Lawrence City Hall, 6 E. Sixth St., Thursday, July 7, 2016

Among the questions that could go before Lawrence voters this year is whether three city sales taxes that support infrastructure and transit should be allowed to expire.

Combined, the sales taxes total .55 percent and generate millions annually. If not renewed by Lawrence voters, the taxes will sunset in March 2019. City Manager Tom Markus said given how important the renewal is, the City Commission will be asked to consider a course to take as part of budget discussions this spring.

“It just all makes sense, rolling it together with our budget and financial projections,” Markus said.

The three sales taxes, which are in addition to the 1 percent general city sales tax, generated $9.7 million to support infrastructure and transit in 2016.

Vice Mayor Stuart Boley said that whether to renew the tax and exactly how that money should be spent should be carefully thought out. He said it’s a decision that can’t be isolated from state tax policy and the city’s ongoing strategic planning process.

“It’s a lot of money, and we don’t want to make any hasty decisions,” Boley said. “…To a certain extent, what we have to do is take a look at where are we today in 2017 going forward for the next 10 years.”

When combined with the county and state’s sales tax rates, Lawrence residents pay 9.05 percent on their purchases, which in Kansas includes groceries. Boley said he thinks the commission also needs to consider how sales tax affects the city’s lower-income residents.

“The sales tax is a regressive tax,” Boley said. “It hits the people with the least ability to pay the hardest. And I think for a lot of people, taxing groceries is a big deal.”

Defining core services

Wrapped up in the sales tax renewal question is what services the city should continue to support.

The sales tax was passed with strong support from voters in a citywide election in 2008. Almost three-quarters of city voters, or 73 percent, approved the measure.

About half of the three additional taxes, or .25 percent, go toward transit, funding either the transit system’s operations or transit expansion, which could include funding a transit hub or the purchase of buses and shelters. The remaining .3 percent goes toward the city’s road and infrastructure repair.

Boley, who is a retired auditor with the Internal Revenue Service, said the decision on the sales tax renewal is part of larger decisions the commission is considering as part of its budgetary and strategic planning process. As part of the commission’s strategic plan, the city will determine what its core services are.

Boley said that is the first question that needs to be answered when considering the renewal.

“What does the community want us to provide in the way of core services?” Boley said. “How are we going to pay for them?”

That conversation is likely to have particularly high stakes for the city’s transit service, also known as the T. The transit service operations currently are funded almost entirely by the sales taxes that are set to expire in 2019.

Other ballot measures

Ultimately, the decision will go to Lawrence voters, and it will likely have company.

The city’s sales tax renewal wouldn’t be the only tax measure that local voters are asked to consider in the next one to two years. Already the Lawrence school district has scheduled a bond issue election that would require a property tax increase, and the Douglas County commission may seek a tax increase for a jail expansion and crisis intervention center project.

In an election May 2, voters will be asked to support an $87 million bond issue to renovate and expand the school district’s secondary schools, with emphasis going toward aging Lawrence High School. If approved, that measure would likely increase property taxes by about 2.4 mills. The Douglas County Commission is also considering a $30 million to $40 million for jail and mental health improvements, though it is unclear when that measure will go before the public.

Markus said the other measures are a factor, which is why he wants the commission to determine the calendar as part of the budget.

“I think that you don’t want to overwhelm people with all of those initiatives,” Markus said. “You could argue both ways, that they should all be on one election so people can vote what they think the most important priority is, or you can spread them out.”

At this point, Boley said he didn’t think the question of a city sales tax renewal would necessarily have to be put to voters this year, and could potentially wait until November 2018.

“Not unless we’re ready,” Boley said. “We’ve got this huge conversation that we’re going through on these things, and these things take time. People have to have a chance to learn and think about things and then make their decisions.”

Transit hub

When it comes to the city’s public transit, a key part of the equation is the future of a central transfer hub.

Determining a location for the transit hub generated ample local debate, with several locations being suggested and ultimately ruled out.

At one point, the city was considering locating a $30 million multimodal transit hub near the University of Kansas’ Ambler Student Recreation Fitness Center. That plan was abandoned last year after the city failed to win a federal transportation grant that would have covered half of the project’s cost.

Because the transit hub didn’t go forward when expected, Markus said the city’s transit fund has a sizable fund balance, and that the fate of the hub proposal makes a difference in the sales tax renewal decision. Markus said city staff are still considering potential locations, and that the goal is to have those options in front of the commission when they make the budget and sales tax decisions.

“At some point we’ll bring it back to the commission and kind of layout some options for them and try to get some direction moving forward,” Markus said. “Hopefully that all occurs within the context of the budget process.”

Other considerations

The decision regarding the sales tax renewal is also intertwined with other funding issues the city is encountering, including the state-imposed tax lid and what sources the city draws on to fund its operations.

State lawmakers recently imposed a property tax lid on cities and counties. The tax policy, which went into effect in January, requires cities and counties to get voter approval before increasing property tax revenues from one year to the next beyond the rate of inflation. The policy includes some exemptions, such as increased revenues from new construction or annexation of new territory.

The tax lid puts new limitations on how much Lawrence can raise from property taxes in a time when the funding ratio between property taxes and sales taxes is already uneven. For instance, in the 2017 budget, about 40 percent of the city’s general fund revenue came from sales taxes and about 25 percent from property taxes.

Boley said the local elements and the outside factors are all part of the decision that the commission and the public need to make regarding the sales tax renewal.

“They’re going to sunset in 2019,” Boley said. “We need to figure out what we’re going to do. Frankly, we as a community need to figure out what we’re going to do.”

The City Commission typically begins budget discussions for the upcoming year the first week in May.