Fair Taxation for Everyday Kansans
The state must do its part to fund our cities and not shift the burden to homeowners.
If there is a complaint common to all Kansans, across regions and party lines, it must be that our property taxes are too high.
At a recent city council meeting here in Humboldt, a resident expressed their concern that in the not too many years that he has owned his home, his property taxes had gone up 7 times. Kansas has one of the highest property tax burdens in the country, and rural Kansas has seen the highest rate increases in the state.
We all have to pay taxes, they fund the services that make our towns and counties work, but we are experiencing an out of balance system that puts far too much reliance on residential property owners.
It hasn’t always been like this, so how did we get to this point?
Cities in our state get their budgets from a just a few sources of revenue: local sales tax, property taxes, utility fees, and demand transfers from the state government (we also have a few other tools like bonds and grants but they are often raised against specific projects rather than the general fund). In an ideal situation, these things have an equilibrium so that the city doesn’t have to rely too much on any one of those sources. For example, right now, in the midst of the disruption caused by the Covid-19 Pandemic, sales tax is significantly down, but in a city that has a diverse set of revenue streams, this should be a survivable experience.
Local Sales Taxes come from the percentage of collected tax on stuff sold in the city or county that the local community enacted. Usually this totals a couple of the percentage points that are collected.
Property Taxes are collected at the city and county level and are collected as a Mill Levy of the total assessed value of the property. A Mill Levy is just a fancy name for measuring the amount of tax collected in thousandths of a percent (one mill is equal to one dollar per $1,000 of assessed value.)
Utility Fees are the revenue generated from local services, like water, garbage, sewer, gas, sometimes electric and internet. These fees are usually attached to the fund that pays for them so the fees generally go back to the improvement of the thing that generates the revenue, but some of the money can be put into the general fund.
Demand Transfers are transfers of money from the state general fund to cities and counties funds. In Kansas, we have a highway fund that distributes a portion of the gas tax back to communities, and two transfers relating to our school system. Historically we have had two other demand transfers called the Local Ad Valorem Tax Reduction Fund (LAVTRF), and the County and City Revenue Sharing Fund (CCRSF).
Rural communities in particular have issues in all of the above categories, but it is the last one–demand transfers–that is currently causing a lot of the increase in property taxes.
The LAVTRF and the CCRSF are programs that take a percentage of state sales tax collections and return them to our communities to cover city expenses. The LAVTRF was explicitly created to help cities reduce the property tax burdens. However, while they are both still mandated by law, neither has been funded by the state since 2003. Like many programs in Kansas they were cut off during the recession to save money, but in better times they were never returned to action. In their absence, cities have experienced significant budget shortfalls.
Cities that are experiencing budget shortfalls can either cut costs or raise revenue, and while there are always areas of inefficiency in cities, generally there is never enough to cut that can make up for returning the property tax mill levies back to what they were before 2003, without deep cuts in services that are already less than what people want.
We need our state government to properly fund the LAVTRF and the CCRSF to get our fair share of revenue flowing back into city coffers. I say fair share, not just because it is money promised to our cities by statute, but also because cities gave up other tax revenue like cigarette, certain liquor taxes, and others because they were promised these simpler streamlined demand transfers.
Reinstating these programs again will not solve all of our problems or get rid of our property taxes, but they are a start, and they are owed to our cities. We need to give our municipalities as many tools as we can to diversify their revenue and put them on better footing.
Getting back to a healthy municipal revenue mix is important because:
We Have Fewer Local Businesses to Generate Sales Tax
Our rural communities are especially disadvantaged with regards to sales tax as we’ve lost many of our local entrepreneurs and have seen the infiltration of chain and formula businesses that have fewer locations, and pay less–which means less money put back in the local economy. With fewer businesses generating sales tax, the only real variable left is property tax.
We Currently Place the Burden of Funding Cities Almost Entirely on Homeowners
In a balanced revenue system, a city can spread the burden across the whole community, renters, visitors, home owners, commercial property owners and commuters. But in an unbalanced community, most of the burden falls to people that own homes, which are increasingly older residents, many of which are on fixed incomes.
It Has Catastrophic Unintended Consequences
Many are afraid to make needed improvements on their homes for fear that it will raise their home’s assessed value and therefore raise their taxes even more. In many cases we have local tax breaks and exemptions available to encourage people to make improvements without near term tax increases, but given the overall anxiety about this the public isn’t entirely getting this message.
It Introduces a Series of Cascading Failures
While home owners are concerned about upgrading their homes, many are falling into disrepair, which ultimately leads to losing the house. We’ve all seen the empty lots around our rural communities, and each empty lot is no longer generating any utility fees let-alone meaningful property taxes. Every lost house is one less person that can live in our town generating sales tax, property tax and utility fees.
It’s An Easy Excuse to Give Unnecessary Tax Breaks for the Wealthy
Keeping the sales tax revenue that was promised to the cities and counties is also an unearned gift to the state and that cushion makes it all too easy for anti-tax legislators to fritter that buffer away in the form of unnecessary tax breaks for the wealthy. But that cushion doesn’t belong to the state, it belongs to our municipalities.
While it may seem from the outside, that cities are not watching their budgets and are just raising property tax willy nilly, it’s not by meaningful choice that cities have done that. The governor is recommending properly funding these demand transfers again. The legislature hasn’t been very productive for the last several years, roadblocking any governance.
But this is where you come in. We need to let our local legislators know that this is a priority for us. We need to let our state senator know that we won’t accept inaction on this. Cities can and should make sure that they aren’t being profligate with our money, but there is only so much a city can do with millions of dollars owed to us by the state.