Amid rising home values, Lawrence city leaders will debate potential changes to property tax rate
Amid historic increases in home values, whether the city’s property tax rate will stay flat, decrease or increase is still up for debate.
While some Lawrence city commissioners told the Journal-World they remain open to a decrease, the commission also recently voted to maintain the ability to slightly increase the rate. The commission voted 4-1 on Tuesday, with Commissioner Brad Finkeldei opposed, to set the city’s maximum possible tax rate at 33.367 mills, which is .077 mills higher than the current tax rate, owing to the Lawrence Public Library board’s decision to increase its mill levy by that amount.
Finkeldei said he would not support a property tax increase, and though his goal is to keep the tax rate flat, he thinks decreasing the tax rate remains an option. City Manager Craig Owens presented a recommend budget with a flat tax rate per the commission’s request, and Finkeldei said he saw it as the commission’s job over the coming weeks to see if there were ways to still meet the city’s goals with a lower funding amount. He said looking at staffing, how raises are distributed, and other elements of the budget remain options for potential savings if the commission were to pursue a property tax rate decrease.
“Beyond that, I think we just have to look at the budget as a whole,” Finkeldei said. He said the significant increase in home values had to be taken into account.
In the last year, residential property values in Lawrence have increased by 15.6%, according to the Douglas County Appraiser’s Office. That means even if the city ends up keeping the rate flat, homeowners will still pay significantly more in taxes. For example, if the owner of a house valued at $250,000 sees a 15.6% increase in value, to $289,000, the amount owed to the city would increase by $149, from $957 to $1,106, just due to the increase in value. If the city’s overall mill levy increased by .077 mills, that homeowner would pay another $2.56 on top of that.
Overall Lawrence property values also include commercial properties, which increased in value at lower rates than residential properties. The 2023 budget assumes a 12% increase in overall property valuations, which the city anticipates will generate approximately $4.7 million in new taxes. The budget also assumes an approximately 5% increase in sales tax collections, some of which is related to inflation costs the city must also account for, amounting to a $2.55 million increase in sales tax collections. The budget also assumes increased revenue from utility rate increases and new parks and recreation fees.
As the commission moves forward in its 2023 budget discussions, a driving force will be where commissioners would like the city’s property tax rate to be. The Journal-World also spoke to Vice Mayor Lisa Larsen and Commissioner Amber Sellers, both of whom were among the commissioners who voted to support the slightly higher maximum tax rate. Now that the rate is set, commissioners can vote to lower it but cannot increase it.
Back in May, during a discussion to inform the city manager’s recommended budget, Larsen expressed interest in potentially lowering the property tax rate due to the increase in property values. However, Larsen was the only commissioner at that time to do so, and the recommended budget holds the tax rate flat in line with the consensus of the commission. At this point, Larsen said she’s not seeing a property tax decrease as easily available, and questions whether the city should decrease its rate to account for the library increase.
Though the overall city property tax rate remains flat in the recommended budget, the budget technically decreases the city’s tax rate by .077 mills to offset the increase to the library’s tax rate. The library’s rate is included in the city’s overall rate but is controlled by the library’s board up to a certain amount. The board increased the library’s rate to help fund staff raises, and while Larsen said she understands the efforts to improve staff pay, she didn’t think the city should have to essentially absorb that into its budget by lowering its rate.
“It takes money away from our ability to pay our own staff, to provide income for our own programs,” Larsen said. The .077 mills is projected to generate $99,000 in 2023, an amount Larsen said represents about 10% of the roughly $1 million in cuts in the recommended budget.
Though Larsen said she’s always open to lowering the property tax rate, she thought the recommend budget met the goals in the commission’s strategic plan. At this point, Larsen was looking toward the 2024 budget as a more likely opportunity to lower the tax rate. She said as the city works to implement new software that will change how the city tracks its finances, she hopes it will centralize how all departments track their money and give the commission a much clearer picture of where it can find efficiencies. Larsen said that the struggle of some residents to keep up with rising costs was a serious and valid concern.
“It’s a tough one, it really is,” Larsen said. “And from the city’s standpoint, we’re going to continue to try to find areas where we can minimize our increases and to look for efficiencies within our budget that will ease that pressure off of the property taxes. And that’s always been my goal, is to try to find ways to bring that down, or at least for sure keep it level.”
Sellers said she leaned toward keeping the property tax rate flat, but was open to discussions about the slight increase in the overall tax rate to account for the library’s increase. She said she didn’t think it was the right time to decrease the city’s property tax rate due to the city’s budget imbalance. The city’s 2022 budget was “structurally imbalanced,” because it used a portion of the city’s $19.3 million in federal pandemic relief funding from the American Rescue Plan Act (ARPA) to fund ongoing costs such as new positions, staff raises and other initiatives. Sellers said addressing that imbalance was key for her.
“That was something that I stated from the beginning, that I wanted to ensure that staff had the opportunity to get us on a pathway that we could be more structurally balanced, and what that would look like as it relates to property taxes and the mill rates,” Sellers said. “I’m optimistic that we can maintain a flat rate.”
The 2023 recommended budget does not quite eliminate the gap, and it calls for using $878,000 of ARPA funds to offset general fund expenses, allowing $9.1 million in remaining ARPA funds to be earmarked for city projects. Sellers said she’d like to see that money remain available for projects. When asked about the impact of rising property values on residents, Sellers said she hoped addressing the city’s budget imbalance in 2023 would put the city in a better position to decrease the rate next year.
“It is an uncomfortable time, budgetwise, but I feel like we are putting ourselves in a position to do greater things in the following year,” Sellers said. “No one likes to wait and no one wants to think in the hypothetical or in the future, but I hope that the community will trust us in this process.”
While Finkeldei said the whole budget should be looked at, he did note a few potential places where cuts or changes might be considered, including staff, pay raises and the allocation of ARPA funds.
The city has about 800 positions — 28.5 of which were added in 2021 — but has seen higher levels of vacancies over the past couple years, with about 85 positions currently unfilled. Finkeldei said it’s possible low unemployment and higher vacancy rates will be the reality for some time, and the city could potentially adjust its projected staff vacancy rate for 2023, which would free up some money, or potentially look at eliminating some vacant positions. The budget also includes $4.2 million for employee raises — the details of how those dollars will be divided among employees is yet to be determined — and he saw that as another potential area.
“If you’re going to affect the budget, a lot of it has to be in the personnel realm,” Finkeldei said.
The $9.1 million in remaining ARPA funds have not yet been allocated, and Finkeldei said allocating some of that money toward costs in the 2023 budget could free up funding and allow for a property tax decrease. He said possibilities included using ARPA funds for projects currently in the Capital Improvement Plan or to offset some of the funding the city has allocated for affordable housing projects.
Finkeldei also noted that some cuts proposed in the city manager’s budget — specifically closing the Prairie Park Nature Center building and reallocating those employees elsewhere and a $100,000 cut to city funding for the Lawrence Humane Society — did not get a positive reaction from residents. He said that reaction showed there is a lot of demand from residents regarding city services, and if residents also want to see a property tax decrease, the question becomes what they would support cutting.
“That’s obviously the two parts of the equation,” Finkeldei said. “When we talk about lowering the property tax, the real question with that will be, what will we not be able to provide, what services would we have to cut?”
The city is currently collecting residents’ feedback on the city manager’s recommended budget, and residents have until 12 a.m. on Aug. 23 to submit comments. The survey is available at lawrenceks.org/listens/surveys/. The Lawrence City Commission will hold the 2023 budget hearing at 5:45 p.m. on Aug. 23 at City Hall, 6 E. Sixth St.