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.)
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 (PROPERTY TAXES) INDIRECT COSTS $37.4 MILLION TOTAL COSTS (SUBSIDY) $118.8 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.
TABLE 1 HIGHWAY RELATED COSTS FOR THE CITY OF MILWAUKEE: 1987 FIGURES USED FOR 1989 AID (IN Millions) MAINTENANCE $18.4 CONSTRUCTION 42.2 POLICE (30% OF TOTAL) 32.2 OTHER EXPENSES: (INCLUDES STREET LIGHTING, STREET-RELATED SIDEWALK COSTS, AND STORM SEWERS 19.9 TOTAL $112.7 LESS DEDUCTIBLE REVENUES 6.0 $106.7 Source: Wisconsin Department of Transportation TABLE 4 TOTAL COST OF CARS AND TRUCKS (COSTS IN MILLIONS) DIRECT COSTS $106.7 Million INDIRECT COSTS AIR POLLUTION 17.6 ROAD-USE OPPORTUNITY COSTS 15.0 "EXCESSIVE" MAINTENANCE 4.8 TOTAL $144.1 Million CARS AND TRUCKS REGISTERED IN MILWAUKEE 338,629 TOTAL COST PER VEHICLE $426 DIRECT COST PER VEHICLE $315 TOTAL COST PER CAPITA $229 DIRECT COST PER CAPITA $170 Table 5 LOCAL TRANSPORTATION AIDS RECEIVED BY THE CITY OF MILWAUKEE ($ MILLIONS) YEAR LOCAL TRANSPORTATION CONNECTING LIFT TOTAL 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 & YEAR HWY COSTS STATE AIDS % OF COSTS STATE AIDS 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 + INDIRECT AUTOMOBILE COSTS 37.4 = TOTAL COSTS $144.1 - STATE TRANSPORTATION AIDS $25.3 = NET SUBSIDY $118.8 TOTAL CITY PROPERTY TAX LEVY $154.4 AUTOMOBILE SUBSIDY AS % OF LEVY 76.9% TABLE 8 TRANSPORTATION FEES FROM MILWAUKEE ($ 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 TRAFFIC COUNTS FOR THE CITY OF MILWAUKEE 1990 (MORNING 7-8 AM) HIGHWAY LOCATION INBOUND OUTBOUND RATION 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 TRAFFIC COUNTS FOR THE CITY OF MILWAUKEE 1990 (EVENING 4:30-5:30 PM) HIGHWAY LOCATION OUTBOUND INBOUND RATIO 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 MANAGERIAL, PROFESSIONAL 74,537 39,138 52.5 EARNINGS IN '1979 TWENTY FIVE - 31,517 21,784 69.1 FIFTY THOUSAND 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 ANNUAL AUTOMOBILE TAXES AND FEES MIDWESTERN STATES 1989 *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 surtax. 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 price. 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 exempt. TABLE 13 USER FEES FOR DIRECT COSTS: WISCONSIN REPORTED (DIRECT) COSTS $850.0 Million STATE PAYMENTS 212.5 DEFICIT $637.5 REGISTRATIONS 3.8 Million FUEL CONSUMPTION 2.5 BILLION GALLONS WITH $100 LICENSE FEE: FUEL TAX TO 34.8 CENTS WITH $50 LICENSE FEE: FUEL TAX TO 42.5 CENTS USER FEES FOR TOTAL COSTS: WISCONSIN TOTAL COSTS $1,190.0 Million STATE PAYMENTS 212.5 DEFICIT $977.5 WITH $100 LICENSE FEE: FUEL TAX TO 48.5 CENTS WITH $50 LICENSE FEE: FUEL TAX TO 56.1 CENTS TABLE 14 CITY RECEIPTS FROM AUTO-RELATED CHARGES, 1987-1988 ($ THOUSANDS) 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 CITY RECEIPTS FROM AUTO-RELATED CHARGES, 1987-1988 Table 14 Continued Page 2 CITIES MOTOR FUELS MOTOR VEH LIC Philadelphia 18 St. Louis 1,485 Toledo 1,247 Virginia 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" APPENDIX 1 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? Assumptions: 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. Calculations: 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 = $483,779,875 3. Adjusted tax base 391,101,775 + 12,614,530,930 = 13,005,632,705 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 APPENDIX 2 ISSUES & ALTERNATIVES ASSOCIATED WITH THE LOCAL MOTOR VEHICLE REGISTRATION FEE (WHEEL TAX) OPTION 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 ownership. 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. -2- NET CHANGE IN HOUSEHOLD TAX LIABILITY TO PROPERTY OWNERS AND RENTERS UNDER A $20 WHEEL TAX, WITH ALL REVENUES USED TO OFFSET PROPERTY TAXES 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. NET CHANGE IN HOUSEHOLD TAX LIABILITY TO PROPERTY OWNERS AND RENTERS UNDER A $10 WHEEL TAX, WITH ALL REVENUES USED TO OFFSET PROPERTY TAXES 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 short-term.property tax savings as reflected in their rents. -3- The illustration regarding the distributive impact underscores the following: * 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 purposes. * 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. ALTERNATIVES 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 reduction. 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 reduction. 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 reduction. 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
Return to coporate welfare page
Return to political philosophy page
Return to Political Science 105 page
Go to H. T. Reynolds page