Looking at Douglas County’s possible tax rate increase, and the bet commissioners may make to lessen it
photo by: Chris Conde/Journal-World File Photo
There is confidence, and then there is confidence with a poker chip in your hand. Confidence levels have been known to fall as your hand drops toward the table to place your bet.
In a sense, Douglas County commissioners have that chip in their hands and will start deciding this coming week on whether to place the bet. Whether Douglas County property owners see their tax rates go up is at stake.
(I’ve been advised that the term “bet” and taxpayer dollars probably aren’t the best combination. True, but rest assured, there are no actual roulette wheels involved. Just tax policy, which indeed can make your head spin.)
Local property owners are indeed in line to see a tax rate increase. Based on the county administrator’s recommended budget — which still must win approval from commissioners — the property tax rate would rise about 3.5%. That may catch some taxpayers by surprise. After all, the federal government has been shoveling money to consumers and to local governments to spur an economic recovery.
And by no standard are the finances of Douglas County government in crisis or particularly hurting. During a once-in-a-lifetime pandemic, Douglas County’s general fund balance account — a type of catch-all savings account — grew from $6.6 million in 2020 to an estimated $10 million in 2021. In reality it probably will be more than that by the end of the year because the county’s sales tax revenues continue to grow faster than courthouse budget-makers have estimated.
But there is one number that is not so great, at least not from the standpoint of a budget-maker. The county’s property tax base — the taxable value of all the property in the county — grew only by 2.7%. That’s the lowest level in more than a decade. Normally, the growth rate is closer to 4% or 5%.
That’s also probably going to catch many taxpayers by surprise. Homeowners generally have seen the value of their homes soar in a tight real estate market, sometimes by double-digit percentage levels. But commercial real estate — think of all the bars and hotels that were closed — saw its value decline. Add it all up, and you get the 2.7% increase.
That modest increase in the tax base is coming in the same year that county commissioners are deciding to undertake a major shift in costs related to fire and ambulance services. In short, the county, after years of needling from the city, is agreeing to pay a larger share of the operating costs of the jointly run Lawrence-Douglas County Fire Medical department.
That greater share comes to about $2.6 million in new costs for the county. That number, along with the 2.7% growth rate in the property tax base, are the primary components of your pending property tax rate increase.
If you throw in one more number, though, then we can talk about a wager. That number is $12.5 million. Remember that savings account called a general fund balance? Well, the $12.5 million is the amount it is expected to grow to in 2022. That will be the most money in the county’s savings account in recent memory.
So, here’s the bet: Are you willing to wager that Douglas County’s slow growth in the tax base is just a one-year thing fueled by the pandemic? If so, then are you willing to take about $2.6 million out of the county’s savings account and spend it on the new fire and medical obligations, basically eliminating the need for a tax rate increase?
If so, and if the county’s tax base doesn’t return to normal levels, you had really better be ready to increase taxes next year — or cut services somewhere else. Otherwise, if you keep pulling money from savings to pay for fire and medical services, you’re going to need to call 911 for your ailing savings account.
So, how much confidence do you have?
“I fully believe that our community is going to recover,” County Commission Chair Shannon Portillo told me.
“I don’t want to budget ourselves into a position where if we don’t have that return immediately, we are putting ourselves into a structural debt situation,” she said.
In other words, it might be risky.
“We just went through a once-in-a-lifetime pandemic, and we’re not exactly sure how assessed valuations are going to respond in the next few years, so betting on a future increase is not necessarily a direction that I think is reasonable,” Portillo said.
But then again, maybe it is a risk worth taking. Savings levels are at their high point, and the economy is clearly picking up steam.
“We have talked about that,” County Commissioner Patrick Kelly said of spending down the savings account. “It is certainly seductive to do that, but you have to think about short-term solutions and long-term problems.”
In other words, he doesn’t have to say how he’s going to bet yet.
County commissioners have until mid-August to finalize the 2022 budget. But they will start making some decisions early this week. Commissioners are scheduled to meet at 9 a.m. on Tuesday, Wednesday and Thursday at the Douglas County Courthouse, 11th and Massachusetts streets, to start making decisions on the budget line by line.
Douglas County Administrator Sarah Plinsky doesn’t have a vote on the budget, but she does have a voice the three county commissioners listen to. Plinsky will urge caution in spending down the fund balance.
She’s trying to put the county on track for a policy that would have the county keep 15% of its expected general fund spending in the savings account, or fund balance, as it is known. The ideas is kind of like how a business tries to keep at least 60 to 90 days worth of cash on hand in case something goes wrong. The 15% level clearly is within a common range that many governments use when setting aside money.
But it also is clearly different from what Douglas County has done for a long time. Plinsky is a longtime government budget-maker, but she only took over the top spot in Douglas County in late 2019. The previous county administrator put together budgets that had very low amounts of money in the savings account. For instance, in 2017, the county’s general fund balance was just $2.6 million, or about 5% of anticipated spending.
Despite that, the county has had a sterling bond rating. Usually a low fund balance creates risks that you’ll have to pay a higher interest rate when you borrow money. That hasn’t been the case with Douglas County for a couple of reasons. One, Douglas County has been very judicious in using debt. It has a remarkably low amount of debt. The other reason is that the county has a lot more cash sitting in other funds.
The general fund is just one of several funds the county has. In addition to the general fund, the county has road and bridge funds, mental health care funds, sales tax funds, and several others. One county budget document shows those funds in 2021 are expected to have about $30 million in fund balances. That’s in addition to the $12.5 million in the general fund.
Those other funds are causing Portillo to leave the door open to spending down some of the general fund balance this year, but perhaps not much of it. She still thinks a policy that tries to keep around 15% in savings is prudent.
“We have some other funds that have other balances, so we don’t know if we need to stick with that 15%,” she said. “We will see where the budget comes out this year. But closer to 15% is better than where we have been in the past.”
Adding it up
County Commissioner Shannon Reid said she also sees value in having a fund balance near that 15% level, but she understands how a property tax increase can be problematic for some.
However, she said she wants to really communicate with residents about how they might be impacted by a property tax increase.
“I also want us to think about how we talk to the public about the whole dollar amounts that might be felt by the impact of a mill levy increase,” Reid said. “Sometimes those details parsed out can impact how somebody feels about it.”
For example, the approximately 1.7 mill property tax increase would amount to approximately $40 a year in additional taxes for the owner of a $200,000 home. When you put it that way, residents may not flinch at a property tax increase.
Homeowners, though, likely will be hit at least twice on the property tax front — once with a higher tax rate and again with a higher home value, as determined by the county appraiser. If the appraiser determines that the $200,000 home is now worth $225,000, your tax bill will be higher, but maybe not by as much as you would think. That $25,000 increase in value means you would be paying about $44 in extra taxes, versus $40 if your home had remained valued at $200,000.
It also is worth noting that owners of business properties pay taxes at a rate a little more than double residential home owners. A $200,000 business property would see an $85 increase under the proposed tax rates, for example.
But the other issue is that the county is just one taxing jurisdiction. Will school district taxes also go up? How about city taxes? That’s not yet known. The county is leading the way in the tax deliberations this year.
(That said, do remember all this fund balance stuff when the City of Lawrence begins discussing its budget. The City of Lawrence historically has carried a much larger fund balance than the county is proposing. The city would note that it received more of its revenues from sales tax dollars, which are notoriously volatile, so an extra cushion is needed. However, the city’s fund balance levels have been pretty high at times. They’ve been at the 30% level in the general fund before, and in reality were probably higher once you counted some other accounts that acted like a savings account but weren’t technically categorized as a fund balance.)
Finally, some of the angst over property tax rates surely is just a matter of principle. It has been a long time since taxpayers have seen a drop in the property tax rate from either the city or the county. That wasn’t always the case. As I noted in a 2019 article, from the beginning of the decade of the 1990s to its end, property tax rates in the City of Lawrence dropped by 8%, while the countywide rate dropped by nearly 10%. Since then, every decade has seen an increase in the property tax rate, usually an increase of more than 20%.
Why that’s been the case would require more unpacking than we have time for now. There’s enough work to do just focusing on this upcoming budget, as county commissioners will quickly tell you.
“It is tough,” Kelly said of the budget process, “and it is the most important thing we do.”