Should Property Taxes Subsidize
Automobile Usage

Kenneth S. Kinney
Director of Strategic Planning
City of Milwaukee

March 1991

Obtained from Bureau of Transportation Statistics Library

In Milwaukee, the users of automobiles receive a total subsidy of approximately $119 million per year, equivalent to three- quarters of the total city property tax levy. If the city's total costs relative to cars, more than $400 per vehicle, were directly charged to car owners, property taxes on a $50,000 house would be reduced by approximately $500. In addition, a shift to a user-fee strategy for auto related costs would result in-less pollution, less congestion and less sprawl, and a more efficient local transportation system. This report-considers the social costs of all petroleum - powered vehicles. The terms "cars," automobile" and "automotive" are used to describe such vehicles, which also include trucks and motorcycles, since automobiles make up the overwhelming percentage of the total.)


As owners of automobiles are well aware, cars are expensive to buy, operate and maintain. Besides purchasing the car, they must buy gasoline -- the price of which includes federal and state taxes -- and pay a $25 annual registration to the State of Wisconsin. Most also buy insurance. From a public policy standpoint, however, what is especially important is the total cost which is imposed on society by the automobile. The total includes both direct and indirect costs. Direct costs include the construction and maintenance of roads and highways, the interest on debt assumed for earlier construction, some police costs, street lighting costs, and sewer and sidewalk costs. The Wisconsin Department of Transportation requires municipalities to report direct costs in order to receive state transportation aids. For 1989, Milwaukee reported direct costs of $106.7 million. (See Table 1 for a breakdown of these costs.)

In addition, there are indirect costs that push the total social cost of cars significantly beyond that $106.7 million figure. Indirect costs include congestion, air pollution, traffic accidents, neighborhood disruption, aesthetic effects and the opportunity costs of "excessive" roads. While all indirect costs are important and result in real costs for city residents, this study discusses four of the costs and quantifies dollar costs for three.

Highway congestion leads to a cost, in terms of time, to drivers and passengers, and to businesses whose employees spend time "sitting in traffic." Economists have made efforts to translate the costs imposed by congestion into financial costs, usually in the form of theoretical tolls. Mahlon Staszheim, for example, estimated rush-hour congestion costs at 20 cents per mile, with an average cost of 5 cents per mile throughout the day. (Mahlon R. Straszheim, "Assessing the Social Costs of Urban Transportation Technologies," in Peter Mieszkowski and Straszheim, Current Issues in Urban Economics, 1979.)

(The eligible costs are detailed in Wisconsin Department of Transportation, "Transportation Aids Cost Reporting Manual," 1989.)

Congestion costs have not been quantified in this study primarily because -- for the present time -- Milwaukee has relatively little congestion, the standards for which are set by such cities as Los Angeles and Houston. Still, if present trends continue, the City Engineer predicts that Milwaukee will soon be entering the rank of cities with significant congestion and consequent social costs. The Wisconsin Department of Transportation predicts that by the end of the decade 40 percent of Milwaukee County's freeway system will be congested more than five hours per day. (See Table 2.) Statistics support those forecasts: Between 1980 and 1988, for example, the number of autos, trucks and taxis entering and leaving Milwaukee's Central .business district between 7 AM and 7 PM on a typical weekday increased 14 percent, more than 35,000 additional vehicles. (See table 3.) Probably the most important traffic-related cost borne by society is that caused by air pollution, the major cause of which is the automobile. Air pollution causes significant increases in deaths from cancer and respiratory ailments, especially among the young and the elderly. In addition, it corrodes buildings and other structures. Cars also worsen water pollution through lead and petroleum products. The air pollution problem is especially serious in Milwaukee, with its widely known position on the Environmental Protection Agency's list of most seriously polluted cities.

To quantify the costs of pollution this study employs the methodology used by Mark Hanson, of the University of Wisconsin 4 Madison. (Mark Hanson, "Automobile Subsidies Land Use, and "Transportation Policy," March 1990.) Hanson assumed the total national costs of air pollution due to mobile sources to be $7 billion, a mid-point figure based on various environmental studies. The city of Madison's proportion of that total is then assumed to be the same as its proportion of the total U.S. population, resulting in an annual air pollution cost to Madison of $5.2 million. Using the same methodology, Milwaukee's annual pollution cost would be approximately $17.6 million (city population of 628,088 out of a national total of 249.6 million.) Given the gravity of Milwaukee's air pollution problem, this figure is almost certainly an underestimation.

The second social cost quantified for this study is the opportunity cost 0 and devoted to roads and highways. If different transportation patterns, which included fewer cars, had developed over time, the existing road network would be less extensive than it now is. The land thus "saved" would have been put to other uses. To estimate the social cost of excessive land now devoted to roads it was assumed that one-third of existing road network would have been devoted to private uses and been subject to property taxes. (One third of Milwaukee's road network equals 3.22 square miles (of a road network of 9.65 square miles and a total city land area of 95.80 square miles); had this land been in private hands, it would have produced approximately $15 million in property taxes in both 1989 and 1990. (This estimate does not include land used for parking, which would also be less$ extensive with less car usage.) This increased tax base would have resulted in a lower tax rate, thus reducing property taxes on other taxable property. The total property tax bill for a $50,000 house in 1990, for example, would have been reduced by $58, or three percent. (The calculations are detailed in Appendix 1.) (Mark Hanson, "Automobile Subsidies Land Use, and "Transportation Policy," March 1990.)

The one-third proportion is a rough estimate used for illustrative purposes. The logic of the exercise is based on the fact that a city's road network, in terms of capacity-driven width of streets and development-driven size of the entire system, is greater than it would have been with direct pricing for cars. Among other things, freeway corridors would not have lain vacant for so long, because they probably would not have been cleared in the first place.

A one-third reduction in road area would also have resulted in a reduction in city costs for road maintenance. Milwaukee reported to the state that 1989 maintenance expenditures totaled $19.1 million. If the one-third road reduction resulted in a one-fourth maintenance reduction, this would have meant a further total property tax savings of $4.8 million. (The possible impact of a smaller highway system, in Milwaukee and elsewhere in the state, on transportation aids has not been considered. It is possible, of course, that a fraction of the $4.8 million would have been covered by aids -- or that Wisconsin would developed a different system of support.)

Table 4 provides a summary total of direct and some indirect costs residents and other property taxpayers resulting from motor vehicles. The total of $144..l million (per annum,) is equivalent to $426 per car and truck. The $144.1 million also represents 93 percent of the city's 1989 tax levy of $154.4 million and 31 percent of the total tax levy (city plus County, Milwaukee Public Schools, Milwaukee Area Technical College and Metropolitan Sewerage District) of $465.4 million.

The total cost is conservative since it does not include such additional costs as congestion, uninsured costs of accidents, aesthetic costs and the disruption of neighborhoods.


In Wisconsin the direct costs of automotive usage are primarily funded by state transportation aids and the local property tax. In 1989, Milwaukee received $25.3 million in transportation aids, 24 percent of the city's reported costs (direct costs in the foregoing analysis). In 1990, the figures were $25.5 million and 24 percent. Historically, the percentage has ranged between 22 and 25 percent. (See tables 5 and 6.) (For a complete description of highways aids see Fred Ammerman and Marge Novak, "Transportation Aids: General. Transportation and Connecting Highway Aids," Legislative Fiscal Bureau, 1989.)

To obtain the property tax subsidy, then, state aids are deducted from direct costs, with the resulting net figure of $81.4 million for 1989. That sum is equivalent to 53 percent of the city's tax levy. If indirect costs are added to direct costs, the total subsidy is on, equivalent to 77 percent of the levy. (See Table 7.)

     DIRECT COSTS             $106.7 MILLION

     STATE AIDS                 25.3 MILLION

     NET DIRECT COSTS          $81.4 MILLION


     INDIRECT COSTS            $37.4 MILLION


In a very real sense, state aids represent user fees levied on the owners and users of motor vehicles. The revenue for the aids come from a segregated transportation fund that includes receipts from motor fuel taxes, (about 70 percent of the total), vehicle registration fees (about 25 percent), drivers license fees, aeronautics taxes and fees, railroad property taxes and other miscellaneous fees. To the degree that gasoline taxes paid by an individual driver reflect his or her relative use of the road system, then, such taxes constitute a user fee, that forces the user of the road system to pay (indirectly in this case) for it.

Under existing aid formulas, Milwaukeeans get less back from the transportation fund than they put in. In 1989 the city of Milwaukee's funding from the state amounted to 38 percent of the total paid into the fund from taxes paid on motor fuel sold in the city, city vehicle registrations, and driver licenses. (See table 8.)


When the users of a good or service do not pay for its full cost, an externality exists; that is, some of the true cost is shifted to others. A paper mill, for example, can externalize some of its cost by dumping refuse into a river, thus forcing those costs on the public.

The automobile has been called the classic externality problem because so much of the cost of using a car is borne by non-users. In Milwaukee, the externality, or subsidy, is roughly equivalent to the costs not covered by user fees, in this case fuel taxes and license fees. Looking just at the city, this means that an annual subsidy of more than $80 million in direct costs flows from the owners of taxable property to the users of motor vehicles, primarily cars. While it is obvious that most property owners are also car users, there is little if any correlation between the value of property and property tax levels, and the benefits derived from automobiles.

The externality problem is compounded in Milwaukee by the t city property owners support an extensive road system also heavily used by suburban residents. Traffic counts substantiate what is intuitively obvious: more suburbanites make use of city streets for work and pleasure than city residents use suburban streets. (See tables 9 and 10). It is also evident that the city-to-suburb subsidy tends to flow to higher-income suburbanites. For example, Table 10 indicates that in 1979 86 percent of those who worked in the city and earned more than $50,000 lived outside Milwaukee (median income: $12,510). While a cost-benefit analysis of having the metropolitan area's largest central business district located in Milwaukee is not part of this study, it is probable that city property owners are providing net benefits to suburban commuters through their property taxes.

In the longer term, externalities have the impact of causing their beneficiaries to use more of the good or service than they would if they bore its full cost. There can be no doubt that car ownership and use would be lower if the true costs were assigned to their owners and users. This is especially clear when it is realized that the actual total costs are more than double those covered through user fees. It is obvious why the subsidy for cars is considered to be one of the largest public subsidy programs in the United State States.

The subsidy that encourages the over-use of cars also produces several deleterious effects. First, it encourages urban and suburban "sprawl", i.e., excessive consumption of land for development. Spatially, development is predicated on inexpensive travel by car. The cheaper it is to drive, the more land on the outskirts of a metro area will be developed. Hence, the resulting suburban development pattern witnessed in the Milwaukee metropolitan area since World War II. This pattern has substantive negative environmental effects, such as loss of wetlands, and additional water pollution due to added runoff from new streets and parking lots.

Second, the subsidy for cars, by encouraging excessive use of cars, also produces a dramatic increase in air pollution.

Third, the large subsidy for one form of transportation, i.e., cars, means that it will be over-consumed relative to other, less heavily subsidized, modes. Evidence for Milwaukee suggests that this has been happening with regard to the bus system. Between 1966 and 1988 the number of buses entering and leaving the central business district on a typical business day declined 37%, from 4459 to 2797, and the number decreased 50% from 137.297 to 68,689. (See table 3.) The use of public transit tends to decrease for a number of reasons, but the fact that the automobile subsidy increases the relative cost of public transportation is clearly one of them. The decline in bus use means that, for each mile traveled, there is relatively more air pollution.


It is unlikely that any legislature, governor, mayor or common council ever explicitly adopted a policy of heavily subsidizing the use of the automobile, primarily through the property tax. What has evolved over several decades is a policy by default. A series of disparate actions have combined to form transportation policy with myriad and misallocated, social costs (as well as social benefits). This is a policy that could be explicitly endorsed by the state or could be replaced, wholly or in part, by a policy based on a different pricing mechanism. If the state decided to move from a predominantly tax-based to a predominantly user fee-based system of transportation funding, theoretically, the best solution is a system of toll roads and streets, with tolls varying according to day, time and street. While this is a theoretical "ideal" (and therefore beloved by economists), it is a practical impossibility (and one detested by motorists).

In the real world, motor fuel taxes and license fees can be considered to be quasi-tolls, especially since the fuel tax generally is a function of vehicle, and therefore transportation infrastructure, usage. As was discussed above, Wisconsin does use these fees to fund transportation expenses, but only to a limited degree -- about one-quarter of direct/local expenditures. It is also noteworthy that-Wisconsin's indirect user fees are relatively low. (See tables 11 and 12.)

If the state adopted a policy of funding all vehicle-related direct costs, it could do so by raising the gasoline tax from s per gallon to 35 cents, while increasing the registration fee from $25 to $100. Alternatively, with an increase in the registration fee to $50, fuel taxes would go to 42 cents. (See table 13.) (Obviously, a sharp increase in vehicle user fees would lead to a reduction in auto usage -- indeed, this would be -a socially beneficial change. This would lead to a reduction in fuel tax revenues, thus changing the specific estimates used in this study, though not the underlying principle of requiring car users to pay the costs of their usage.) Wisconsin could also make some or all of the registration fee be a function of a vehicle's weight or market value, thus reflecting relative wear on highways or the owner's ability to pay. As Table 10 indicates, these approaches are used in other states. Since one of the purposes of the user fee pricing strategy would be to fully fund local direct highway costs, it is important to realize that the increased state aids would allow the property taxes on the $50,000 Milwaukee house to be reduced by $298, with the city's portion of the levy falling from $642 to $344.

As was argued above, indirect, as well as direct, costs of cars should be recognized so that owners and users can be made to bear-total costs of their activity. If total costs, assumed to be 140% of direct costs statewide, were covered by existing fees, then license fees and fuel taxes would increase to $100 and about 49 cents or to $50 and about 56 cents respectively. In Milwaukee, property taxes on the $50,000 house would decrease by $500.

Although this analysis assumes that the proceeds from higher auto user fees could be used to reduce property taxes, this does not have to be the case. Milwaukee, or other communities, could use their additional revenues to provide better mass transit, such as Milwaukee's light rail system, for health care or police protection -- or even for more roads. But how the funds are used in no way affects the social wisdom of charging the increased user fee.

Since part of any tax or fee increase would compensate for the costs of pollution, it could quite rightly be considered to be a "pollution tax." Cars turn clean air into polluted air, and their owners tend to consume too much clean air because it is free, as do steel mills or tanneries. A pollution tax is actually a way to price clean air and thereby produce a more efficient level of consumption.

The concept of a pollution tax is especially important as the Milwaukee region must now develop strategies to meet federal clean air standards. A pollution tax would help reduce auto usage, thus helping to meet those goals. In addition, the revenues produced by such a fee could be used to help fund major improvements in mass transit, a second strategy for reducing pollution.

Increasing state fuel or licensing fees has the great advantage of administrative simplicity, being merely increases in existing charges. However, it would also be possible to develop a more rational pricing strategy for cars at the local level. For Milwaukee, the analysis outlined above indicated that an annual city registration fee, or "wheel tax,"' of $426 per vehicle would cover all direct and some indirect costs. (The advantages and disadvantages of a local wheel tax are discussed in Appendix 2.) Similarly, municipalities could institute local fuel taxes.

Several other U.S. cities now collect one or both fees (See table

While these local options are feasible, a state-based solution would be preferable. Besides being able to make use of existing administrative mechanisms, the geographic range of auto related externalities and the very high level of car movement among municipalities indicate that a broadly based user charge system should be employed. In addition, a tax imposed only by the city would encourage residents to register vehicles outside the city, would not apply to non-residents who use Milwaukee streets and would tend to place a disproportionate burden on low-income families. (It would also be possible to construct a national user fee policy based on an increase in federal fuel taxes. John E. Peterson suggests allowing a state tax credit against a much higher federal tax, thus encouraging higher state taxes at a minimal political.cost ("How to Kick the Gasoline Habit," Governing, March 1991).)

Given the defects inherent in the current system, and in light of the present policy's being implicit rather than explicit, the state should consider shifting to a policy that openly assigns transportation costs to beneficiaries.


(IN Millions)

MAINTENANCE                          $18.4

CONSTRUCTION                          42.2

POLICE (30% OF TOTAL)                 32.2

COSTS, AND STORM SEWERS               19.9

TOTAL                                $112.7



                           Source:   Wisconsin Department 
                                  of Transportation




DIRECT COSTS                         $106.7 Million


AIR POLLUTION                          17.6

OPPORTUNITY COSTS                      15.0

"EXCESSIVE" MAINTENANCE                 4.8

TOTAL                                $144.1 Million

IN MILWAUKEE                               338,629

TOTAL COST PER VEHICLE                 $426

DIRECT COST PER VEHICLE                $315

TOTAL COST PER CAPITA                  $229

DIRECT COST PER CAPITA                 $170

                                Table 5


                        BY THE CITY OF MILWAUKEE

                              ($ MILLIONS)

                AIDS                 HIGHWAY AIDS    BRIDGE     AIDS

1978            7.8                        .77                  8.6

1979            8.0                        .87       .33        8.8

1980            9.8                        1.0       .79        10.9

1981            11.6                       1.1       .049       12.7

1982            14.0                       1.2       .31        15.2

1983            17.8                       1.3       .41        19.1

1984            19.0                       1.3       .45        20.3

1985            20.3                       1.3       .42        21.6

1986            21.1                       1.5       .36        22.6

1987            21.9                       1.5       .51        23.5

1988            21.9                       1.6       .47        23.5

1989            23.2                       1.7       .47        25.3

1990            23.7                       1.8                  25.5

1991            24.5                       1.8                  26.2

                (Totals may not add due to rounding.)

                  Source: Wisconsin Department of Transportation

                               Table 6

                       HIGHWAY COSTS VS STATE AIDS

                              ($ MILLIONS)
                                                           DIFF BETWEEN
                                           AIDS AS         HWY COSTS &

1984       $86.7           $20.7                24%             $65.0

1985        87.0            22.0                25%              64.9

1986        90.5            22.9                25%              67.6

1987        98.1            24.0                24%              74.1

1988       104.4            23.9                23%              80.5

1989       106.7            25.3                24%              81.4

                     Source: Wisconsin Department of Transportation

                                TABLE 7

                          AUTO COSTS AND TAXES

                         CITY OF MILWAUKEE, 1989

                       (DOLLAR AMOUNTS IN MILLIONS

DIRECT AUTOMOBILE COSTS              $106.7


= TOTAL COSTS                        $144.1


= NET SUBSIDY                        $118.8



                                TABLE 8


                              ($ MILLIONS)

           AUTO &    MOTOR        OPER &                   AIDS TOTAL
           TRUCK     FUEL         CHAUF LICENSE            AS % OF F0ES
YEAR       REGIST.   TAXES        FEES            TOTAL    TOTAL

1978        8.6      20.1         1.2             29.9     29%

1979        9.6      21.1         1.2             31.9     28%

1980       11.1      22.5         1.2             34.8     31%

1981        9.9      23.8         1.4             35.1     36%

1982       11.9      31.8         1.6             45.3     33%

1983       11.9      31.0         1.9             44.8     43%

1984       11.6      36.8         1.7             50.1     40%

1985       16.9      37.0         1.7             55.6     39%

1986       11.6      38.9         1.7             52.1     43%

1987       12.1      40.3         1.7             54.2     43%

1988       14.6      48.5         1.9             65.0     36%

1989       12.7      50.6         2.0             65.3     38%

                Source: Wisconsin Department of Transportation

                                TABLE 9



                            (MORNING 7-8 AM)


I-94            N. 37TH ST.        6,970         5,190     1.34

US-41           VLIET ST.          2,800         1,440     1.94

I-43            CAPITOL DR.        5,730         3,710     1.54

US-45           FLORIST AVE.       4,930         3,620     1.36

TOTAL                             20,430        13,960     1.46

I-43            SCOTT ST.          6,440         3,200     2.01

I-43            68TH ST.           4,900         4,120     1.19

TOTAL                             11,340         7,320     1.55

GRAND TOTAL                       36,670        21,280     1.72

           Source:   Wisconsin Department of Transportation
                     (sample daily count at automatic traffic
                     recorder stations, 1990

                                TABLE 9



                         (EVENING 4:30-5:30 PM)


1-94            N. 37TH ST.        6,390         5,880     1.09

US-41           VLIET ST.          2,550         1,630     1.56

1-43            CAPITOL DR.        5,830         4,050     1.44

US-45           FLORIST AVE.       4,860         3,880     1.25

TOTAL                             19,630        15,540     1.26

I-43            SCOTT ST.          6,190        3,650      1.7

I-43            68TH ST.           4,300        5,440      1.27

TOTAL                             10,490         9,090     1.46

GRAND TOTAL                       30,120        24,630     1.33

                Source:    Wisconsin Department of Transportation
                           (sample daily count at automatic traffic
                           recorder stations, 1990)

                               TABLE 10

                          COMMUTER STATISTICS

                          MILWAUKEE CITY: 1980

                                           LIVING          % LIVING
                                           OUTSIDEOUTSIDE  OUTSIDE
                           TOTAL           CITY            CITY

WORKERS 16 & OLDER         306,697         122,230         40.0

WORKERS 25-54              193,920          83,592         43.1

PROFESSIONAL                74,537          39,138         52.5

TWENTY FIVE -              31,517           21,784         69.1

FIFTY THOUSAND +            5,219            4,485         85.9

(MEDIAN)                   (12,510)        (16,491)

PRIVATE VEHICLE            243,845         112,746         46.2
(% OF WORKERS)             (79.5)          (92.2)

DROVE ALONE                183,826          86,179         46.9
(% OF WORKERS)              (59.9)          (70.5)

PUBLIC TRANSPORT           38,620            7,493         19.4
(% OF WORKERS)             (12.6)            (6.1)

                Source:    Bureau of the Census 
                           U.S. Department of Commerce


*State Notes and General Information:

Indiana         Other Fees        Vehicle excise tax $12 - $1,063.
                                  County surtax 10% of state excise
                                  tax collected. Minimum $7.50

Iowa            Registration      Motor vehicle fee 1% of value as
                                  fixed by the department plus $.40
                                  for each 100 lbs. or fraction
                                  thereof of weight of vehicle as
                                  fixed by the department. Minimum
                                  fee $5.00.  After motor vehicle is
                                  5 years old, that part of the fee
                                  based on the value shall be 75% of
                                  the rate as fixed when new; after 6
                                  years 50%; after 8 years 10%.

Michigan        Registration      The second and consecutive years
                                  registration fees are 90% of the
                                  previous year's fee. The reduction
                                  in the fee ends after the fourth
                                  registration year.

Minnesota       Registration      Regular tax - $10 + 1.25% of a base
                                  value equaling a percentage of
                                  manufacturer's suggested retail

Ohio            Sales Tax         Motor vehicles sold to nonresidents
                                  are not subject to sales tax.
                Other Fees        Counties and cities may levy an
                                  additional tax of $20.

Pennsylvania    Inspection        The state does not set a fee; the
                                  average fee is $14. Emission
                                  inspection required in many
                                  metropolitan areas.

Wisconsin       Sales Tax         Motor vehicles sold to nonresidents
                                  to be used outside of the state are

                               TABLE 13


REPORTED (DIRECT) COSTS           $850.0 Million

STATE PAYMENTS                     212.5

DEFICIT                           $637.5

REGISTRATIONS                        3.8 Million


WITH $100 LICENSE FEE:            FUEL TAX TO 34.8 CENTS

WITH $50 LICENSE FEE:             FUEL TAX TO 42.5 CENTS


TOTAL COSTS                       $1,190.0 Million

STATE PAYMENTS                       212.5

DEFICIT                             $977.5

WITH $100 LICENSE FEE:            FUEL TAX TO 48.5 CENTS

WITH $50 LICENSE FEE:             FUEL TAX TO 56.1 CENTS




CITIES               MOTOR FUELS           MOTOR VEH LIC

Buffalo                                              63

Charlotte                                         1,260

Chicago              82,437                      57,168

Cincinnati                                           83

Columbus                                             28

Denver                                            2,428

Detroit                                             447

Fort Worth                                           16

Honolulu             28,396                      18,019

Indianapolis                                          68

Jacksonville                                         141

Kansas City                                        1,575

Long Beach                                        13,254

Memphis                                           10,355

Miami               5,114

Minneapolis                                            37

Nashville-Davidson                                  7,015

New Orleans                                         1,861

New York City         298                          57,941

Omaha                                               4,242

Table 14 Continued
Page 2

CITIES                     MOTOR FUELS          MOTOR VEH LIC

Philadelphia                                             18

St. Louis                                             1,485

Toledo                                                1,247

Beach                                                 4,368

Washington D.C.             27,534                   18,141

TOTALS                     143,779                   201,260

           Source:   U.S. Department of Commerce, Bureau of the
                     Census, "City Government Finances 1987-1988"



CITY Of MILWAUKEE    Interdepartmental Correspondence

TO:  Julie Perman
     Tax Commissioner

FROM:      Martin Goldstein
           Assessment Analysis Manager

DATE:      February 25, 1991

What would the effect be on the taxes of a $50,000 home if through
different city planning one-third of the area currently used as
streets had been developed for private use?


     1.    9.65 square miles of city  of streets of total 95.08
           square miles.
     2.    3.217 square miles of streets would have been developed
           in accordance with other developed in accordance with
           other developed portions of the city.
     3.    Value of 3.217 square miles is based on prorated current
           value of city.
     4.    Total 1990 real estate assessed value $11,559,203,240.
     5.    Total 1990 taxable value including personal property
           $12,614, 530,930.


     1.    3.217     =     street value
           95.08           11,559,203,240

           Street value = 391,101,775

     2.    Recalculated 1990 levy 12,614,530,930 x .038351 =

     3.    Adjusted tax base 391,101,775 + 12,614,530,930 =

     4.    Recalculated rate 483,779,875 / 13,005,632,705 = .037198

     5.    Taxes on $50,000 home:

           Current:        $1,917.55
           With streets:   $1,859.90



State law allows a limited number of local tax alternatives to the
property tax: a hotel/motel room tax, and a motor vehicle
registration fee (wheel tax).  The City of Milwaukee has not
adopted a wheel tax.

The Committee has reviewed analysis provided by the City's Budget
Office and Legislative Reference Bureau regarding the wheel tax
option.  The following reviews some of the potential pros and cons
associated with adoption of a wheel tax.

Possible Advantages of a Wheel Tax

1.   A wheel tax would impose some of the costs generated by
     automobile use directly on automobile owners.  These costs are
     estimated as over $100 million annually.  Dependent children
     who own and operate motor vehicles would be one major group of
     "free riders" whose automobile-related costs could be
     partially captured by a local wheel tax.

     The City is implementing a policy of shifting a greater
     portion of street related capital projects costs from debt to
     cash.  Although, this policy will save taxpayers millions of
     dollars in the long run, the short-term impact of the debt to
     cash conversion adds about $2 million annually to the property
     tax levy.  A wheel tax represents a revenue source which could
     reduce this pressure.

2.   A wheel tax would be inexpensive and simple to administer. 
     The State of Wisconsin would simply "add on" the local option
     amount to its collection of state motor vehicle registration
     fees.  The State's administrative charges would be only 10
     cents per registration fee collected--regardless of the level
     of the local fee.

3.   A wheel tax used to reduce the property tax would not hurt the
     City's position relative to State Shared Revenue.

4.   State of Wisconsin motor vehicle registration fees are
     comparatively low, so a wheel tax represents a revenue option
     which is relatively underutilized.

5.   The reduction to the overall property tax rate resulting from
     a $20 annual wheel tax could be 46 cents per $1,000 of
     assessed value, a significant potential 'selling point" with
     respect to the tax environment.  Property taxes are generally
     considered the most unpopular tax among citizens.

Possible Disadvantages of a Wheel Tax

1.   Since a wheel tax could only be imposed on vehicles registered
     in the City, it does not represent an opportunity to "export"
     tax burden to nonresidents.  In fact, as the discussion of
     distributive impacts indicates (see below), non-resident
     property owners could be the largest beneficiaries from a
     wheel tax.

2.  Although the wheel tax has some merit as a benefit-related
     charge, this merit of a City-imposed tax is limited because
     the charge would not apply to non-resident users of City
     streets.  In addition, the wheel tax does not differentiate
     regarding the level of use by motorists subject to the tax.

3.   The wheel tax is a flat fee and therefore its structure is
     regressive with respect to income.  This structural defect is
     offset 'Partially by the fact that a local wheel tax would
     likely be a relatively small ($10-$20) annual fee.

4.   The distributional impacts would be further complicated
     because residents subject to a wheel tax living in rental
     property--many of them "working poor"--would be unlikely to
     benefit directly from a decrease to the City's property tax
     levy resulting from a wheel tax.  Owners of residential rental
     property would be likely to apply the tax savings as increased
     cash flow, as opposed to rent reductions.

5.   Currently, the City imposes a quarterly permit charge for
     overnight on-street parking privileges which amounts to $48 on
     an annual basis. Citizens already subject to this fee may object
     to the imposition of an additional automobile-related charge.

Distributional Impact

Data from the 1980 census indicate a relationship between income
and vehicle ownership.  Aldermanic districts with the highest
concentration of poverty had the lowest levels of motor vehicle

The potential distributional impact can be evaluated more precisely
by analyzing the net changes to tax liability which would occur to
individuals subject to the wheel tax and/or to City property taxes.

The following tables illustrate the distributional impact of a
local wheel tax at two levels: $20 and $10.  The tables illustrate
the net tax cost impact resulting from the imposition of a wheel
tax, under the assumption that wheel tax revenues will be used to
reduce the property tax levy.

The tables illustrate the impact for both property owners and
renters, and assume that renters would not have rents reduced as a
result of declines in tax assessments on the properties they
occupy.  The numbers "O, 1 and 2" refer to the number of motor
vehicles subject to the City wheel tax (for example, a non-resident
owner of property would be categorized as "O (Owner)).  The term
"Owner" refers to both resident and non-resident owners of
property.  The term "Renter" refers to a resident who owns a car.

Finally, while the illustration focuses on the impact on
residential households and non-resident property owners, the tax
liabilities of commercial and manufacturing property owners would
also be affected.


Property  Tax Change  Tax Change  Tax Change  Tax Change   Tax Chance
  Value   0 (Owner)    1 (Owner)  2 (Owner)   1(Renter)    2 (Renter)

$30,000   $ -14.40     $ +5.60    $ +25.60    $ +20.00      $+40.00
40,000      -19.20       + .80      +20.80      +20.00       +40.00
50,000      -24.00       -4.00      +16.00      +20.00       +40.00
60,000      -28.80       -8.80      +11.20      +20.00       +40.00
70,000      -33.60      -13.60      + 6.40      +20.00       +40.00
80,000      -38.40      -18.40      + 1.60      +20.00       +40.00
90,000      -43.20      -23.20      - 3.20      +20.00       +40.00
100,000     -48.00      -28.00      - 8.00      +20.00       +40.00
110,000     -52.80      -32.80      -12.80      +20.00       +40.00
120,000     -57.60      -37.60      -17.60      +20.00       +40.00
130,000     -62.40      -42.40      -22.40      +20.00       +40.00
140,000     -67.20      -47.20      -27.20      +20.00       +40.00
150,000     -72.00      -52.00      -32.00      +20.00       +40.00

Notes: Tax savings are based on an estimated $5,806,820 positive fiscal
impact from a $20 wheel tax, applied to reduce the 1991 City Budget
Property Tax Levy from $12.76 to $12.28 (48 cent reduction).

Renters are assumed to receive no short-term property tax savings as
reelected in their rents.


Property  Tax Change  Tax Change  Tax Change  Tax Change   Tax Chance
  Value   0 (Owner)    1 (Owner)  2 (Owner)   1(Renter)    2 (Renter)

$30,000   $  -7.20     $ +2.80    $ +12.80    $ +10.00      $+20.00
40,000       -9.60       +0.40      +10.40      +10.00       +20.00
50,000      -12.00       -2.00      + 8.00      +10.00       +20.00
60,000      -14.40       -4.40      + 5.60      +10.00       +20.00
70,000      -16.80       -6.80      + 3.20      +10.00       +20.00
80,000      -19.20       -9.20      + 0.80      +10.00       +20.00
90,000      -21.60      -11.60      - 1.60      +10.00       +20.00
100,000     -24.00      -14.00      - 4.00      +10.00       +20.00
110,000     -26.40      -16.40      - 6.40      +10.00       +20.00
120,000     -28.80      -18.80      - 8.80      +10.00       +20.00
130,000     -31.20      -21.20      -11.20      +10.00       +20.00
140,000     -33.60      -23.60      -13.60      +10.00       +20.00
150,000     -36.00      -26.00      -16.00      +10.00       +20.00

Notes:     Tax savings are based on an estimated $2,888,820 positive
fiscal impact from a $10 wheel tax, applied to reduce the 1991 City
Budget Property Tax Levy from $12.76 to $12.52 (24 cent reduction).

Renters are assumed to receive no tax savings as
reflected in their rents.


The illustration regarding the distributive impact underscores the

     * The biggest net tax savers would be owners of high value
     property.  Those not subject to the wheel tax, by virtue of non-
     residency or nonmotor vehicle ownership, would receive the largest
     savings.  A $3 million commercial or manufacturing property would
     receive close to $1,500 in property tax savings.

     At a $20 wheel tax, two-car households with, homes valued at less
     than $83,400 would experience a net increase in tax liability.

     * Tax liability would be reduced for non-residents owning property.

     * Working poor who own motor vehicles and who live in rental
     property could be the biggest tax "losers" under a wheel tax.

     * Any net tax savings would be effectively reduced for those
     taxpayers who currently deduct property tax liability for tax

     * Those persons currently subject to the overnight parking permit
     charge could avoid an increase to their total automobile-related
     fee liability if that permit were reduced by an amount equivalent
     to the wheel tax.  However, this would reduce overall property tax
     savings, assuming the Parking Fund, which currently receives night
     parking permit reveries, were made whole.


1.   Recommend that a $20 City wheel tax be adopted, with the resulting
     revenues applied to a property 'LaX levy reduction.

     Net property tax reduction: $5,806,820

2.   Recommend that a $20 City wheel tax be adopted and that overnight
     parking permit charges be reduced by an equivalent amount. 
     Furthermore, apply a portion of the wheel tax revenues to the
     Parking fund in an amount equivalent to the parking permit revenue
     reduction, with all-other revenues applied to a property tax levy

     Net property tax reduction: $5,176,570 (estimated)

3.   Recommend that a $15 City wheel tax be adopted, with the resulting
     revenues applied to a property tax levy reduction.

     Net property tax reduction: $4,347,820

4.   Recommend that a $15 City wheel tax be adopted and that overnight
     parking permit charges be reduced by an equivalent amount. 
     Furthermore, apply a portion of the wheel tax revenues to the
     Parking Fund in an amount equivalent to the parking permit revenue
     reduction, with another revenues applied to a property tax levy

     Net property tax reduction: $3,875,132 (estimated)

5.  Recommend that a $10 City wheel tax be adopted, with the resulting
     revenues applied to a property tax levy reduction.

     Net property tax reduction: $2,888,820

6.   Recommend that a $10 City wheel tax be adopted and that overnight
     parking permit charges be reduced by an equivalent amount. 
     Furthermore, apply a portion of the wheel tax revenues to the
     Parking Funo in an amount equivalent to the parking permit revenue
     reduction, with all other revenues applied to a, property tax levy

     Net property tax reduction: $2,573,695 (estimated)

7.   Recommend that a wheel tax not be adopted, but that the Legislative
     Reference Bureau continue to develop alternatives regarding
     automobile related taxes which could shift some of the tax burden
     to non-resident users of City streets.

8.   Recommend that a wheel tax not be adopted.

Prepared by:    Mark Nicolini (278-2299)
                LRB Fiscal Review, Section
                January 27, 1991

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