Wisconsin village in court fight over terminated transportation fee

The village of Pewaukee, Wisconsin, has become the target of lawsuits from the state’s combined chamber of commerce and manufacturers’ association over its transportation utility fee, which was struck down by the Wisconsin Court of Appeals earlier this year.  

Wisconsin Manufacturers and Commerce, Inc., last week filed a motion seeking to hold the village of about 8,200 in contempt of court.

In its brief, WMC argued that the village continued to tax utility customers “for several more months” after the appeals court ruled against the village in March, and called for Pewaukee to reimburse taxpayers.

Pewaukee had stopped levying the TUF by October, Village Administrator Matt Heiser said. He declined to comment on WMC’s latest legal brief.

“We didn’t have sufficient funding for all our road projects,” Heiser said as to why the village sought to charge the TUF. “That’s an important part of government services for taxpayers, is to have reliable infrastructure they can use.

“Like everything else, the cost of road construction has gone up quite a bit,” he added. “We can borrow for those projects, but then you incur additional costs… If we could just tax for them directly, we could save taxpayers money.”

The executive director and the deputy director of the WMC Litigation Center, a Madison-based 501(c)(3) that filed the legal motions on behalf of the association, both declined to comment.

“The Pewaukee village government’s actions are egregious twice over,” the litigation center’s executive director, Scott Rosenow, said in a press release. Taxpayers “are owed their money back,” he said. 

“The amount of money that municipalities can assess property owners is very strictly limited in Wisconsin,” said Jerry Deschane, executive director of the League of Wisconsin Municipalities, noting that the year-over-year property tax increase is limited by the percentage increase in property values due to net new construction. 

“That figure is almost always well below inflation,” he said. “With the levy limit essentially guaranteeing that revenues are always going to be less than the impact of inflation, that’s just a formula for fiscal disaster at some point.”

Deschane said the transportation utility tax, which was devised several years ago, “provided a very equitable way for local governments to maintain the transport system.” 

But the Wisconsin Supreme Court ruled against another municipality’s TUF in June 2023, finding that the town of Buchanan’s attempt to raise funds for utility districts was a property tax and counted toward the levy limit.

So the following March, the Court of Appeals concluded that Pewaukee’s TUF was “an impermissible tax,” and the state Supreme Court declined to hear Pewaukee’s appeal in August.

“This took away what was a very practical and fair tool,” Deschane said. “Wisconsin already has the fewest number of options for local governments… But we abide by the rules, so that’s no longer on the table. It’s no longer in the toolbelt.”

Deschane argued that it’s time to re-examine “all of it,” including Wisconsin’s property tax levy limitation. 

“Historically, every other tax was originally imposed as a form of property tax relief,” he said. “But over the years, what happened was the state essentially kept that revenue for their own use. Last session, the legislature dedicated a penny of the sales tax back to local governments, which was a huge step in the right direction.”

Still, as things stand, local governments and local school districts in Wisconsin have to go to referendum on a regular basis, risking voter fatigue. 

“Virtually all other states give local governments some kind of a local sales tax option,” Deschane said.

Wisconsin already requires local governments to go to the voters to raise property taxes beyond the percentage increase in property values due to net new construction. “Why not give them the option of choosing a different tax?” Deschane said.