More Wisconsin municipalities are responding to mounting budget constraints by imposing a transportation fee on property owners based on their parcel’s estimated use of local roads and infrastructure. In Wisconsin, these fees face court challenges, with the outcomes almost certain to influence whether more communities follow suit.
Wisconsin’s cities, villages, and towns have faced increasingly difficult fiscal decisions in recent years as their two primary revenue sources, local property taxes and state aid, have been subject to tight constraints. In recent months, rising inflation has added another major budgetary pressure.
These factors have caused some municipalities to revisit the short list of new revenue options that may be allowed by state law. One example already in use by municipalities in other states – and which more communities here are adopting or considering – are usage-based fees. In Wisconsin, one emerging example of these are transportation utility fees (TUFs).
For this report, the Forum assembled a list of Wisconsin communities that have adopted, or publicly stated they are considering adopting, such fees. This is not a complete list since no statewide source tracks the fee. But it should include many of the communities looking to this revenue option – which remains relatively new to Wisconsin – and show how they have approached it.
The city of Wisconsin Rapids, the villages of Pewaukee and Weston, and the towns of Buchanan and Gibraltar are among the Wisconsin communities that have adopted a transportation utility fee, while the city of Watertown has adopted a transportation user fee, and the city of Neenah, a transportation assessment replacement fee. Five of these have been adopted since 2018. Not all of these municipalities may have begun actually collecting these fees. For instance, Watertown officials say they have not yet and have no current plans to begin doing so.
In addition, municipal leaders have publicly stated they are considering adopting a TUF in the village of Greendale, the cities of Appleton, Hudson, Oshkosh, Tomahawk, and Wauwatosa. Some of these municipalities, including Appleton and Tomahawk, recently decided to postpone a decision on whether to adopt them, pending the outcome of ongoing litigation challenging the fees’ legality.
Few options for local revenues
Though the state has increased road aids to local governments in recent years, it has tightly limited both local property tax increases and shared revenue payments, the main form of state aid to municipalities and counties. Increasingly, local leaders have turned to borrowing as well as other options. For example, as the Forum has chronicled in other reports, local vehicle registration fees – also known as wheel taxes – have seen their usage mushroom throughout the state in recent years.
Many communities considering a transportation utility fee also are looking at a potential wheel tax. In fact, some abandoned their consideration of utility fees after adopting a wheel tax – which offers municipalities the benefit of avoiding potential litigation. As a flat fee on all vehicles regardless of cost, Wisconsin’s wheel taxes are simple to administer but tend to fall disproportionately on lower-income motorists. Transportation utility fees, as we will explain below, are more complex to implement but may also fall less heavily on those least able to pay them.
Local leaders contend they do have the authority to collect transportation usage fees under the state’s laws and Constitution. Some groups disagree, and have challenged the legality of these fees in a pair of lawsuits currently working their way through the state court system. An Outagamie Circuit Court judge recently upheld one such challenge, striking down the Buchanan fee; that decision is expected to be appealed. A judge has yet to rule in the other case, a challenge to the village of Pewaukee fee.
Whatever the legal outcome in both cases, there’s little doubt they will influence whether more municipalities in Wisconsin look to transportation utility fees as a viable revenue option.
Treating roads like a utility
As their name suggests, transportation utility fees are based on the premise that public infrastructure such as roads should be treated as a public utility, such as water or electricity. Under this model, users are charged for transportation infrastructure based on a metric that estimates their usage.
While the concept remains relatively novel in Wisconsin, according to the Federal Highway Administration (FHWA), “the first transportation utility fees in the United States were implemented in Oregon in the 1980s.” Since then, according to FHWA, they have been used in cities in Washington, Idaho, Utah, Colorado, Texas, Missouri, and Florida. However, FHWA also notes that “in several instances, legal challenges have led to the removal of transportation utility fees.”
The approach currently used by Wisconsin municipalities such as Buchanan and Pewaukee is to charge transportation utility fees based on proxies for usage. Buchanan’s fee has two elements: a base fee that varies according to the property’s land use type, and a trip-generation fee, which employs a formula to estimate the number of vehicle trips per property within the town. Revenues are only used for transportation-related purposes.
Pewaukee charges a flat base fee to all properties with an additional usage fee “based upon property use and size of the buildings on the property.” All revenues from the fee are kept in a separate transportation utility fund and are used for transportation infrastructure construction, maintenance, and administration.
Gibraltar’s fee is based on similar model of a base fee plus a usage fee. Of special note in the town — which is home to many tourist destinations, including Peninsula State Park – is that its ordinance enacting the fee specifies it applies to all developed properties in the town, including those that are publicly owned.
An alternate approach can be found in Neenah’s transportation assessment replacement fee. This fee is charged to a property based on a metric of how much impervious surface area it includes – which also is the basis for the city’s storm water utility fee. A city document explains: “impervious area can be viewed as an indication of the level of development on a property and more broadly viewed as an indicator of the impact of a property on the transportation system.”
The use of these fee revenues is limited to eliminating special assessments for projects such as street resurfacing or reconstruction, or sidewalk construction.
Methods, collections differ
Methods for billing and collecting these fees differ. Buchanan has billed the fee annually as part of its property tax bill, while Neenah and Pewaukee have billed the fee on a quarterly basis on residents’ utility fee statements.
A key question about any proposal is how a municipality would estimate transportation infrastructure usage by all its property owners, given that – unlike for other utilities such as water or electricity – measuring it directly would generally not be feasible. A 2007 report from the UW-Madison La Follette School of Public Affairs, prepared for the city of Milwaukee, notes that available proxies for transportation infrastructure usage include lot area, building area, number of bedrooms for residential properties, or trip-generation rates – the latter meaning that the fee is calculated based on the estimated number of vehicle trips entering or exiting that property.
These proxies for vehicle trips are at best imperfect and may vary in their accuracy, but at the same time would likely be easier and less costly for communities to administer than more direct methods of estimating trips. An open question is what approach would provide the best combination of accuracy, fairness, and efficient administration.
Looking outside Wisconsin, one example cited by FHWA is Oregon City in the state of Oregon, which adopted a “pavement maintenance utility fee” in 2008 and phased it in over five years. It is collected on a monthly basis as part of the city’s utility bill. Single- and multi-family residential properties are charged a flat amount, while non-residential properties are charged varying amounts based on the size and type of property.
Court battles continue
Unsurprisingly, the imposition of these new fees, which are not explicitly authorized under state law, has raised legal questions. Individual communities and statewide organizations such as the League of Wisconsin Municipalities contend that collecting this fee is within the broad powers that the state Constitution and statutes afford to municipalities. They argue this is particularly true for cities and villages, which have broad “home rule” authority under state law to manage their finances and highways, including through taxes and fees. Their powers, the Constitution says, “shall be limited only by express language” in state law.
A League memo notes that years ago, Wisconsin cities and villages created water, sewer, and stormwater utilities, financed by user fees, before state statutes expressly authorized them. It was only later that state legislators enacted laws explicitly doing so.
At least two groups are advancing court challenges to these fees. Wisconsin Manufacturers and Commerce is challenging the Pewaukee fee, and Wisconsin Property Taxpayers, Inc., which is being legally represented by the Wisconsin Institute for Law and Liberty, has found initial success in its challenge to the Buchanan fee.
Both groups contend these “fees” are really an illegal tax, and imposing them violates the property tax levy limits under state law and what is known as the uniformity clause of the Wisconsin Constitution. The latter is a requirement that all types of property be taxed uniformly, which courts have interpreted to prevent different types of property from being taxed at different rates except where authorized by the state Constitution. The opponents also contend that even if Buchanan’s transportation utility fee is properly characterized as a fee, nothing in state law explicitly authorizes such fees.
The court battle over transportation utility fees, and any other potential usage-based transportation fees that municipalities could collect, carries considerable stakes for the future of local streets and roads and how their maintenance and construction are financed. Appellate court rulings invalidating these fees are likely to chill future discussions of more municipalities adopting them. Conversely, a judicial green light would likely trigger more communities to consider them.
Meanwhile, the underlying fiscal forces causing some municipalities to consider this avenue may continue, particularly as local governments exhaust their federal pandemic aid over the next year and a half. Local property tax levies are likely to remain tightly constrained for the foreseeable future, and state policymakers have shown no inclination to provide major increases in municipalities’ overall state aid.
One bright spot is the state’s General Transportation Aids program, which has seen funding increase significantly more in recent years than has funding for shared revenue (see our December 2021 report for more details). Local governments also may benefit from the recent major infrastructure legislation passed at the federal level. Yet for now, with inflation at its highest level in decades and the cost of labor and materials for infrastructure projects skyrocketing, there is a real threat that those positive developments will be offset and leave many local governments with insufficient financial capacity to address their infrastructure needs.
These trends may increase the pressure for municipalities to consider revenue options such as transportation utility or vehicle registration fees. If policymakers are uncomfortable with those options – or with the notion of increased state aids to support growing infrastructure repair and replacement costs – then they may wish to consider how to incentivize greater local collaboration on road projects, such as by joint bidding or greater cooperation between municipal and county public works departments. With inflation showing no signs of slowing, a particular focus on its impacts on transportation budgeting and the quality of local roads may be warranted.