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Archive for Sunday, August 19, 2007

Weighing options

City Hall needs more cash, but where will it come from?

August 19, 2007

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Raquel Alexander, KU associate professor of business, on sales and property taxes

Raquel Alexander, an assistant professor of business who teaches tax courses at Kansas University, discusses how sales taxes and property taxes may impact different groups of people.

Kate Naramore, who works at Cottin's Hardware, 1832 Mass., makes change for a customer on Wednesday, August 15, 2007. An increase in sales tax is one way the city can raise more money to fund its growing needs.

Kate Naramore, who works at Cottin's Hardware, 1832 Mass., makes change for a customer on Wednesday, August 15, 2007. An increase in sales tax is one way the city can raise more money to fund its growing needs.

About the numbers

The projected increase that someone would pay as the result of a new 0.5 percent sales tax is determined by using data from a national survey of spending conducted by the U.S. Bureau of Labor Statistics. The data, which was gathered by Lawrence City Commissioner Boog Highberger as part of his research into the sales tax issue, is from a 2005 survey, which was the most recent data available.

The couch cushions aren't strewn all over City Hall yet, but city leaders are looking hard for any extra money they can find to add to future budgets.

If they thought they could find enough spare change in the furniture, they likely would start digging. But city commissioners have said they need between $5 million and $6 million per year to seriously tackle street maintenance, sidewalk projects and infrastructure improvements that would make the city more attractive to new companies that can produce jobs and new tax revenue.

That money won't be found in the couch or hidden in some obscure part of the city budget. Commissioners have been told by staff members that there are essentially only two ways to raise that kind of coin: A sales tax increase or a property tax increase.

So, put aside for the moment whether the city really needs the extra money, and ask yourself this question: Which tax increase would be better for you? You'll have to decide, but here are some basic arguments and facts tied to both taxes.

The basics

Commissioner Mike Amyx has proposed a 0.5 percent sales tax to fund streets, sidewalks and economic development-related infrastructure. It would raise between $5 million and $6 million per year. For the purpose of this comparison, we'll say it raises $5.5 million per year. Voters would have to approve the sales tax increase as part of a citywide election. A date for that hasn't been set. Lawrence now charges 7.3 percent in sales tax, with 5.3 percent of it going directly to state coffers.

What hasn't yet been proposed by commissioners is a property tax increase to raise the same amount of money. The property tax rate would have to be raised by 6.67 mills to generate the same amount of money as the proposed sales tax. A mill is $1 in tax for every $1,000 in taxable property value. (A home's taxable value is only 11.5 percent of its fair market value.)

City commissioners are scheduled to discuss Amyx's sales tax proposal at a meeting at 4 p.m. Aug. 27 at City Hall.

The low income

The No. 1 argument against a sales tax is that it is a regressive tax, meaning the poorest people pay a larger share of their income to pay the tax than rich people do.

"I'm not really too enamored with the sales tax for that reason," said Raquel Alexander, an assistant professor who teaches tax policy at Kansas University's School of Business. "Besides, Kansas' sales tax is already pretty high."

Alexander said in Kansas the situation is made worse by the fact the state does not exempt grocery sales from the sales tax.

But some are beginning to question whether a sales tax in Lawrence is any more regressive than a property tax increase. That's because Lawrence's housing prices generally are considered among the highest in the state.

"What my research has been showing me is that property taxes are really regressive, too," said City Commissioner Boog Highberger, who previously has been pessimistic about a sales tax increase. "That is the problem with our local tax structure - every way we raise money really impacts the low income."

The Lawrence factor

Here's what Highberger is talking about: A person making $12,000 per year and living in a $30,000 home would pay an extra $36 per year in sales tax - using national spending averages for that income group - under Amyx's sales tax idea. If the city were to raise the mill levy by 6.67 mills, the person would pay an extra $23 in property taxes on his or her home.

Clearly, the property tax is better for that person. But here's the question: Is anybody really living in a $30,000 home in Lawrence. A review this week of the Multi List System of homes for sale in Lawrence found none on the market priced at or below $30,000.

If that same low-income person lived in a $50,000 house, the issue of whether a sales tax or property tax is better basically becomes a wash: $36 more per year in sales tax or $38 more per year in property tax.

In general, an analysis by the Journal-World found that any household making $24,000 per year or less but living in a home valued at $75,000 or more is likely to pay more through a property tax increase than a sales tax increase.

The middle class

If you fall more into the middle class, it is a closer call. A lot of it depends on whether you have followed the general rule of thumb about living in a house that is approximately 2.5 times the amount of your household income. If you're living in a house that's less expensive than that, the property tax increase may be better for you. If you are living in a house more expensive than that, the sales tax may be the less painful way. Here's a look at some scenarios:

¢ Live in a $90,000 home and make $36,000 per year: Would pay $72 more per year in sales tax or $69 in property tax.

¢ Live in a $100,000 home and make $36,000 per year: Would pay $72 more per year in sales tax or $76 more in property taxes.

¢ Live in a $120,000 home and make $48,000 per year: Would pay $82 more in sales tax or $92 more in property tax.

¢ Live in a $150,000 home and make $60,000 per year: Would pay $102 more in sales tax or $115 in property tax.

The upper class

If you are in the upper income brackets, the analysis becomes simpler. The sales tax almost always is going to cost you less than the property tax.

"Certainly, people who have a lot of property stand to lose the most from a property tax," said Alexander of KU.

In this town, that doesn't just mean the upper income people. It also means landlords, who may be paying property taxes on multiple houses.

Renters

So, what about renters? Determining whether a sales tax or property tax is better for that group can get complicated.

Amyx and other supporters of a sales tax say renters should be plenty concerned about rising property taxes, because any increase in property taxes will get passed along in the form of higher rents.

Alexander said that's only true part of the time. She said in tight rental markets - where landlords are able to easily rent most of their units - a property tax increase is going to result in higher rents. But in a soft market - where there are more apartments than there are renters - it could be difficult for a landlord to simply increase rent to account for a tax increase. If the landlord does, he may end up with even more empty apartments.

"I don't think you can say that it automatically will be passed along," Alexander said.

Lawrence's rental market generally is considered soft, which means some renters may feel the bite of a sales tax more than a property tax increase. About half of all Lawrence residents are renters.

The elderly

Amyx said he's basing his support for a sales tax, in part, on what he hears from senior citizens and retirees. He said people on fixed incomes particularly find the property tax concerning. They may be living in homes that are paid for, but have a difficult time paying for the increasing property tax bills.

"We don't want to get in a position where people are being taxed out of their homes," Amyx said. "These are people who have lived in their homes for a long time, and have paid taxes and supported the projects we have in our community for a long time. I don't ever want to get in a situation where we are taxing them out of their homes."

Alexander, though, argues that a sales tax may hurt senior citizens just as much as a property tax increase. What's different is that the sales tax hurts a little bit at a time, while the property tax is paid in a lump sum.

"When you have to write one or two large checks to pay your property taxes, it is pretty easy to see how much it went up," Alexander said.

Out-of-towners

The other big factor that Amyx likes about a sales tax is that non-Lawrence residents help pay it. He said using a sales tax to help repair streets would be wise because many non-Lawrence residents use the city streets.

"We're a destination," Amyx said, "whether it be for football games or university events or our downtown."

Comments

Ragingbear 7 years, 4 months ago

You could always stop building roundabouts, but that would make sense now. Wouldn't it?

johnadavies 7 years, 4 months ago

This isn't a mean question but is there not a way to focus the property tax on those newer and bigger west side monstrosities that are driving the whole budget up? Something that raises the value on the bigger houses; probably mostly built here to avoid higher taxes in JOCO? I agree with Mike Amyx that the retired people shouldn't be kicked in the pants. I'd also be willing to see a sales tax increase on "big ticket" items and leave the grocery stores alone!

KS 7 years, 4 months ago

The three basis esentials in life should be void of any taxation. Food, clothing and shelter. A limit on shelter could be considered. Have at it with everything else. Cell phones, automobiles, boats, cable TV, income, etc. Oh wait, the City and Kansas already tax those. Hum! Let's see now, what else we can tax? How about the air we breathe? Everyone would have to pay to just stay alive. Sort of sounds like we are doing that already? Nowhere in this article did I see anything about the City spending less! Like every budget, personal or otherwise, there has to be waste. Why is it always about wanting more, how to tax, who to punish?

Sigmund 7 years, 4 months ago

City staff missed a couple of options like cutting other parts of the budget and sending the Commission out on the streets to beg for money next to all the homeless littering downtown. But seriously, this is typical strategy for those that want to raise your taxes. "Gee, we funded everything else FIRST, and then ran short on sidewalks and streets!"

Get real.

cowboy 7 years, 4 months ago

After the gutless wonders failed to find any efficiencies in the entire city budget. I'm sure this is because each area runs completely efficient , and every request if denied would have shut the city down , we now are having this increase rubberstamped. They already have increased sewer , water ,permits , tickets , court costs , pool fees , and a piddly increase n the T.

The PR war of hysteria put on by the city staff was so transparent and yet so effective " Were going to kill puppies to balance the budget" , "All old people will have to leave lawrence" ,

We need a real city manager , new financial staff , and a council and mayor structure.

monkeyhawk 7 years, 4 months ago

"But city commissioners have said they need between $5 million and $6 million per year to seriously tackle street maintenance, sidewalk projects and infrastructure improvements.........."

So, I'm confused. Are the "sidewalk projects" new ones or existing? If they are existing, is the property owner responsible, or is the city responsible for repairing city sidewalks?

I really have to wonder if "infrastructure improvements" is a veiled term for the toxic waste dump, otherwise known as the former Farmland plant? If so, how much of the tax increase is dedicated to obtaining and making the land inhabitable?

I agree that it is time for the city to make firm decisions to reign in their own house first before taking more from us. In a time of financial uncertainty, it does not seem prudent to aggressively pursue pie in the sky projects when the city is not able to fund the most basic of city services without sticking it to the populous.

Richard Heckler 7 years, 4 months ago

From what I've been told the Vermont development plan by Fritzell's will be back on the table. They are still looking for taxpayer assistance to make the Eldridge Hotel a convention center with a ballroom. Also I assume they want taxpayers to assume responsibility for new parking to accompany the hotel addition not to mention some commercial venture. I think Fritzells and other venture capitalists should go to the bank and borrow the money.

The New Hampshire parking garage was bailed out by the city, Riverfront Plaza has been partially bailed out by the city and Tanger Mall is relying on government offices yet still has empty space all at a cost to the taxpayer. Empty retail space everywhere with yet a ton more approved that has yet to begin construction. The retail dollars are not available to support sprawling retail projects.

The grapevine says folks downtown(government) are looking to declare even more land for industrial use however for whom? More millions for infrastructure outside of town. What's up with Farmland?

Ideas: Blue Collars Go Green Sierra Club is on to something new http://www.grist.org/news/muck/2006/06/16/alliance/ http://www.minesandcommunities.org/Action/press1183.htm http://laborstrategies.blogs.com/global_labor_strategies/2007/04/a_bluecollar_un.html

Maintaining existing infrastructure has yet to be accomplished which I assumed was going to be underway by now.

A half cent sales tax increase for the April election? This should require some explicit details rather than some general comment such as" economic growth". How do city leaders know what will work in Lawrence? Are we still guessing?

Lawrence created a pickle in its' 25 year expansion of the tax base which obviously has not created a consistent enough stream of tax revenue to not only support existing older infrastructure but to keep property taxes consistently at a normal 4% increase. What troubles me is that the group the led the 25 year expansion of our tax base primarily by constructing tons of new residential thus created a bedroom community is now in control of the County,City and Planning commissions and still in control of the chamber, as was the case during a huge lions share of that tax base expansion, which did not work. From what I've read bedroom communities consistently have high tax problems.

Projects I could support is the over due care of older sidewalks,getting on with the east portions of the hike and bike trail that would one day hook up to the existing trails on the west side and on site expansion of the library. Demonstrating with action to the taxpaying citizens and visiting public that Lawrence cares for its' downtown business district and older neighborhoods would probably do a lot towards increasing economic growth and tourism. Tourism dollars and nice old college towns should not be taken lightly.

monkeyhawk 7 years, 4 months ago

"This isn't a mean question but is there not a way to focus the property tax on those newer and bigger west side monstrosities that are driving the whole budget up? Something that raises the value on the bigger houses; probably mostly built here to avoid higher taxes in JOCO?"

What do you figure the tax bill is on a $500,000 house in Lawrence? ("monstrosies" are not particularly limited to the west side, mind you) My guess is that it might be close to $6000 or more annually.

The avoiding higher taxes in JoCo thing .............. when was the last time you were house hunting there? It is my experience (and I am always in the market) that a house with the same value as mine here, in Leawood carries a substantially LOWER tax bill.

LogicMan 7 years, 4 months ago

"Let's see now, what else we can tax? How about the air we breathe?"

You might be surprised. Years ago I considered moving to State College, PA (Penn State), but fortunately found out in advance of their attempt to do such -- an occupation tax. Even students were hit with it. Knew I couldn't abide it, so looked elsewhere.

Dorothy Hoyt-Reed 7 years, 4 months ago

I won't mind paying these extra taxes if the improvements are going to be east of Iowa, but they are already complaining because Wakarusa has a couple of hairline cracks, which ruin the whole Johnson county ambiance. I wonder how many of these McMansions on the west side have been financed with interest only loans?

jumpin_catfish 7 years, 4 months ago

Back up slowly and put your back to the wall because here it comes! It's called slow death, an inch at a time. Next year it will be the same thing and the year after that, never great like we can cut your taxes. The bloom is off the rose.

Janet Lowther 7 years, 4 months ago

I don't believe this analysis includes Federal income tax consequences: Most of those middle-class taxpayers are effectively paying only 75% of their property taxes, because they are deductible when they itemize their taxes, while not a penny of sales taxes are deductible on the same return.

I don't know about anyone else, but as a commuter, another half percent sales tax will move a lot of my routine purchases to Topeka.

lunacydetector 7 years, 4 months ago

cut the b.s. projects, cut city staff (other than just a token two), cut city salaries for the upper echelon, make property owners fix their own damn sidewalks like they're supposed too, THEN lower the sales tax to create more sales volume from outsiders. i guarantee lawrence small business will boom.

curiousdre 7 years, 4 months ago

johnadavies (Anonymous) says:

This isn't a mean question but is there not a way to focus the property tax on those newer and bigger west side monstrosities that are driving the whole budget up? Something that raises the value on the bigger houses; probably mostly built here to avoid higher taxes in JOCO?

...There are many places in Johnson County that have lower property taxes than Lawrence. I'm not saying this to be anti-Lawrence (I really like it here), but just to state the facts. The last time I looked, Overland Park was particularly low...I'm not as sure about how the school taxes compare, but I know Lawrence has a relatively high school tax, too.

I'm not sure that Lawrence is wasting much money, but it seems like they've overestimated how much revenue their tax rates would generate the past few years. Wasn't it just last Spring that they announced the sales tax shortfall?

For what it's worth, I think I'm in favor of the property tax increase. It's a more reliable revenue stream, and a sales tax increase seems to be somewhat at odds with the emphasis on economic development that so many folks want to see in Lawrence.

Also, the money budgeted for traffic calming devices (roundabouts) in the 2007 budget was 250,000. This money was also designated for sidewalk connectivity, and comprised less than 0.2% of total city expenditures. While you may not like them (although they do seem to slow people down and are mandated by the state), I doubt they are the reason for a tax increase.

lunacydetector 7 years, 4 months ago

this all started when the progressive commission started dipping into the reserve funds. the money spent on roundabouts by the previous commission was ridiculous. didn't lawrence spend $2 million on a new extension to the bicycle path (out by clinton lake) ?

Wilbur_Nether 7 years, 4 months ago

Haveya ever noticed that when someone prefaces a comment with a statement like "Not to be mean, but..." they immediately follow it with something judgemental and, well, mean?

Fred Whitehead Jr. 7 years, 4 months ago

It never ceased to amaze me that elected officials, supposedly intelligent people, have not yet learned the basic facts. Anyone who has a family, home and obligations knows this. DO NOT SPEND WHAT YOU DO NOT HAVE. Credit card companies hate this approach. But luckily for them, most folks do not heed this dictum. There are a number of things that the city does not need, like tearing up perfectly good intersections to build the faddish European style roundabouts or traffic circles, whatever you call them. We have managed for many decades in Lawrence without public transportation, yet the money- stressed commissioners seem to feel that we need to keep the under-utilized, self-aggrandizing bus system. Many cuts in the services would be beneficial, in my opinion the only really needed public transportation is the paratransit services that are provided for those that qualify for needing them. The notion that is is the perview of city government to select and appose development of job-producing businesses to orotect downtown Aggieville East is completely fraudlant, the joe-college businesses downtown will survive very well unless the university moves all of it's home games to Kansas City or Egypt or somewhere they can also scrape more dollars off of the loyal fans.

The solution is easy, if only these people will admit it. Do Not spend money youdo not have. How hard is that to comprehend, folks??????

KS 7 years, 4 months ago

Build more round abouts and trust me, the folks west of Iowa do pay. You are smoking something if you believe they don't. But, then again, this is Lawrence, Kansas afterall. Sorry, I forgot.

toefungus 7 years, 4 months ago

This is a nonsense debate. No more taxes is the correct response.

Bud Stagg 7 years, 4 months ago

You impact fee idiots amaze me. You want to slow growth? Growth is the only thing keeping people employed. Our builders are now building elsewhere because people are moving elsewhere. When are we going to start doing things to ATTRACT people to our city? More people mean more jobs, more money in the economy, more taxes, which means more money for infrastructure. Growth is not the problem, it is the answer to the problem.

I think we should charge the people in older parts of Lawrence impact fees because their streets and sidewalks are falling apart. Why should I have to pay for that?

If you compare tax rates to other cities in Kansas and around the country I bet we rank high on the tax scale. We have High sales tax and high property values which makes us have the highest of property taxes. Something is wrong here. We obviously have too many city services and expenses for a city of our size.

Running a city is like running a business. If your bottom line is off, you look at expenses or you generate more income. If expenses are in line then that means your pices are too low or you don't have enough customers . If your prices are already high for the market, then you need to attract more customers. Cuts to services are the answer here not higher taxes. In addition, We need to attract more and better taxpayers to sustain the services, not raise taxes. We need to attract some industry and jobs. If we grow the city, the taxes grow too.

Yabut 7 years, 4 months ago

I have an idea. How about reducing the number of staff in the city manager's office? There's the city manager, soon to be two assistant city managers plus an assistant to the city manager and a secretary. How many more positions are there? How many positions do they need? City government is becoming too top heavy. Why is it that every city department had to reduce their budget except for the city manager's office? How can the city justify hiring new employees when there were several others that were let go due to the budget crisis? How can the city threaten to cut the hours of the T and the pool because of money and yet turn around an hire new people? Obviously the "budget crisis" isn't as bad as we were led to believe.

Godot 7 years, 4 months ago

Cut entitlements, reduce the wages and benefits of professionals on the city staff, cut funding of outside agencies, shut down the T and shut down Eagle Bend. No tax increase.

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