loans should go up, thus raising interest rates.
Finally, and most importantly, the soaring national debt will eventually push interest rates significantly higher, because added demand raises prices. With the national debt in the process of rising $20 trillion over 20 years, all of Washington’s new borrowing represents a historic increase in the demand for savings, resulting in higher interest rates for the government (as well as for families and businesses).
The effect this has on the budget could be enormous. If interest rates merely return to 1990s levels, the resulting costs would raise the 2027 budget deficit from $1.4 trillion to $2.2 trillion. And if the large increase in government borrowing somehow brings back the 10.5 percent interest rates of the 1980s (unlikely, but not impossible), the annual budget deficit would approach a staggering $3.2 trillion a decade from now. At that point, interest on the debt would cost $2.5 trillion per year, or $17,000 per household — nearly as much as Social Security and Medicare spending combined.

This should give pause to any lawmakers seeking large tax cuts or spending increases. A $1.4 trillion deficit within a decade is risky enough, and deficits of $2 trillion or $3 trillion would be economically catastrophic. Perhaps the CBO is correct that interest rates will remain historically low, but it would be irresponsible to bet the economy on that assumption. Instead, responsible deficit reduction can ensure that future generations are spending their tax dollars on their priorities, rather than making cataclysmic interest payments on earlier expenditures they never voted for.

Op-Ed: Wisconsin Must be Doing Something Right

Posted on March 13, 2017 by

Here are five more often-overlooked features of Wisconsin’s economic upswing.

Wisconsin Works: Our state boasts the highest labor force participation rate in the Great Lakes Region and ninth highest in the country; up from the twelfth spot five years ago. As of January, 68.1% of the state’s population was in the labor force. That’s above the rate for January 2015 and equal to the rate in January 2014.

Wage Growth Comeback: Wisconsin’s total private wages grew 5.3% in 2015. While this is a solid number by itself, remember there was no inflation to artificially pump up the number. Wisconsin’s total and average private sector real wages and salaries increased by 5.0% and 3.5%, respectively; the strongest gains since 1998.

Wisconsin is Less Taxing: Wisconsin’s tax burden has been steadily declining. Our state and local tax burden is now the lowest in over 40 years. In 2000, Wisconsin ranked fourth among the states in state and local tax burden and was 14.5% above the national average. Even as recently as 2010, Wisconsin ranked ninth and was 7.9% above the U.S. average. Today, Wisconsin’s tax ranking has dropped to sixteenth, just a tad, 1.5%, over the U.S. average. Not only has Wisconsin fallen out the top 10 states in tax burden overall, it has also no longer among the top 10 states for income taxes, corporate taxes, sales taxes and property taxes.

The Kids Are All Right: Wisconsin’s millennials are better educated than their parents Lees meer bij and out-work their counterparts in the rest of the country. They are also more likely to be fully independent, either on their own or married.

More than 33.6% of Wisconsinites ages 25 to 34, have bachelor’s degrees or higher, very close to the national average. That is a big shift from their parents and grandparents, as just 27.4% of the state’s population as a whole has that education level.

Wisconsin millennials participate in the workforce at higher rates than their counterparts in the rest of the country. The percentage of Wisconsin residents aged 20-24 years in the labor force is 76.7%; ages 25-29 is 82.2%; and 30-34 is 83.5%. The national average percentages for those age groups are much lower, 64.7%, 75.2% and 76.4%, respectively.

So, it should not be a surprise Wisconsin millennials are more independent than their counterparts in the rest of the country. Nationally, 34% of 18-34 year olds still live with their parents. In Wisconsin, it is 27%.

We’ve Got You Covered: Wisconsin ranks sixth best among the states in health insurance coverage. More than 94% of the state’s residents are covered by health insurance, nationally that figure is 90.6%. Between 2013 and 2015, 195,000 more Wisconsin residents added health insurance. In Wisconsin the dominant form of coverage is employer sponsored health insurance. Wisconsin also ranks sixth in the nation for employer provided health insurance.

These five factors are not meant to be comprehensive. That would be difficult. There are other overlooked metrics that point to why Wisconsin’s economy is performing at its highest level in the past fifteen years or more.

As I said, Wisconsin must be doing something right.

John Koskinen is the chief economist for the Wisconsin Department of Revenue.

U.S. Job Growth Rises Briskly, Wages Continue to Climb

Posted on March 10, 2017 by

U.S. job growth increased more than expected in February and wages rose steadily, which could give the Federal Reserve the green light to raise interest rates next week despite slowing economic growth.

Nonfarm payrolls rose by 235,000 jobs last month as the construction sector recorded its largest gain in nearly 10 years due to unseasonably warm weather, the Labor Department said on Friday. The economy created 9,000 more jobs in December and January than previously reported.

Last month's brisk clip of hiring was accompanied by steady wage growth, with average hourly earnings rising 6 cents, or 0.2 percent.

January's wage growth was revised up to 0.2 percent from the previous 0.1 percent gain. That lifted the year-on-year increase in wages to 2.8 percent from 2.6 percent in January.

The unemployment rate fell one-tenth of a percentage point to 4.7 percent, even as more people entered the labor market, encouraged by the hiring spree. Economists polled by Reuters had forecast employment increasing by 190,000 jobs last month.

With the labor market near full employment, wage growth could speed up as companies are forced to raise compensation to retain employees and attract skilled workers. According to economists, wage growth of between 3 percent and 3.5 percent is needed to lift inflation to the Fed's 2 percent target. But inflation is already firming, in part as commodity prices rise.

All sectors of the economy, with the exception of retail and utilities, expanded payrolls in February. Manufacturing employment increased 28,000, the largest increase since August 2013, as rising oil prices fan demand for machinery. Construction payrolls surged 58,000, the biggest gain since March 2007, boosted by warmer weather. Retail sector employment fell 26,000 after a gain of 39,900 jobs in January.

 

Assembly Poised to Ban Project Labor Agreement Requirements

Posted on March 9, 2017 by

Assembly Republicans are poised to pass a bill that would limit union influence on bids for public projects.

The Assembly is set to vote on the measure Thursday. The bill prohibits state and local governments from requiring contractors bidding on their projects to enter into collective bargaining agreements called project labor agreements.

The bill's sponsor, Rep. Rob Hutton, says it gives non-union firms more opportunities to bid on public projects. Opponents say the bill is the latest Republican attack on unions. Both sides acknowledge few places in Wisconsin currently use project labor agreements.

The Senate passed the measure last month on party lines. If the Assembly passes it, it will go to Gov. Scott Walker for his signature.

More than 20 other states have passed similar legislation.

 

House GOP bill Repeals ObamaCare Taxes — With One Exception

Posted on March 8, 2017 by

The legislation that House Republicans have unveiled to repeal and replace ObamaCare would eliminate nearly all of the 2010 health law’s taxes — with one key exception.

The House bill, unveiled Monday evening, would allow ObamaCare’s “Cadillac” tax on high-cost health plans to take effect in 2025. The tax, which has been opposed by both Democrats and Republicans, had been slated to take effect in 2020 under current law.

By keeping that tax, albeit after a delay, Republicans are trying to ensure that their bill will not add to the deficit after 10 years. That’s a key consideration necessary to ensure the measure can pass the Senate with a simple majority, rather than with 60 votes.

“We dismantle Obamacare’s damaging taxes and mandates so states can deliver quality, affordable options based on what their patient populations need, and workers and families can have the freedom and flexibility to make their own health care choices,” House Ways and Means Committee Chairman Kevin Brady (R-Texas) said in a statement Monday.

The other ObamaCare taxes would be eliminated starting in 2018, including taxes on medical-device manufacturers, health insurers, pharmaceutical manufacturers, and indoor tanning services. The legislation would also repeal a 3.8-percent tax on net investment income and a 0.9 percent Medicare surtax that apply to high earners.

Two cornerstones of ObamaCare, the individual and employer mandates, would be repealed retroactively. The penalties for not having or providing insurance would be eliminated for 2016 and subsequent years.

The legislation would also repeal ObamaCare’s premium tax credits starting in 2020. The bill creates new refundable tax credits for those without employer-sponsored or government health insurance, which is adjusted by age and phases out for individuals making more than $75,000 per year.

The House Ways and Means Committee is scheduled to consider the tax portions of the ObamaCare repeal and replace bill on Wednesday.

Voters Approved $1.35 Billion in School Borrowing Last Year

Posted on March 7, 2017 by

In 2016, voters in 54 Wisconsin school districts approved $1.35 billion in borrowing for new construction projects. That amount was the highest in at least 25 years and about 30% greater than the inflation-adjusted $1.04 billion approved in 1996, according to a new report from the Wisconsin Taxpayers Alliance (WISTAX). WISTAX is a nonpartisan, nonprofit organization devoted to public policy research and citizen education.

Although reasons for school borrowing vary, growth is a factor: Over the past five years, in districts where student numbers rose, 55% held debt referenda. Over those same years, voters have approved almost $3 billion in new borrowing. However, that is less than the inflation-adjusted $4.7 billion approved during 1996-2000, the last period of major school construction. Debt referenda in 2016 were unusual in several other ways.

According to WISTAX research, the 83 proposed were the most since 2001 and 64 approved the most since 2000. The percentage passed (77.1%) was the highest since at least 1993. In February and April of this year, districts are asking to borrow another $707.9 million for building projects.

The surge in new borrowing comes at a time when referenda to exceed state-imposed revenue limits are passing at record rates. In 2016, 81.7% of these referenda were approved, nearly double the average during 1996-2010 (44%).

Districts seeking revenue limit exceptions are different from those seeking new borrowing in at least one key aspect: They are likely to be suffering declining enrollment. Of 171 districts with revenue limit referenda in the past five years, 130 (76%) had falling student numbers—the reverse of districts seeking new debt.

Macco wants comprehensive functioning tax structure

Posted on March 6, 2017 by

As chair of the Ways and Means Committee, Rep. John Macco has held five public hearings on taxation in Wisconsin.

In an interview with the Wheeler Report, Macco said the hearings were an opportunity for the committee to understand the tax structure in Wisconsin, allowing all the committee members to have a fundamental understanding of where the revenue comes from, who pays it, how it’s handled, and where it goes. Macco said he was glad the committee concluded by having the Towns, Villages, Municipalities, and Counties testify last because it brought everything together. Macco emphasized that he thought the committee hearings were a success, saying committee members had excellent questions, and it deepened everyone’s understanding of the issues.

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