May/June 2021 Issue
Also in this issue: Legal Nonconforming Use Survives if Use Continues in Any Way, Even if Owner Promised to End the Use | Public Service Commission Launches Road Map to Zero Carbon Investigation | Boardman Clark Welcomes Storm LarsonFocus Area: Coronavirus/COVID-19
COVID Local Fiscal Recovery Funds May Impact Levy Limits
Anita T. Gallucci | 05.24.21
On May 5, 2021, the Wisconsin Department of Revenue (DOR) issued guidance on how local governments’ receipt and expenditure of federal American Rescue Plan Act — Local Fiscal Recover Funds (LFRF) may impact state-imposed levy limits, shared revenue and the expenditure restraint program (ERP), and tax incremental financing (see Guidance at https://www.revenue.wi.gov/Pages/SLF/COTVC-News/2021 – 05-05.aspx).
Communities should receive their LFRF allocations in 2020 and 2021 and may spend those funds until December 31, 2024.
Impact on Shared Revenue and ERP. The LFRF has no direct impact on most shared revenue programs, but may impact the ERP. Under ERP, local governments are eligible to receive aid from the State provided that they meet certain criteria — i.e., their multi-purpose tax rate exceeds five mills and general fund budget from one year to the next increases by no more than inflation plus a growth factor. A large expenditure of LFRF funds could, however, cause a municipality to fail to qualify for the program. To avoid disqualification from ERP, DOR recommends that local governments use their LFRF funds for specific identified projects. If the funds are not deposited into and paid out of the local government’s general fund, but set up in a restricted special fund, the local government may avoid a negative impact on ERP aid.
Impact on Levy Limits. Avoiding a possible negative impact on levy limits may be trickier. Local governments may only increase their property tax levy based on the prior year’s levy, adjusted under a formula for new construction. In addition, identified services funded through property taxes cannot be replaced by fees. Using LFRF to fund operations normally covered by the property tax levy could result in reducing the levy limit in a year. If so, that lower levy limit will restrict the local government’s levy in the following year. Conversely, if LFRF are used to fund programs above and beyond the general tax levy, those programs may not be able to continue because of the levy restrictions in the following year. To avoid such a negative impact, the local government may wish to spread out the expenditure of its allocated LFRF over the four-year period during which such funds may be expended.
Impact on TID Projects. As DOR notes, use of LFRF should not impact the value of a tax incremental district (TID). However, if LFRF are used to reduce the tax levy, it may reduce the increment generated in a TID. LFRF may be used for TID project costs if such use is set out in the TID’s project plan and if federal law allows LFRF to be used for such a project.
Local governments may wish to review the Interim Final Rule at https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf of the U.S. Treasury Department (150 pages) giving guidance on the federal limits on the use of LFRF or the 8‑page Fact Sheet at https://home.treasury.gov/system/files/136/SLFRP-Fact-Sheet-FINAL1-508A.pdf summarizing the Rule, which was issued on May 10, 2021.
See our previous article, Local Governments Need to Plan for Covid Relief Funds Under the American Rescue Plan Act in our March/April issue at https://www.boardmanclark.com/assets/newsletters/marapr_2021.pdf.
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situations, and does not purport to be a complete treatment of
the legal issues surrounding any topic. Because your situation
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not rely solely on this information in making legal decisions.