Local governments concerned about property tax lid

The state government’s budget problems would find their way to city halls and county courthouses if the state adopts a concept included in a Senate-passed tax bill that places a lid on local property taxes, several area government administrators and elected officials said Monday.

“Now, the state, which can’t manage its own money, is trying to drag me down with them,” said Chris Lowe, city administrator for Baldwin City.

Frustration was flowing from a multitude of government offices across the area Monday as word spread that the Senate had passed a tax package Sunday that included a provision to cap on how much local governments could collect in property taxes in a given year.

The House was scheduled to debate the tax proposal and accompanying property tax lid on Monday, but the bill was unpopular and House leaders opted not to put it to a vote. Local government officials were holding out hope the lid — which wouldn’t take affect until 2018 — would be defeated this year, but predicted the issue could re-emerge in future sessions.

The proposed tax lid has several elements:

• Cities, counties, school boards, townships and other local governments would be limited in how much they could increase property tax collections in any given year. The rate of increase would be limited to the rate of inflation as measured by the Consumer Price Index.

• Taxes collected on new construction or newly annexed areas would not count against the cap total. But increases in property values would count against the cap. That means, for example, if the real estate market caused property values to increase by 5 percent, but inflation registered only 2 percent, local governments would have to reduce mill levies to ensure total property tax collections didn’t increase more than inflation.

• Local governments could raise property taxes by more than the rate of inflation if a majority of voters approve the increase. But area budget makers on Monday were confused about how such elections would work. The law indicates such elections would have to be held in August or November.

An August election would come right at the end of budget processes for cities and counties. Douglas County Clerk Jamie Shew said he normally requires ballot questions to be submitted 70 days in advance of an election. That means cities and counties would have to ask for an election before they had basic budget figures, such as the estimated tax base for a community. Those numbers aren’t normally available until late June or early July.

“It looks like they are going to be asked to used their crystal ball to figure out whether they need a tax increase,” said Erik Sartorius, executive director of the League of Kansas Municipalities.

An election in November, though, may be even more problematic, some officials said. By November the budget for the next year already has been approved, and tax bills to support that budget already have been mailed. That would mean any tax increase sought in November would be for a budget more than 13 months away.

“It is a lid with no escape hatch,” Douglas County Administrator Craig Weinaug said. “It is hard to see how you would ever be able to call an election that meets the requirement of the law.”

The issue of election timing was one of several issues that confused local officials. The idea of a property tax lid was not raised until the 105th day of the legislative session, and no hearings were held on the proposal before it was included as part of the Senate tax plan.

“It is an excellent example of how poorly legislation can be written if you don’t take any time to discuss it,” Weinaug said.

Sen. Jacob LaTurner, R-Pittsburg, added the tax lid to the Senate legislation. He said the proposal may not be popular with government administrators, but he thinks it is very popular with most Kansas residents.

“Property tax is the most hated tax in Kansas,” LaTurner said.

He also defended how the idea emerged without a public hearing to give opponents of the proposal a chance to voice their concerns. He said such amendments to tax bills are common.

“People who complain about the process just don’t like the legislation,” LaTurner said.

LaTurner also said some of the logistical issues related to election timing will “require some planning on the part of cities and counties.” He said if changes need to be made to some aspects of the cap, they could be made during next year’s legislative session.

If approved, the tax lid would not begin until Jan. 1, 2018. That might cause some local governments to consider increasing property taxes in their 2016 and 2017 budgets, some officials said.

“I think we will be faced with whether we raise property taxes now because we can and we won’t be able to later,” said Lawrence Mayor Jeremy Farmer.

Farmer stopped short of saying he would support such a plan, but said it is an option that needs to be considered. Communities that collect more in property taxes before 2018 will have greater cap space than those communities that collect fewer property tax dollars.

“I think it is a conversation that we have to have as a community,” Farmer said.

Sartorius, the leader of the League of Kansas Municipalities, said that question was floating through several city halls across the state. He said many elected officials, though, are still trying to fathom how the state’s debate about its budget took such a sudden turn toward local tax rates.

“It is certainly frustrating to our members,” Sartorius said. “The bond ratings of many cities in Kansas exceed, by far, the bond rating of the state of Kansas. I think the preponderance of evidence is that cities are managing themselves very well.”