Proposal to Allow Municipal Consolidation Districts
The Village of Pewaukee and the City of Pewaukee are exploring the possibility of consolidating the Village and the City into one community. Prior studies have shown that overall cost savings would result from consolidation. However, these studies have also shown that the cost savings would not be evenly shared by City and Village residents. In fact, if the City's and Village's current assets, liabilities and expenses are consolidated, the studies have shown that the City's tax rate would increase, while the Village's tax rate would significantly decrease. City voters would be unlikely to vote for consolidation if that was the result, and in that case, the opportunity for overall cost savings would be lost.
The Village and City retained Ruekert & Mielke and the Boardman Law Firm to study and recommend ways to better share the benefits of consolidation. As a result of this study, Ruekert & Mielke and the Boardman Law Firm recommended that the Village and City seek the legislation described in this memorandum.
As discussed above, the Village and City of Pewaukee would be unlikely to consolidate under the typical consolidation scenario because City taxpayers would not benefit financially from consolidation. The Village and City seek proposed legislation to provide another alternative to the typical consolidation scenario.
The proposed legislation consists of three main components:
- An agreement by one of the consolidating communities to make a consolidation payment to the new consolidated municipality as consideration for the consolidation and in recognition of the greater benefits to be received by the paying community from the consolidation;
- The establishment of a special purpose taxing district covering just the area of the community agreeing to make the consolidation payment; and
- Authorization to impose a property tax in the special purpose taxing district for purposes of collecting sufficient funds to make the agreed upon consolidation payment.
Under the proposed legislation, the Village and City would enter into a consolidation agreement that would establish the terms under which the Village and City would consolidate. Under the agreement, the Village could agree to make a consolidation payment to the new consolidated municipality. The amount of the consolidation payment, and the length of time over which the consolidation payment would be made, would be a subject of negotiation between the Village and the City.
Under current law, if the Village agreed to make a consolidation payment to the consolidated municipality, that agreement to make a consolidation payment would be absorbed by the consolidated municipality upon consolidation. If that occurred, it would defeat the purpose of the consolidation payment. The new consolidated municipality would be paying a consolidation payment to itself so there would be no net benefit to the consolidated municipality.
In order to avoid this result, and to allow just the Village area to retain the responsibility for paying the consolidation payment, the proposed legislation would allow a special taxing district to be created covering just the Village area. The process for establishing the special district would be set forth in the legislation. The legislation could require that a referendum be held within the proposed district before the district is created. Given that a consolidation already requires successful referendums by the two communities, adding a referendum for the new district would not be an unreasonable hurdle.
Once created, the special district would be authorized to impose a property tax on property within the district in order to make the consolidation payment agreed to under the consolidation agreement. The consolidation payment would be paid to the new consolidated municipality in fulfillment of the contractual obligation set forth in the consolidation agreement.
How the consolidation payment would be used would be up to the governing body of the consolidated municipality. It is expected, however, that in most cases the consolidation payment would be used to reduce the property tax rate for all taxpayers within the consolidated municipality. If the consolidation payment is substantial enough, the tax rate for the consolidated municipality could be reduced below the City's current tax rate so that these taxpayers would see a reduced tax rate from consolidation.
Ruekert & Mielke and the Boardman Law Firm believe this legislative approach offers a simple and straightforward way to share the benefits of consolidation between the two consolidating communities and obtain overall savings related to government operations. This proposed legislation increases the benefits City taxpayers would see from consolidation because a consolidation payment made to the consolidated municipality can be used to reduce the property tax rate for all taxpayers. Property owners in the Village would also benefit from the proposed legislation because without the legislation consolidation would be unlikely to occur and Village taxpayers would miss the opportunity for reduced property tax rates. While under the proposed legislation the Village's benefits from the consolidation would be reduced because it would be obligated to make a consolidation payment, its benefits would still be substantial.
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