Kansas Policymakers Consider Variations of a Property Tax Levy Limit

As the property tax debate continues in Kansas, two new proposals recently emerged: S.B. 280 and H.B. 2396. S.B. 280 proposes a tight levy limit that would give voters the opportunity to approve or reject proposed property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. increases above the allowable limit, while H.B. 2396 proposes allowing taxpayers to protest and overturn property taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases they disagree with, while increasing state transfers to cities and counties. These proposals are much better structured, and would be more effective, than the assessment limits contained in S.C.R. 1611 and H.C.R. 5011. However, policymakers should consider pairing the levy limit contained in S.B. 280 with a modification to the Truth in Taxation law, and they should consider some of the drawbacks to the protest petition approach that make it suboptimal compared to a well-structured levy limit.

Senate Bill 280

Senate Bill 280 proposes a property tax levy limit that would allow local taxing entities, by default, to annually increase property tax collections to account for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. and new construction only. Should local officials wish to increase property taxes beyond that amount, they would have the opportunity to do so if the increase is approved by a majority of local voters at an election. If voters reject the proposed increase, property tax collections would remain at the prior year’s level, adjusted for inflation and to account for new construction.

This proposed levy limit would be a structurally sound way to give local stakeholders a direct say in whether any increase in a local taxing entity’s total property tax collections above the allowable limit is justified. In Kansas and elsewhere, many policymakers perpetually wrestle with striking an appropriate balance between stewarding taxpayers’ resources and providing the desired level of public services. This proposal would involve taxpayers in the process of evaluating the trade-offs associated with the local tax and spending decisions affecting them.

The legislation’s allowance for new construction is appropriate since cities, counties, school districts, and other local taxing jurisdictions face increased demand for public services when new families and businesses move to an area and put additional strain on local schools, roads, and other public infrastructure. S.B. 280’s proposed adjustment for inflation is also appropriate since inflation increases the cost to local governments of providing public services.

Of all the proposals debated so far this session, the levy limit proposed in S.B. 280 would be the most effective at giving Kansans the opportunity to curb future property tax growth, while allowing flexibility for the adoption of property tax increases voters agree are justified.

As currently drafted, the bill does not propose changes to Kansas’ Truth in Taxation law, but if a well-structured levy limit were adopted, the Truth in Taxation law could be modified so the two policies work hand in hand. Currently, the Truth in Taxation process requires public notice and a public hearing prior to a local taxing jurisdiction’s adoption of any proposed increase in property tax collections beyond the prior year’s nominal amount, with no allowance for inflation or new construction. Since S.B. 280 as introduced would allow for collections increases attributable to inflation and new construction, the “revenue neutral” Truth in Taxation limit differs from the one proposed under this legislation, which could create confusion among taxpayers.

An ideal solution would be to amend the Truth in Taxation law so the Truth in Taxation limit matches the limit proposed under S.B. 280 (allowing growth for inflation and new construction only). If local taxing entities wish to exceed the allowable growth limit, they would continue to provide direct notice to taxpayers explaining their reasoning for the proposed increase, detailing how much the notice recipient’s property tax bill would increase under the proposal, and providing details regarding the public hearing at which the matter would be discussed. The public hearing would provide a valuable forum for public discourse regarding the proposal, giving local officials the opportunity to make the case for their proposed increase and get a sense from taxpayers about how they plan to vote in the election at which the matter will be decided. Continued direct notice to taxpayers would also help voters make a well-informed decision on the ballot when they see how much or little their property tax bill would increase under the proposal.

With a modification to the revenue neutral limit under the Truth in Taxation law to make it match the limit proposed under S.B. 280, the levy limit proposed in S.B. 280 would be a highly effective and structurally sound reform that would provide long-term property tax relief to Kansans.

House Bill 2396

Reflecting an alternative approach, H.B. 2396, which passed the House on March 7, would repeal Kansas’ Truth in Taxation direct public notice requirement while allowing local taxing entities to propose and pass any property tax increases of their choosing. However, if qualified voters totaling at least 10 percent of votes cast for the office of US president in the most recent presidential election sign a protest petition in the 30 days following the certification of a budget that exceeds the allowable growth limit, the taxing jurisdiction would be limited to a budget that relies on the prior year’s property tax collections, adjusted for inflation, new construction, and future bond payments.

Any city or county adopting a budget within the allowable limit would receive a revenue transfer from the state, funded by a proposed new “ASTRA Fund” with revenue from the state general fund. However, in any year in which the state does not make a transfer to the ASTRA Fund, taxpayers would not be allowed to sign a protest petition attempting to overturn the increase, meaning taxpayers would be left without what would become their primary recourse to block property tax increases from occurring. While this proposal would require counties to provide public notice on their websites and social media platforms listing the local taxing entities adopting budgets above the allowable limit, the lack of direct notice to taxpayers would be a step in the wrong direction. A public hearing would still be required to hear taxpayers’ opinions on the budget, but this would occur after the budget is adopted—but before it is filed with the county clerk—rather than before the budget is adopted.

Compared to the levy limit proposed in S.B. 280, there are several drawbacks to the policy changes proposed in H.B. 2396, including the repeal of Truth in Taxation’s direct notice to taxpayers, as well as the fact that a public hearing would be required only after such an increase is adopted. Additionally, while S.B. 280 would put the onus on local governments to justify any proposed increases in real property tax collections, under H.B. 2396, the burden would rest with taxpayers to try to secure enough signatures to stop a tax increase after it has already been adopted. Additionally, it is important to note that H.B. 2396 would increase state payments to cities and counties by an aggregate of $60 million in the first year and increase that funding by 2 percent per year in perpetuity.

Furthermore, allowing property tax increases to pay off bonds issued on or after July 1, 2025, would incentivize local governments to rely more heavily on bonding, so taxpayers may not end up receiving much long-term property tax relief at all. It is also important to keep in mind that the state general fund is funded in large part by state income taxes and sales taxes, so increasing state transfers to localities in perpetuity would make it more difficult to offer state income or sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. cuts in the future, especially if state lawmakers face pressure to increase the ASTRA Fund appropriation in the future. In cities and counties where protest petitions are less likely to be successful or even initiated, taxpayers’ local tax burdens would be expected to continue to rise year after year. Additionally, since state- and school district-levied property taxes would not be subject to protest petitions, taxpayers would have little recourse to prevent growth in future school district and state property tax collections when property valuations increase.

House Bill 2396 represents a creative and thoughtful approach to property tax reform in Kansas but has more drawbacks than the solution proposed in S.B. 280. Ultimately, a well-structured property tax levy limit that allows growth for inflation and new construction only, and requires voter approval for increases in property tax collections above the allowable amount, would be the most effective way to address Kansans’ concerns about rising property taxes while giving taxpayers the ability to approve increases they believe are necessary.

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