PITTSBURG, Kan. — It’s that time of year again when local governments and school boards begin building their budgets, debating mill rates, and holding public hearings about how to stay as “revenue neutral” as possible.
The City of Pittsburg has already put out a budget proposal with hearings scheduled in the coming weeks. County commissioners and city leaders are putting their respective budgets together. A lot of those discussions are going to be about property taxes and mill rates.
Property taxes are a major sore point with voters. While mill rates have remained steady, and have even been lowered, property taxes have still dramatically increased. Counties rely on property taxes as a major source of revenue. The funds raised allow the county to function and provide needed services such as law enforcement, ambulance services, road construction, and more.
Earlier this past spring, as the Kansas House of Representative began its budget process, an old concept got resurrected — Local Ad Valorum Tax Reduction (LAVTR) — that would provide some relief on property taxes by shifting some of the state’s sales tax revenue to the counties. Proposed as an amendment to the budget, it had bipartisan support and was approved by a vote of nearly 2-to-1.
The amendment died, however, because house majority leaders did not support it. The amendment also failed to gain momentum in the state senate as well.
First proposed in 1937, with property values falling during the Great Depression, the state legislature launched a LAVTR to help county governments remain solvent. Even as property values fell, sales tax revenues increased, so the legislature diverted a percentage of those revenues to the counties based on population and property value.
The program continued for nearly 70 years, becoming state statute in 1965, which set aside a percentage of sales taxes to be divided among the 105 Kansas counties, with 65 percent of the funds divided based on population and 35 percent based on property value. In 1970, two more programs were created, the County and City Revenue Sharing (CCRS), allowing cities to get a portion of the sales tax revenues, and the Special City-County Highway Fund (SCCHF) to fund street and highway projects.
The idea behind the law was to alleviate the property tax burden on residents by replacing the lost revenue with sales tax revenue on a dollar-for-dollar basis. For every dollar a county received in state funding, a corresponding dollar was removed from the county’s property tax collections. The state would distribute the funds in two payments each year on January 15 and July 15.
However, in 2003 and 2005, all three programs were gradually defunded by the state legislature. During that time, only one payment was made, in January of 2003, as required by law. The legislature then changed the law.
In 2004, a moratorium was put in place and none of the programs were funded for that year. In 2005, the moratorium was extended until 2007, leaving LAVTR, CCRS and SCCHF to wither and die. Since 2001, the total loss of revenue to the counties tops out above $3.5 billion.
In 2020, Governor Laura Kelly attempted to resurrect LAVTR in her budget proposal but was unsuccessful. Opponents said to reinstate the program would dry up the state’s budget surplus and bankrupt the state, according to a February 2020 article written by Dave Trabert and published by the Kansas Policy Institute.
“Kansas is already facing long-term budget deficits,” Trabert claimed, “so giving state money to cities and counties only increases the deficit and puts more pressure on sales and income tax increases.”
Trabert also said that LAVTR doesn’t off-set property taxes. In fact, he claimed, during the last five years the program was funded, property taxes still rose by 7.5 percent, compared to only a 4 percent increase between 2014 and 2018.
Although there is supposed to be a dollar-for-dollar exchange, Trabert wrote, “There is no enforcement mechanism in LAVTR. In other words, cities and counties don’t have to prove they reduced property tax or even hold property tax flat.”
Those same arguments resurfaced this year. Opponents of LAVTR also claim that to reimplement the program would take money out of the state’s sales tax coffers that would have to be made up by increasing sales and income tax.
State senator Tim Shallenburger (R-Baxter Springs) said he thinks those arguments are not valid and supports the idea that the state should help fund local governments, but that, if he were to guess, senate leadership felt LAVTR didn’t lower property taxes on the individual taxpayer in any real manner.
Supporters of LAVTR concur. According to the Kansas Association of Counties (KAC), LAVTR is “not a silver bullet.” It won’t save individual taxpayers hundreds of dollars in property taxes, but offsets the tax burden by reducing the amount of property tax dollars a county can collect.
State representative Ken Collins (R-Mulberry) said LAVTR “sounds like a good idea I could possibly vote for.”
Collins said while living in Crawford County along the Missouri border, he knows people who have left Kansas for Missouri because of lower property taxes, adding that small, Missouri towns “seem to be doing okay.”
While nothing is going to change property taxes this year, the KAC is gearing up for a fight in the state legislature’s next session.