Wisconsin likes to think of itself as practical.

We balance checkbooks. We don’t spend what we don’t have. We expect government to do the same.

That instinct is exactly why levy limits were adopted in the first place. They were designed to prevent unsustainable property tax growth and give taxpayers predictability. That goal is reasonable. Discipline matters.

But the harder question is whether the current structure matches today’s fiscal reality because levy limits don’t just cap spending. They shape the long-term trajectory of communities.

What is a levy limit, in plain English?

A property tax levy is the total dollars a city, village, town, or county raises through property taxes in a year.

Wisconsin’s levy limit law caps how much that total levy can increase year-to-year. The core rule lives in Wis. Stat. § 66.0602. [Source: https://docs.legis.wisconsin.gov/document/statutes/66.0602%283%29]

Under the modern version of the law, the allowable increase is tied to a single metric: net new construction.

“Net new construction” means the increase in total property value from newly built homes, buildings, and major improvements added in the prior year.

The history: how we got here

Levy limits were introduced in the mid-1990s under the Tommy Thompson administration. The modern structure was enacted in 2005, and Act 32 in 2011 made the program permanent and eliminated the “floor,” meaning in low-growth places the allowable increase can effectively be near zero. [Source: https://www.lwm-info.org/DocumentCenter/View/10529/W1a—When-the-Levy-Breaks—outline]

It’s also important to note that levy limits operate alongside state shared revenue and other aid programs. Changes in state aid can ease or increase local pressure. But even with those adjustments, the underlying levy formula still shapes long-term capacity.

Why net new construction? The logic (and the problem)

The logic is straightforward:

• If your tax base grows because you added homes or businesses, you can raise a little more revenue without shifting as much burden onto existing property owners.
• If you didn’t grow, you shouldn’t be increasing taxes.

That reasoning made sense in a political environment focused on preventing rapid tax increases.

But here’s the complication: net new construction is not a proxy for inflation.

The inflation gap (a simple example)

Consider a community with:

• 0.5% net new construction
• 3–4% annual cost increases (wages, insurance, materials, utilities)

Under levy limits, the allowable levy increase might be 0.5%.

But core service costs may rise 3% or more.

That gap compounds. Over time, it forces choices:

• Cut services
• Defer maintenance
• Find fees (hello “wheel tax” or “fire protection fee”).
  • [Note: Often called “stealth taxes,” they bypass the levy limit to fill the gap, but they still come out of the same resident’s pocket, often in a less transparent way.]
• Or pursue growth to expand the levy limit

That’s the tension built into the system.

“Can’t local governments just ‘budget’ better?”

We all have to budget in our own homes. But households and municipalities don’t operate under the same constraints. A household can increase income by working more hours, getting a raise, or taking a second job. Under Wisconsin’s levy limits, local governments don’t have that flexibility.

Another way to think about it: If your income only grows when you add a new room to your house, then a year without building creates a smaller income path going forward. You don’t feel it immediately. But over time, it limits your options.

“What about referenda?”

Municipalities can exceed levy limits through voter-approved referenda. That’s democratic.

But it also means routine budget pressure turns into recurring political campaigns. The system defaults toward austerity unless voters approve an override.

There have been 8 municipal referenda since 2023. 5 out of the 8 passed (and these don’t include the myriad of school referenda):

The incentives levy limits create

When levy growth is tied to new construction, development becomes one of the few built-in ways to expand fiscal capacity. Fast-growing communities gain flexibility. Built-out or slower-growing communities fall behind even if their infrastructure is older and costs are rising. Over time, maintenance and replacement get squeezed.

This is not an argument for runaway taxes

Levy limits were enacted for understandable reasons. Property taxes were rising quickly in prior decades, and voters demanded predictability.

The question is not whether discipline matters. Protecting residents on fixed incomes (especially seniors) from unpredictable tax spikes is a vital function of these limits. No one should be taxed out of a home they spent forty years paying off. The question is whether tying levy limit growth only to new construction (rather than a mix of growth and inflation) creates imbalances over time.

A more balanced framework might include:

• Retain taxpayer protections
• Recognize inflation in core services
• Treat stable communities more equitably
• Reduce the need for repeated referenda

That doesn’t mean automatic, unlimited tax increases. It means aligning revenue tools with real-world cost drivers. Reform does not mean removing guardrails. It means calibrating them.

What This Looks Like in Cottage Grove

The Village’s Financial Management Plan already illustrates the tension.

The highlighted section below shows projected levy growth alongside the narrowing levy limit surplus/gap in future years. As growth slows and costs rise, flexibility tightens.

[Source: Slide 19, https://www.vi.cottagegrove.wi.gov/DocumentCenter/View/3939/Financial-Management-Plan-FMP-Presentation-09-02-2025]

Slower growth is what many Cottage Grove residents prefer right now. That’s a legitimate policy choice. But when levy growth is tied to new construction, slower growth permanently lowers the future revenue path. The ceiling doesn’t reset when costs spike or the economy tightens. Constraints compound. Every growth decision carries fiscal trade-offs. Those trade-offs should be understood clearly.

A reasonable takeaway (even if you like low taxes)

You can support low taxes and still acknowledge this:

A system that ties local revenue growth primarily to new construction is not neutral. It incentivizes growth and penalizes stability.

If Wisconsin wants predictable property taxes and strong local services, the framework should reflect inflation, infrastructure lifecycles, and real service costs; not just how many new buildings went up last year.