Topeka As Kansas lawmakers look for additional money to respond to a recent Kansas Supreme Court decision on school finance, one source they are starting to examine is the vast amount of commercial and industrial property in Kansas currently exempt from property taxes under city and county economic development programs.
That issue came up in the Senate tax committee Tuesday as it debated a bill to renew the statewide 20-mill property tax levy that partially funds public schools.
Kansas began levying that tax, which was originally set at 35 mills, when lawmakers overhauled the school funding system in 1992. The Kansas Supreme Court, however, has said the Legislature only has constitutional authority to levy that tax for two years at a time, so the Legislature has to pass a bill every other year to renew the tax.
During that discussion, Mark Tallman of the Kansas Association of School Boards suggested that as part of any plan to address the Supreme Court's decision, lawmakers may need to consider raising that tax.
"We do think this is an avenue you could look at as you consider other issues," Tallman said.
Under current law, the tax is levied against all property in the state. However, the law exempts the first $20,000 of appraised value on residential property.
That tax generates a little more than $600 million a year, which is only about 13 percent of the total K-12 education budget. The remainder comes from the state general fund, federal funding and local property tax levies.
Many lawmakers, however, said they are very reluctant to consider raising property taxes.
"There are portions of the state where people feel they are taxed so heavily on property that they're leaving their communities, and to increase the mill levy would just exacerbate that situation," said Sen. Dan Goddard, R-Parsons.
Tallman, however, noted that when the statewide levy was first enacted, it was actually a huge tax cut for most property owners because prior to 1992, funding local schools was largely a local responsibility.
The state took over central responsibility for funding schools that year in response to an earlier constitutional lawsuit which argued that taxpayers across the state were being treated differently, and the quality of schools themselves varied widely, based on the property wealth of the school district.
But it was the committee's chairwoman, Sen. Caryn Tyson, R-Parker, who raised the question about how much property value has been abated from taxes through city and county economic development programs.
Under a 1986 constitutional amendment, cities and counties in Kansas were given authority to grant total or partial property tax abatements for up to 10 years in order to attract new business and industries.
But that amendment passed before the state took over funding schools and enacted the statewide mill levy. Since then, the state has faced an awkward situation where cities and counties have authority to exempt someone from having to pay a state-imposed tax.
Sen. Anthony Hensley, D-Topeka, who served in the House in 1992, said there was an attempt in earlier years to pass legislation to block cities and counties from abating the 20-mill school levy, but that effort was narrowly defeated.
According to the 2015 annual report for the city of Lawrence's economic development programs, there were four active projects in the city that received property tax abatements. The companies received a property tax break of more than $150,000 in 2015. The report also noted the companies receiving the abatements employed about 900 people, and include two of the city's larger manufacturers, Amarr Garage Doors, and Grandstand Glass & Sportswear.
In addition to traditional tax abatements, governments also have used other forms of property tax rebates, including tax increment financing districts, industrial revenue bonds, and the Neighborhood Revitalization Act. Those incentive programs have become more prevalent in Lawrence, having been used in recent years for hotels, apartments, and other similar commercial projects.
In 2015, those types of incentives resulted in a little more than $300,000 in abated property taxes in Lawrence.
Officials from the Kansas Department of Revenue told the committee that they would prepare a report on the total amount of property statewide that is currently exempt from property taxes.