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Writer's pictureAlex Saloutos

Is the Infrastructure Special Charge Actually a Tax? Mayor's Proposal Could Face Legal Challenge According to Wisconsin Policy Forum.

Key Points

  • The Wisconsin Policy Forum flagged the Infrastructure Special Charge (ISC) in the mayor’s budget as vulnerable to legal challenges.

  • Based on the recent Supreme Court decision in Buchanan and other cases, courts may determine that the ISC is a tax, making it subject to levy limits and Wisconsin’s Uniformity Clause.

  • Communications from the mayor’s office have not clearly stated that the ISC will be implemented even if the property tax referendum passes.

  • Some alders are unaware of the ISC’s legal risks, raising concerns about transparency.



Understanding the Infrastructure Special Charge Proposal

In its recent Budget Brief on the mayor’s proposed 2025 city budget, the Wisconsin Policy Forum raised red flags about a new Infrastructure Special Charge included in the budget. To help close the city’s structural deficit, Mayor Satya Rhodes-Conway has proposed a new Infrastructure Special Charge (ISC) as part of the 2025 Executive Operating Budget.


If the property tax referendum passes, the $10 million ISC will be implemented in 2027, and by 2030, special charges will generate $25 million—an increase of 250% in three years. If the referendum fails, the ISC will start in 2025 and special charges grow to $33 million by 2030, a 330% increase in five years.


In light of the legal concerns and use of the ISC to close the city’s structural deficit, residents and voters must understand the potential legal risks associated with implementing the ISC, and what a successful legal challenge could mean for the city’s budget and finances.

Legal Concerns Highlighted by the Wisconsin Policy Forum

The Wisconsin Policy Forum’s Budget Brief raises significant red flags about the ISC’s legal standing. In fact, these legal issues are so critical that the Budget Brief discusses them seven different times in its 24 pages, highlighting just how important this question is to the city’s budget plan. This repeated focus emphasizes the potential for legal challenges if the ISC is classified as a tax under Wisconsin law.


This charge, labeled a “special charge” under Wis. Stat. § 66.0627, would apply to all properties in Madison based on a “trip generation” metric derived from parking space counts. Importantly, Wis. Stat. § 66.0627 is generally used for specific property-related services provided directly to individual properties—such as trash collection or sewer maintenance—and not for services that benefit the entire community.


The statute states that a “municipality may impose a special charge against real property for current services rendered by allocating all or part of the cost of the service to the property served.” The phrases “for current services rendered” and “to the property served” indicate that these charges are meant for direct, individualized services, rather than for broad public services that benefit the entire community. This distinction makes the ISC’s classification as a “special charge” under Wis. Stat. § 66.0627 subject to challenge. If the ISC is challenged, it may not be an easy win for the city in court. Based on the broad community benefit, courts could view the ISC as a tax subject to Wisconsin’s Uniformity Clause and levy limits.

The Budget Brief references the precedent set by the Wisconsin Supreme Court in Buchanan v. Wisconsin Property Taxpayers, Inc., where a similar charge implemented by the town for the benefit of the entire community was overturned unanimously by the court. The Buchanan case involved a "Transportation Utility Fee" (TUF) applied to all parcels in the town to fund road infrastructure under Wis. Stat. § 66.0827. The court ruled that even though the town called it a fee and implemented it under a statutory authority, it was a tax that benefits the entire community. As a result, it was subject to levy limits and the Uniformity Clause of the state constitution. This case underscored several critical points:

  • A tax, by definition, funds services benefiting the public generally, while a “special charge” typically applies to specific services that directly benefit individual properties.

  • The ISC’s use of “trip generation” as an apportionment method, similar to the TUF in Buchanan, may not meet the criteria for direct service-based charges and may not conform to the Uniformity Clause.

The crucial question is whether the Infrastructure Special Charge is a tax under Wisconsin law. In Buchanan, the Court ruled that even when a tax is called by another name and implemented under statutory authority, if it functions as a tax, it is still subject to levy limits and uniformity requirements. This question is significant because, if courts determine ISC is a tax, it will face strict limits on revenue generation and must be based on property values, as mandated by the Uniformity Clause.

Is the ISC a Tax by Another Name?

Although the ISC is presented as a special charge, its function and impact closely resemble that of a tax, specifically one levied to support public infrastructure rather than direct services to individual properties. According to Wis. Stat. § 66.0627, charges should cover specific services rendered to the property owner, such as trash collection or sewer maintenance, rather than those with broad public benefits. This difference is significant because:


  • Public Benefit: The ISC is designed to maintain and develop Madison’s infrastructure, including transportation systems and lighting, which benefit the entire community.

  • Assessment Methodology: The ISC’s use of “trip generation” based on parking counts as a proxy for service usage is a measure that courts may deem as indirect and arbitrary, especially since it aligns more with general revenue generation than with individual property benefit.


To put it simply: If it looks like a duck, walks like a duck, and quacks like a duck, then it just might be a duck. Based on recent case law, courts may view the ISC the same way—if it functions like a tax, it will be treated as one under Wisconsin law. This familiar principle applies here. If the ISC is effectively a tax, then labeling it a “special charge,” even under Wis. Stat. § 66.0627, does not shield it from legal scrutiny. Courts will carefully examine such distinctions, as seen in Buchanan, to ensure municipalities aren’t bypassing levy limits by simply changing the label and seeking safe harbor for a tax under another statute.

Legal precedent indicates that labeling a revenue-raising mechanism a "fee" or “special charge” does not exempt it from statutory requirements. In the Buchanan decision, the court referenced that “the power to tax involves the power to destroy,” emphasizing that any ambiguities in statutory authority must favor the taxpayer and adhere to uniformity and levy limitations. If courts determine the ISC is a tax, Madison would be subject to strict limits on how much revenue it could generate through the ISC, and the charge would need to be based on property values, as mandated by the Uniformity Clause.


Potential Legal Concerns with the Urban Forestry Special Charge (UFSC)


Like the ISC, Madison’s Urban Forestry Special Charge (UFSC) was created under the authority of Wis. Stat. § 66.0627. The UFSC applies to all properties in Madison and is assessed based on property categories, not property values. According to the UFSC ordinance (MGO 4.095), the city’s urban forestry program benefits all properties. Since the UFSC benefits the entire community, when challenged a court could determine that the UFSC is a tax. Given that UFSC charges are based on community-wide benefits rather than specific services directly benefiting individual properties, it also risks being classified as a tax subject to levy limits and the Uniformity Clause.


Transparency and Communication: Questions Raised

Another critical point raised by the Wisconsin Policy Forum is the lack of clarity in the city’s communications regarding the ISC’s implementation timeline. Several communications from the mayor’s office do not explicitly state that the ISC will be implemented regardless of whether the November 5 property tax referendum passes, potentially leaving many voters unaware of the inevitability of this charge. This lack of transparency affects voters’ ability to make informed decisions on the referendum and understand the financial impacts they may face.

In researching this post I contacted the mayor’s office with questions regarding the ISC’s legal implications and its intended implementation timeline. I also requested a statement from the mayor's office clarifying their position on the legal issues raised by the Wisconsin Policy Forum and potential challenges based on recent court cases. The mayor's office declined to respond.

Additionally, I contacted two city alders to understand their awareness of these legal issues. Both alders indicated they were unaware of the legal issues, raising questions about whether critical information is adequately communicated to those responsible for vetting and approving the city’s budget. This lack of engagement from the mayor’s office, combined with alders’ limited knowledge of the ISC’s legal issues, raises further concerns about transparency and effective communication related to the ISC.


The Broader Implications: A Cautionary Tale


If the ISC is successfully challenged and courts decide it is a tax, it will leave a significant hole in the mayor’s budget. Like Madison, Wisconsin’s municipalities face increasing budget pressures under the state’s strict levy limits, prompting many to seek innovative funding solutions. However, as demonstrated by the Buchanan and Pewaukee cases, courts have decisively overturned attempts by municipalities to circumvent levy limits and uniformity requirements by rebranding taxes as “fees” or “special charges” that benefit the entire community.


Weighing the Risks: Is the ISC’s Future Secure?


As Madison navigates its budgetary challenges and seeks solutions to the growing structural deficit, the ISC presents both an innovative and controversial approach. However, as highlighted by the Wisconsin Policy Forum and recent court cases, the ISC’s legal standing is not certain. Even though the city has labeled it a "special charge" and seeks to implement it under Wis. Stat. § 66.0627, this designation alone does not shield it from legal scrutiny and the crucial question of whether or not it is a tax. Based on the red flags raised in the Wisconsin Policy Forum’s Budget Brief, the Supreme Court’s decision in Buchanan, and other recent cases, courts may determine that the ISC is a tax subject to Wisconsin’s levy limits and Uniformity Clause if it is challenged. Such a decision would limit Madison’s ability to generate revenue using the ISC, leaving a major gap in the mayor’s revenue projections.

If you appreciate this content, please like and share. For questions and media inquiries, email asaloutos@tds.net or call (608) 345-9009.

© Alex Saloutos 2024.

 

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