You are the owner of this article.
'Nobody's got a map for this mess': Wisconsin counties brace for unknown hit to sales tax
topical alert
COVID-19 | IMPACT ON SALES TAX REVENUE

'Nobody's got a map for this mess': Wisconsin counties brace for unknown hit to sales tax

From the The COVID-19 pandemic hits home: Keep up with the latest local news on the coronavirus outbreak series
{{featured_button_text}}

With much of the state’s economy shut down as part of an effort to slow the spread of COVID-19, Wisconsin counties are bracing for millions of dollars in lost sales tax revenue.

“It’s going to have a devastating impact,” said Marc DeVries, finance director for Jefferson County, where sales taxes account for 21% of general purpose revenue. “There’s no doubt about it.”

Wisconsin’s 5% sales tax generates roughly $5.4 billion a year, accounting for roughly a third of the state’s revenues, according to the Legislative Fiscal Bureau.

All but four counties — Manitowoc, Racine, Waukesha and Winnebago — collect an optional 0.5% sales tax that was expected to bring in about $462 million.

On average, local sales tax accounts for about 9% of total county revenues, though some counties rely on it more than others, said Dale Knapp, director of research for the Wisconsin Counties Association.

And it makes up a much bigger slice of the discretionary funding that isn’t tied to state and federal programs counties administer.

“It’s our second-largest source of general purpose revenue,” said Charles Hicklin, chief financial officer for Dane County, which projected the sales tax would generate about $68.2 million in the current fiscal year, or roughly 24% of the total.

The state has other sources of revenue — primarily income and corporate taxes — that are also vulnerable to the pandemic response.

“It won’t just be sales tax that takes a hit,” said Jason Stein, research director for the Wisconsin Policy Forum. “It’s not as if the other parts of the state budget are sheltered.”

Jason Stein

Stein

Two scenarios

Knapp projected the impact counties could expect from two possible scenarios.

From a “short-term” interruption — which would last about three months, with economic activity gradually returning to normal in the second half of the year — counties might lose about $37 million in sales taxes, an 8% hit on average. That’s about 1 percentage point more than in 2009 during the last recession.

A protracted recession like one modeled in a 2006 Congressional Budget Office pandemic estimate, could cut revenues by $55.6 million, or about 12%.

But he stressed those are just ballpark guesses.

“This is really unprecedented,” Knapp said. “There’s so much we don’t know.”

Dale Knapp

Knapp

Thousands jobless

The state has seen an unprecedented surge in unemployment claims, more than 213,000 filed since March 15 when emergency orders began closing schools and businesses and telling people to stay home. And while an historic $2 trillion federal relief act is set to put cash into people’s pockets in the coming weeks, it’s not clear how that money will recirculate.

Much of the spending right now is on groceries, which are not subject to sales tax.

Some sectors — such as lodging and auto sales — will generate almost no revenue this month, and others, including restaurants, will be way down.

COVID-19 retail

Employees deliver goods to customers Wednesday in the parking lot of Best Buy in Madison. County governments are bracing for sales tax revenue to plummet, but the exact impact is hard to predict as some online and pick-up sales continue.

“Retail is hard,” Knapp said. “There’s not a lot, but there’s a lot more online (sales) going on ... The big boxes are still open. People are still going to Walmart.”

Because of delays between when vendors collect sales taxes and when they’re reported to the Department of Revenue, the full impact of the lockdown won’t be seen until the end of May.

Foggy outlook

How much revenues fall will also depend on the recovery, whenever that happens, said Wisconsin Policy Forum president Rob Henken.

Rob Henken

Henken

“It’s obviously going to be severe,” said Henken, a former director of administration for Milwaukee County. “There’s no guarantee it’s going to be in this calendar year. It’s not even clear what the magnitude of the bounce back will be.”

Hicklin believes the impact could be worse than the Wisconsin Counties Association projections, but he stressed that the outcome is really unknown.

“We’re watching it. We’re thinking about it. But we’re in such unknown territory,” he said. “Nobody’s got a map for this mess.”

Chuck Hicklin

Hicklin

Dane County

With a rainy day fund of about $43 million at the end of 2019, Hicklin said Dane County is better prepared to weather this crisis than the 2009 recession, which hit when there was just $3.2 million in reserves.

The county has imposed a hiring freeze, and Hicklin said so far the health crisis hasn’t substantially increased the county’s expenses.

Still, a long-term recession could strike a revenue blow that could not be made up through property taxes without a levy referendum.

“If this lasts a really long time and requires us to reduce the sales tax base, we’re going to have a pretty challenging budget for 2021.”

Other regions

Iowa County uses the previous year’s sales tax collections to supplement its property tax levy, but county officials are already starting the 2021 budgeting process with no idea what will happen to that revenue stream.

“Hopefully by mid-summer, we’ll have two or three months to see what those sales tax numbers are,” said finance director Roxanne Hamilton.

Lori Chipman, finance director for Juneau County, which is heavily dependent on tourism, said county officials are struggling just to stay on top of changing rules associated with the health crisis and the state and federal responses.

“Every day something new comes out,” she said. “What they tell you yesterday can be contradicted today. It’s almost impossible to keep up with everything that’s going through.”

Knapp said most counties will be able to get through this year with reserves as well as federal aid that could help with pandemic-related expenses.

But a prolonged recession will be challenging, especially for northern Wisconsin counties where tourism-based businesses may lose out on 80% of their annual revenue and not be able to recover.

As new construction stalls, Henken said cities, counties and school districts could face additional budget challenges in the years to come from stagnant or falling property tax levies — not to mention the specter of delinquent tax bills and foreclosures.

“There could be some really long term impacts,” Knapp said.