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Archive for Sunday, May 25, 2014

Town Talk: Are taxes too high here?

May 25, 2014

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It is time once again to try to answer the question that just never goes away: Are taxes too darn high here?

Whoa, let's not all talk at once. Instead of people pounding tables and throwing coffee cups, I thought we would try to look at some numbers. Don't worry, I'll do the arithmetic. (They're big numbers, so I've already added extra beads to my abacus.)

About the numbers

We compare the 16 communities in Kansas that have populations of 25,000 or more. The tax rate data comes from the League of Kansas Municipalities' most recent tax rate data book. The housing and income data are five-year averages from the most recent American Community Survey, which is conducted by the U.S. Census Bureau.

But before we get into the numbers, here's a reminder of why now might be a good time to have this discussion. Lawrence city commissioners are having serious talks about whether to place a sales tax increase on the November ballot. The tax — the amount hasn't been specified yet — would pay for a new police headquarters building and perhaps some other projects. A property tax increase for the headquarters hasn't been completely ruled out either. In addition, at least one commissioner has proposed a small property tax increase to fund sidewalks, trails and other such improvements.

Also, it wasn't long ago that we reported new federal numbers showing that Lawrence was the most expensive metro area in the state in many regards. That news didn't thrill anyone, but one comment I heard from several local government officials was: At least our tax rates aren't that high compared to other Kansas cities.

Well, that may be, but let's get the abacus out anyway.

Property tax rates

This is a look at the total property tax rate for communities. That means, city, county, school district and other agencies such as fire districts, cemetery boards and other such entities that exist in some communities. Indeed, out of the 16 communities viewed, Lawrence has one of the lower property tax rates in the state. Maybe those government folks knew of what they spoke.

Highest property tax rate: Dodge City: 188.27 mills

Lowest property tax rate: Overland Park: 113.71 mills

Median: 135.15 mills

Lawrence: 11th highest rate out of 16; 126.54 mills

Property tax rates and housing values

Welcome to the David Copperfield part of the show. Here's an example of how with just one twist here and one turn there, an item can be much different than it first appeared. With property taxes, the twist is housing values. The average home doesn't cost the same amount in each of these 16 communities. If you don't believe me, take your $100,000 and let me know how you like your cardboard box in Leawood. So, I used census data that measures the median home price in each community, and then calculated the property taxes that would be due. Lawrence doesn't fare as well on this list, but it is still somewhat in the middle of the pack.

Highest total tax: Leawood: $5,745.

Lowest total tax: Wichita: $1,684

Median: $2,193

Lawrence: No. 7 out 16; $2,568

The income equation

The average income in all these communities also is not the same. If you don't believe me, take your saltines and spam to the average Leawood cocktail party, and let me know how that goes. So, I took some earnings numbers from the census. This was kind of tricky. I used a figure that measures the median earnings for a full-time, year-around worker in each community. (Technically, it is a male worker. Data that combines the average earnings for females and males were a little tougher to get a hold of for each community.)

I used this number because more ordinary numbers, like per capita income, catch a lot of college students in Lawrence who don't have much income because they are still being supported by their parents. I think those numbers artificially deflate Lawrence's income totals, so I was looking for a way to avoid that.

One last caveat: This method really is just a way to rank the communities. It isn't meant to show how much of the average household's paycheck goes towards property taxes. I recognize many households have dual incomes. For the purpose of this ranking exercise, we're using only the income of an average, year-around, full-time male worker. So, while the percentages may not be as meaningful as I would like, I believe the ranking of the communities is meaningful.

As for the results, Lawrence doesn't finish where many folks would like.

Highest: Manhattan; 6.56 percent of income toward property taxes

Lowest: Wichita: 3.66 percent of income toward property taxes

Median: 4.96 percent of income toward property taxes

Lawrence: 2nd highest; 5.74 percent

Sales Tax Rates

When it comes to funding a new police headquarters that could total $30 million, a new sales tax is the leading candidate in Lawrence. Currently, Lawrence is a middle-of-the-pack community in terms of its sales tax rate. But, if Lawrence adds a 0.2 percent sales tax — the lowest amount mentioned thus far for a police headquarters — Lawrence would have the third-highest sales tax of the 16 communities. (That's assuming other communities don't raise their rates, too.) Any addition above a 0.7 percent sales tax would give Lawrence the highest sales tax among the 16.

Highest: Junction City: 9.4 percent

Lowest: Wichita: 7.15 percent

Median: 8.66 percent

Lawrence: 8th highest out of 16; 8.7 percent

The Whole Ball of Wax

It would be good if we could somehow tie the property taxes and the sales taxes together to create an overall picture of the tax burden of a community. In all honesty, that is tough trick to pull off. (I suppose that's why Copperfield gets paid the big bucks.)

I tried a few methods, but here is the one I settled on: I have a list that ranks each community based on how much property taxes an average homeowner pay as it relates to his income. I have a list that ranks the communities based on their total sales tax rate. If a community ranks well on both lists, that is probably a lower tax community. If a community ranks poorly on both lists, that is probably a higher tax community.

So, I gave each community points based on how they landed in each list. The higher the point total, the lower the tax burden. Here's an example: Lawrence had the second highest percentage of property taxes paid compared to its income: so, two points. It had the 8th highest sales tax rate: so, eight points. That's a grand total of 10 points, if the abacus is correct.

When I did that for every community, here is how it came out from best score to worst:

  1. Wichita: 32
  2. Hutchinson: 27.5
  3. Salina: 25
  4. Overland Park: 23.5
  5. Leawood: 22.5
  6. Garden City: 20
  7. Topeka: 18.5
  8. Shawnee: 18
  9. TIE Lenexa: 14; Olathe: 14
  10. Manhattan: 13.5
  11. Kansas City: 11
  12. TIE Lawrence: 10; Leavenworth: 10
  13. Dodge City: 8.5
  14. Junction City: 4

So, are taxes too high in Lawrence. The honest and simple answer is: I don't know. You'll have to figure that out.

And, you'd better get started. You may be asked to decide in November.

Comments

Brock Masters 2 months ago

I don't have a beef with the taxes I pay, but i do have one with how we give breaks to private developers instead of collecting taxes from them.

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Bart Johnson 2 months ago

Your post reminds me of the scene from 1984 where the guy says "Do it to Julia!"

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Jim Fisher 2 months ago

8.7%. For the privilege of making a purchase

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Dorothy Hoyt-Reed 2 months ago

We should also look at quality of life as well. You could move to Wichita and pay lower taxes, but there are a lot of social problems in Wichita that are not being addressed. Businesses in Lawrence gear themselves toward college students, so our younger children don't have much to do, but we have community rec centers and other activities through Parks and Rec, that give them activities. Our tax dollars help pay for a great Boys and Girls club, which really help to keep kids from being "latch key" kids, home alone with nothing to do. We have beautiful parks, wonderful fire fighters, and friendly police. We have great trash guys and soon we'll have recycling too. We have our problems in Lawrence too, but not as bad as in Wichita. If you really want to pay fewer taxes, then I guess a move to Wichita is in your future. Frankly given a choice between Wichita and Lawrence, I'll take Lawrence every time.

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George Lippencott 2 months ago

Morning,

Nice piece! One of the challenges I have experienced while trying to compare things is exactly what you grappled with in trying to draw conclusions across taxes. My problem is that all the taxes listed are of significantly varying amounts. Sales tax as a percent of income will vary with income but generally number in the hundreds of dollars (unless buying a car). Property tax even at a modest income level (average home) are significantly larger (1000s) (maybe depending on property value and income/spending patterns). That is why I never make a cross tax comparison. Your version treats them as equal.

Now when using average home value it is not at all clear that higher property taxes means richer people. Some people (not uncommon in Kansas) pay nothing on a loan (the property is paid off) but may pay a lot of property tax as the property has appreciated. There are older residents of parts of downtown in that situation.

While owning a $400,000 home may indicate somebody with substantial means it may also indicate somebody who is house poor or somebody with substantial equity in the home (equity representing savings for retirement not disposable income)

Taxes are taxes and we pay a lot. Everybody paying them is not rich and except for some aspects of the income tax they are not progressive with income.

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Thomas Shorock 2 months ago

Good place to start thinking about it.

If you were to pick the most outlying variable, it's our low income (or commuting costs effectively reducing income). Houses are... hard to judge, just because they aren't fungible. That said, held constant, a "1500 sq ft 1970s ranch on a quarter-acre lot" is certainly higher here than elsewhere in the state. On the other hand, a lot of people who would live in that level of house in Salina will live in a townhouse here.

One major difference is that we aren't supporting a Community College budget in Lawrence. That's a very large component of the mill levy on a Dodge City or Pratt house. The counties who host a Regents institution aren't part of a Community College tax base (the theory being equalization... the community incurs costs hosting students and the largest employer is tax-exempt). Shawnee county residents put quite a bit into Washburn. JCCC has a big budget, but a trifle compared to the tax base. Wichita may have the best deal... the indirect cost of hosting WSU is small compared to the size of the city.

Agree with Mr. Lippincott above, income and housing values are pretty hard to relate. On the flip side of house-poor, I also know some millionaires in East Lawrence ramblers. Perspective is something, too. My uncle in New Jersey inherited the family home. Very average house, blue-collar neighborhood. More expensive than here ($250-300k for a house that would get $175k in Lawrence). But, his "paid off" house? His property tax bill is approaching $10k a year! Again, perspective.

The X-factor is 'desirability'. The number of people who live in Lawrence and either commute, despite it being clearly cheaper to live in Topeka or Olathe, or accept lower wages suggests that quite a few people simply want to live in Lawrence. Which I think resonates with a lot of us.

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Susan Mangan 2 months ago

While I'm sure many people WANT to live in Lawrence, don't make the mistake of assuming that if someone wants to move, they will. Two of our neighbors had their houses on the market for over a year (one over 2 years) because they had job opportunities in another town and wanted to move. But neither could get anywhere close to their asking price (well below the prices they paid, originally), and they finally had to, either, take a loss on their house, or stay in Lawrence for a lower paying job. They both chose to take a loss on their house. The decreasing population has major implications for people trying to get out. Implying that, simply being here, means people love Lawrence, and WANT to be here, ignores a very real group of people who feel they are here because they are financially "trapped".

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Julius Nolan 2 months ago

Maybe they over paid to start with, now real value is what they had to take. Far too many are too quick to buy without really looking at what they are buying.

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George Lippencott 2 months ago

MAYBE THEY ARE JUST OVER TAXED???

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David Burress 2 months ago

As an economist, I am impressed with the workmanship of this article. You very rarely see this kind of thing done without a misstep. Granted, many improved comparisons are possible--e.g. as an economist I might have preferred a better way of aggregating sales taxes with property taxes--but in terms of direct methods understandable by the general reader this is about as good as it gets. David Burress Lawrence

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Chris Ogle 2 months ago

I can no longer afford to live in the Lawrence area due to taxes. I pay over $700.00 a month for taxes and insurance alone. Combine tax rate, and appraised value and it really adds up.

In no way shape or form could I sell my home for appraised value. No joy at the appraisers office either.

It saddens me to think that I worked hard, paid off my home, and now can't afford to live in it.

Just one more retired person being taxed out of town.

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Richard Heckler 1 month, 4 weeks ago

Taxes come in the form of water and sewer rates,user fees etc etc etc. These have increased over and over and over and over. These tax increases are taxes that taxpayers never get to vote on.

Lawrence is known as the highest cost of living combined with some of lowest wages in the state.

The $30 million rec center is a tax increase. The new sewer treatment expansion is a tax increase.

23rd Street maintenance will become a tax increase when the traffic way is finished. There are plenty of back door tax increases.

The special sales tax FOR developers is a tax increase. Taxpayers are on the hook to support all of the tax dollar handouts to developers. Nickel and dimed to poverty.

In reality inflated real estate values are ways to increase taxes.

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