City commissioner to chat about how property tax and sales tax increases could affect your pocketbook
August 21, 2007
This chat has already taken place. Read the transcript below.
Lawrence city commissioners have said they need between $5 million and $6 million per year to seriously tackle street maintenance, sidewalk projects and infrastructure improvements. Commissioners have been told by city staff that there are essentially only two ways to raise that kind of coin: A sales tax increase or a property tax increase. Each increase affects each segment of the city's population differently. Commissioner Boog Highberger, who has done research on the topic, will chat with readers about the issue.
Good afternoon. This is Dennis Anderson, managing editor of the Lawrence Journal-World. Our guest today is Lawrence City Commissioner Dennis "Boog" Highberger. Our discussion topic is local taxes and how sales and property taxes can impact residents differently. Welcome Boog.
Thanks, Dennis. Let's go...
I have several questions from readers. Here we go.
Dear Commissioner Highberger,
Are sales tax increases regressive?
Are higher property taxes regressive?
I remember reading that the City government has tripled in size since 1990. How does this increase compare to the percentage increase in population, and are all these employees necessary?
According to the Census, in 2005, 98.7% of the United States is employed by small businesses (0 - 99 employees), in Douglas County 97.99 % of the population is employed by small businesses (0 - 99 employees), how will a sales tax increase or property tax increase help small businesses and their employees?
And one final question, do you think the City government is living within our means?
Lunacydetector-- Good questions. I'll do my best to answer them concisely.
There is no questionnthat a sales tax is regressive, meaning that low income people pay a bigger percentage of their income in taxes than wealthier people do.
Property taxes tend to be regressive, too, because lower income people generally spend a higher percentage of their income on housing costs. I have seen data inndicating that in Lawrence, more than half of owner occupied households with an income of under $20,000 spend more than 35% of their income on housing, while over 90% of households with an income over $100,000 spend less than %20 on housing.
Putting these two sources of income together, we have a very regressive local tax structure.
I appreciate your statistics on small businesses, and I think this an area where we should focus more of our economic development efforts.
It is my impression from reading and observation that a small sales tax increase wouldn't impact sales significantly, except possibly for sellers of big-ticket items like cars. Of course, families who are already spending all of their income will be squeezed and will have to cut expenditures somewhere.
A property tax increase may not impact a business that is able to raise the prices on its goods or services to compensate. A business with high building costs and in a very tight market-- such as small businesses in downtown Lawrence-- could be negatively affected by a large property tax increase.
Lastly, I do not think our current city property tax rates are unreasonable. Our tax rate is below the median for the 10 largest Kansaas cities, and my impression is that it is very low compared to other cities we compare ourselves with, like Madison Wisconsin, for instance. If you own a $200,000 house in Lawrence, you will pay around $50 a month in city property taxes. If you have a $100,000 house it will be half of that. In return you get oloice protection, fire preotrection, parks, a library, a bus system, and many other services. I think it is still a pretty good deal. It is important to keep in mind, though, that city pfoperty taxes are only about a quarter of a homeowner's proprty tax bill.
How can you justify only taxing property owners for city infrastructure maintenance when all residents, including renters, use the infrastructure?
LarryNative-- I think it is a myth that renters don't pay property taxes. If your landlord is breaking even, you as a renter are paying property taxes. In a soft rental market, a small tax increase may or may not be passed on to most renters, but in general I think it is pretty clear that renters pay their share.
With the increase in population and businesses in Lawrence, the tax base should have automatically increased even more to cover the road maintainance. Therefore, what other new areas of city government growth have taken from this tax base to cause the short fall? This indicates that no other tax increase should be needed and the city should scale down it's government operation instead of continue growing endlessly, to operate on currently available funds and restrain it's growth and lessen the financial burden on the people of Lawrence.
Liberty-- You identify an important problem. One of the reasons our property taxes have gone up over the last 20 years is to pay for the costs of growth. Residences are taxed at 11.5% of their appraised value; business property in general is taxed at 25% of value. Our new residential growth is not paying for all the costs it has created, like the cost of building and staffing new fire stations and building a new wastewater treatment plant. I think we need to address this in two ways: 1) by increasing the percentage of business property in our tax base compared to residential property; and 2) by adopting impact fees-- paid only by developers at the time that property is platted-- to help offest the costs of new development.
Another thing that has happened during that period is that some services that used to be provided at the state or federal level have become the responsibility of local governments, and some transfers of state funding to local governments has been eliminated.
I've noticed that nobody seems to be discussing the city's study that said existing revenue structures would be insufficient to maintain the Lawrence's growth. The March 6, 2007 LJW said the consulting firm, TischlerBise, urged the city to "strongly consider creating new revenue streams - such as impact fees, one-time fees placed on a development to pay for its infrastructure."
Is there any plan to do so, or are we just going to keep raising property and sales taxes?
Phillbert-- The city commissioned an "Adequate Public Facilities" study before I was elected to the commission. The result of that study was a recommendation that we adopt an impact fee system. I think we should act on that recommendation as soon as possible.
How can you propose tax increases after the commission and city staff failed to produce any significant budget cuts ?
cowboy- I disagree that there not significant budget cuts. Our actual spending in 2007 will likely be less than in 2006, at the same time that many costs are increasing and the city is growing (although probably not as fast as it was 10 years ago).
I have two main goals for our city tax system: 1) That we raise enough revenue to provide the quality of life and excellent services that Lawrence residents expect and deserve; and 2) that we share the costs fairly.
One problem, as I mentioned above, is that all of our significant local sources of revenue-- sales taxes, property taxes, and fees-- are regressive. I think we need to find a way to raise revenue that does not unfairly burden low income and middle income families.
Why not hold the taxes where they are, and issue bonds to cover the cost of the improvements?
hipper_than_hip-- Because we would have to use tax money to make the payments on the bonds. I think it is good practice to use bonds for long-term apital projects-- like building roads and public buildings-- but they should not be used for operational expenses. If you use a 20-year bond to pay for something that only has a useful life of 5 years, you are just passing most of the cost off for someone to deal with in the future. During my time on the commission we have moved away from using bonds to finance street repairs (as opposed to new street construcrtion) for that reason.
That is also the reason that closing the city golf course would not save the city any money. Revenue from the golf course offsets annual payments on the bond used to finance the construction of the golf course. The amount of those payments-- which continue until 2016, I believe-- is higher than the difference between the golf course's income and expenses.
With housing costs already artificially high in Lawrence (IMHO) what will happen to the tax base if home values drop?
Centrist-- Good question, and I think it's one that your city & county commissioners & staff are alreeady losing sleep over. If home values drop, our property tax revenues will drop, and we will have to cut services, increase the mill levy, or find other sources of funding. Property taxes in Lawrence are a smaller percentage of our revenues than sales taxes, so a drop in property taxes would be a little less serious than a decrease in sales taxes, but it could still present a serious challenge to local governments
We're bona fide Lawrence folks. Been here our entire lives. We worked at whatever emeployment would have us; had no clue what might happen next....and here we are now at "retirement time". Our home is paid for, thank the Lord.
However, everytime we turn around, the property tax on this home just goes up. We put aside money every month to pay the property tax bill twice a year. However, as the taxes have gone up, our fixed income hasn't matched the increases. Relief: We need relief.
We recognize that relief could come on a state level, but we're looking for our local County and City to provide that relief, please. We've worked in and about Douglas county a combined total of 65+ years and we don't ask for much. Everytime we turn around, though, the things we worked for are now being given out in the forms of social service programming. We believe in those to a point. We believe in mass transit....to a point....but come on! We're fixed income people who don't know what a "vaction" is....unless you count driving to Kansas City for a nice dinner....we do cool and heat our house so that we're comfortable....but we worry about what happens when something breaks in this old house and our money has gone to pay taxes and we have none for repairs. Home equity loan? No way....no money in the budget for such a payment. Reverse mortgatge? We've looked into that and it may be a source of income...but that income isn't really very much....about $25k on a $150K house.
Why are our years of work and service to Lawrence put the wayside by you and your associates, Mr. Highberger? Isn't it time to address those of us who helped make Lawrence what it was so it could become what it is?
Pogo-- Thanks for your question. Your hard work and contribution to the community are very much appreciated. I suspect that many other people in Lawrence are in your situation-- they've worked hard all their lives, they've paid off their house and watched its appraised value get higher and higher, and now they are living on fixed incomes. I understand that this is a difficult situation, and I would like for the city to be able to defer increases in property tax payments for low-income seniors. The state government has not given us that authority, but it did increase the limit on the homestead property tax refund for low-income seniors. I hope that this change in state tax law will benefit you.
Do you think there is something unethical or immoral about taxing necessities such as food and clothing?
Stew-- Kansas is one of the few states that impose sales taxes on food, and we do not have any authority to change it at the local level. I would encourage you to contact your state legislators and urge them to finally get rid of sales taxes on food and other basic necessities. This would go a long way in making our local taxes less regressive.
We are out of time. I would like to thank the readers for their questions and Commissioner Highberger for his time answering those questions.