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Wisconsin Policy Forum
Local government debt in Wisconsin reached record levels in 2020, driven by low interest rates, infrastructure needs and little-known incentives in state law.
At the end of 2020, cities, counties and other local governments owed $11.04 billion, an increase of $566 million from the previous year and the highest on record — even after adjusting for inflation and population growth. Total local government debt in Wisconsin grew by 5.4% in 2020.
At the end of 2000, Wisconsin’s cities, villages, towns, and counties owed a combined $5.23 billion in general obligation debt, equivalent to $7.86 billion in 2020 dollars. By the end of 2020, total debt in raw dollars was more than doubled and grew by 40.5% after adjusting for inflation.
Most of that increase was due to an increase in the debt of 602 state cities and villages, while the counties borrowed less in the past decade. Although most of the debt is owed by cities, the fastest debt growth since 2015 has been in Wisconsin cities.
The Wisconsin Department of Revenue data used for this analysis includes only general obligation (GO) debt, or debt pledged by municipalities and counties to pay off property taxes and other local taxes.
Several forces have fueled local borrowing in recent years, including the need to replace aging infrastructure, update IT systems and, until recently, low interest rates. Limits on state property taxes can also lead to more borrowing.
State law limits the amount that local governments can raise property taxes annually for their businesses to the rate of new construction in the community. The law, however, also provides an exception equal to the amount needed for additional GO debt repayments, giving cities and other local governments an incentive to borrow for expenses they may have previously paid with cash.
One positive development is that the recent strong growth in property values has significantly increased the capacity of local governments to service their debts, given Wisconsin’s model of relying heavily on property taxes to fund local governments. However, the current rising interest rates could create new challenges by increasing the cost of new debt and slowing property value growth.
The debt growth trend is not entirely negative. Debt is an essential tool for local governments, and many may have benefited over the past few years by taking advantage of previously low interest rates to help address their infrastructure needs. Still, the Forum has warned for years that rising debt levels could start crowding out other costs for key local services, such as public safety. In some big cities like Milwaukee, that fear is already becoming a reality.
Policymakers may want to consider a number of options to slow the growth of local debt, from encouraging local governments to partner on capital projects and purchases such as a new road or fire trucks to giving local governments more flexibility in raising revenue.
This information is a service of the Wisconsin Policy Forum, the state’s leading resource for nonpartisan state and local research and civic education. Learn more at vispoliciforum.org.
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