City commissioners to consider 3.5 mill increase in property tax rate; that would be the largest hike in at least 50 years

photo by: Shawn Valverde/Special to the Journal-World

Downtown Lawrence, looking north, is pictured in this aerial photo from September 2023.

Here’s a piece of Lawrence trivia for you: If city commissioners approve the 3.5 mill property tax increase that the city manager has recommended, it will be the largest such increase in Lawrence in at least 50 years.

How trivial that is come tax bill time likely depends on the size of your wallet. The increase of 3.5 mills would raise the city tax bill on a $300,000 home by about $120 per year. That’s next to nothing for some, but meaningful for others.

On top of that, the city is asking for a sales tax increase of 0.05 percentage points — a nickel for every $100 spent — to increase funding for affordable housing initiatives. That proposal will require a citywide election before it could proceed. The idea to raise the property tax rate will only need the approval of three of the five city commissioners.

I’ve been covering the City of Lawrence since 1994, and I couldn’t recall a property tax increase that rivaled the 3.5 mill increase that is being proposed by City Manager Craig Owens. Large increases have been fairly rare at City Hall. The last time the city increased the mill levy by more than 1 mill was 2017.

On Monday I was able to fairly quickly find property tax rate information for the city dating back to 1973. Indeed, the city hasn’t had a 3.5 mill increase in its property tax rate in the time period, although there was one year where it was oh so close.

That year was 1980, when the city increased its mill levy by 3.47 mills. The more interesting numbers of 1980, however, were 8% and 13.5%. The first number was the unemployment rate nationally in 1980, and the second number was the annual rate of inflation during the year. The economy was in a full-blown recession, and I’ve had longtime leaders tell me it was one of the more challenging periods for the city in recent memory.

While 2024 hasn’t been sunshine and roses, it hasn’t been that. The economy is not in a recession, and while inflation has been higher than its historic average, it has been nowhere near 1980 levels.

Yet, the city may be set to increase its property tax rate more than it did in 1980. So, what’s going on with Lawrence in 2024?

In short, it is more about what is not going on. Sales tax collections are no longer going through the roof. They are still increasing, but they are not increasing at record rates, and that’s bad news for the city’s budget — both this year and next year.

First let’s look at this year: The city budgeted to collect $45.3 million in sales taxes for its general fund. But now that it has seen six months worth of sales tax collections, it only expects to collect $39.3 million for the year. In other words, $6 million of money the city expected to have to fund general operations has disappeared.

The city’s general operating fund is now expected to finish the year with about a $2 million budget deficit. It will take money out of its savings account — called a fund balance in city budget terms — to make up the difference. That savings account will end the year with about $23 million. The city had budgeted for its savings account to end the year with about $29 million. The city has staved off major service reductions in 2024 by agreeing to live with a smaller savings account, essentially.

But City Hall budget-makers don’t want to do that for 2025. They want to rebuild the savings account to about $27 million. To get there, they are proposing the largest property tax rate increase in at least 50 years, plus are proposing some cuts in the fire department, parks and recreation, and others.

City commissioners ultimately will make the final decision on whether or how much to increase the property tax rate. There is no time that a property tax rate increase is popular, but now is certainly not one. Home values in the city have been increasing rapidly over the last couple of years, meaning property tax bills are going up even if the property tax rate itself remains steady.

With those rising home values, there will be plenty of people questioning why the city finds itself in a situation of seeking a property tax rate increase. The simple answer is sales taxes. In 2021, the city’s sales tax collections rose by a record 9%. People were spending again after the pandemic, and inflation was driving prices — and thus sales tax collections — up. In 2022, sales tax collections were historically large again, increasing by about 8%.

The city got used to those numbers. While city leaders didn’t think they were going to continue forever, budget-makers were counting on growth rates of 5% or more. They got disappointed in 2023, when sales tax collections grew by just 3.8%.

They may be getting scared in 2024. Through June, Lawrence sales tax collections are up just 1.1%.

In short, that’s the problem. It has been building for awhile, and we’ve been reporting on it for awhile. I generally write an article each month about the city’s sales tax collections. Here’s part of what I wrote at the end of 2023: “If Lawrence posts a second year of lukewarm sales tax growth, the red flags may start flapping a little more furiously at City Hall, and the risk of a property tax increase may rise with them.”

What you have today is a red flag atop City Hall. Now, we’ll see how city commissioners respond to it and what it means for your tax bill.

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