Kansas rule could lower property tax bills. Legislature has ignored it for 15 years

Gov. Laura Kelly wants to provide property tax relief by reactivating a long-dormant subsidy program for Kansas cities and counties.

The Democratic governor’s tax council on Tuesday recommended lawmakers start following a state law they’ve ignored for 15 years at a cost of more than $1.3 billion to local governments. Her office said it would give localities “a strong tool to begin lowering local property taxes.”

Kansas is required to send a share of its sales tax collections to cities and counties each year through a program called the Local Ad Valorem Tax Reduction Fund. But the Legislature has continuously waived the rule since 2004, opting to use the tax dollars as a hedge against the Great Recession and Gov. Sam Brownback’s signature tax cuts.

The time has come for lawmakers to start observing the requirements again, according to the council. Following the rule would have an “enormous” effect on cities and counties and ultimately reduce tax bills for property owners across the state, supporters say.

“Every dollar that a local government would receive from this program would be a dollar that they do not have to levy to taxpayers,” said Jay Hall, legislative policy director and general counsel for the Kansas Association of Counties.

Kansas would pay local governments approximately $100 million a year if funding is fully restored to the program, commonly called the LAVRTF. The program is part of deal localities struck with the state decades ago to not collect their own taxes on alcohol and tobacco.

Populous urban counties could receive millions. Small rural counties would receive far less, but Hall said even tens of thousands of dollars could make a big difference, allowing them to hire another position or upgrade a piece of equipment.

“Getting that funding back would be an enormous boost to local governments,” he said.

Under state law, the program is supposed to redistribute 3.63 percent of state sales tax collections to local governments each year. In practice, lawmakers began reducing funding in 2001 and have provided none since 2004. That’s cost cities and counties $1.3 billion, according to the League of Kansas Municipalities.

Janis Lee, a co-chair of Kelly’s tax council, said restarting the program would be a step in the right direction. The property tax in some rural communities “has become such a burden that it’s really a disincentive [to] any business to come.”

Kansas revenues have been improving since the tax cuts were largely repealed in 2017. The state is now expected to end the fiscal year in June with a surplus of over $900 million.

As the scars of financial austerity fade, calls have grown for fresh tax relief. Kelly’s council also recommended lawmakers reinstate a refundable tax credit to offset the cost of the state’s food sales tax, which is one of the highest in the nation at 6.5 percent.

But property taxes remain an acute pain point for Kansans.

“We’re hearing it from not only homeowners but particularly out in our rural areas,” Kelly told The Star’s editorial board in November.

Kelly twice vetoed GOP tax bills this spring that would have held down taxes for corporations and some individuals. She said Kansas needed to stabilize its budget after years of volatility before making changes.

But with a large budget surplus projected, Kelly this fall has started welcoming the tax debate. The pivot could make taxes a key theme of the 2020 legislative session, which kicks off in January.

“For a very long time now we have been a very high property tax state,” Kelly said.

Any move to provide property tax relief will be met with Republican counter-proposals. GOP lawmakers are still steaming from Kelly’s vetoes and would almost certainly demand those measures be taken up in addition to her ideas.

House Majority Leader Dan Hawkins and Senate President Susan Wagle, both Wichita Republicans, faulted Kelly for the vetoes. Wagle said Republican senators are working on “several efforts” to reduce property taxes and that specific proposals will be put forward. She added that senators will reconsider the tax legislation previously vetoed by Kelly.

“We are Republicans and we are clearly committed to leading the charge to find responsible solutions to lowering taxes for Kansans,” she said.

House Minority Leader Tom Sawyer, a Wichita Democrat, said the chances the Legislature will start funding the LAVTRF again are “probably not real good.” But he allowed that the dislike of property taxes among Kansans could spark change.

“Maybe there’s a chance we can get that going again,” he said.

This story was originally published December 3, 2019 at 6:21 PM.