The Kansas Policy Institute has released a proposal for property tax reform in Kansas that will protect property owners from what some call “stealth” tax increases. These increases result from the fact that the property tax system has two factors or moving parts: appraised valuations, and the mill levy (or tax rate). Governments — the state and local units such as counties, cities, school districts, fire districts, townships, etc. — may not increase their mill levies, but when appraised values rise, property owners pay more tax and more revenue flows from the private sector to government.
Representative Steve Brunk, a Republican who represents Bel Aire and parts of far northeast Wichita, is the bill’s sponsor in the legislature.
At a press conference announcing the proposal, Rep. Brunk noted that in an age of lengthy and complex bills that no one can understand, the enabling legislation for this reform is a page and a half, double spaced. (Read the bill and other information about this proposal at Kansas Policy Institute Property Tax Reform Data.)
Brunk said that legislators on both sides of the aisle appreciated the simplicity of the bill. He also said that legislators liked protecting people that are in their homes, giving them the ability to accumulate wealth in their property, instead of having that wealth drained away by rising property taxes.
Dave Trabert, president of KPI, presented findings that from 1997 to 2008, total property taxes collected in Kansas increased by 92%, which is three times the rate of inflation and over 11 times the increase in population during the same period.
This rapid rise in property tax collections closely matches my research on taxes paid to the Wichita school district, where I found that from 1999 to 2007, taxes paid to the district increased by 91%.
Elected officials have not voted to implement all of this increase, although there have been increases in the tax rates, or mill levy. Rising property appraisals have accounted for much of the increase.
The reform proposed by KPI and Brunk includes these factors:
Total property taxes on existing property will not increase without voter approval. Appraised values may rise, depending on market factors, but if they do, the mill levy will move proportionally in the opposite direction so that total tax revenue is unchanged.
Appraised values may not increase uniformly. Individual property owners may find that their property changed value at a different rate than the average. This is a factor that is different from last year’s proposal. In that plan, all property increased in appraised value at the same rate, which some criticized as unfair and possibly unconstitutional.
This proposed legislation excludes the 20 mills collected by the state for schools, the 1.5 mills collected for the state building fund, and any mill rate increase approved by voters from adjustment.
Even with the mill levy being adjusted so that tax collections on existing property is unchanged, governments would still experience increased revenue. That’s because new construction has been increasing the tax base by about three percent per year. That is not affected by this proposed legislation.
Finally, voters could approve increases in the mill levy (tax rate) at any time.
Last year Brunk and KPI (then known as the Flint Hills Center for Public Policy) proposed a property tax reform measure known as Proposition K. The proposal this year incorporates feedback and concerns expressed last year.
In particular, the exemption of the 20 mill statewide property tax for schools from this proposed legislation may help convince school spending advocates to support this measure. Additionally, measures like bond issues that are passed by voters are not affected. Increases in school districts’ local options budget would be affected, as these would need to be put to a vote of the people, and existing mill levies would be subject to change.
A benefit of Proposition K — at least to me — was the predictability of assessed valuation increases, as all would increase at a uniform set rate. Furthermore, new construction was to be valued based on actual construction costs instead of an appraiser’s judgment. These measures are not present in this year’s plan.
Property taxes are different from most other taxes in that citizens must pay property tax even though they may have earned no income with which to pay the tax. The simple act of owning a home requires citizens to pay tax. For those on fixed incomes, that can be a problem.
We should also remember that renters, in effect, pay property tax too, as taxes are part of the cost structure that landlords face. Further, businesses and utilities pay property tax too, and at far higher rates than homeowners. Anyone who purchases goods, services, and utilities is affected by rapidly increasing property tax rates that these firms pay.