Key Points
- Assessment limits, while well intentioned, are not an ideal solution for 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. relief because they create gaps between a property’s taxable appraised value and market value and distort economic decision making.
- A levy limit without exemptions would be a more effective solution, as it would avoid introducing economic distortions and would limit the growth of future 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. collections in a fair, predictable manner.
After enacting income tax reform and relief in 2024, Kansas policymakers have turned to the property tax this session, with many legislators eyeing property tax relief in the form of a property tax limitation. Senate Concurrent Resolution 1603, a proposed constitutional amendment to create an assessment limit, passed the Senate on February 6th. Meanwhile, a proposal to impose a levy limit on the statewide school finance levy—but not on local property tax levies—advanced out of the House Committee on Taxation on January 30th as part of H.B. 2011. As policymakers look for ways to keep Kansans’ property tax bills in check, they should consider a property tax levy limit that caps the amount by which local taxing jurisdictions’ property tax collections grow from year to year.
Currently, Kansas is one of only a few states without a state-imposed levy, assessment, or rate limit. Instead, under Kansas’ “Truth in Taxation” policy, by default, local taxing jurisdictions must set their budgets such that property tax collections do not exceed the prior year’s level. If a local taxing jurisdiction wishes to generate more revenue from property taxes than in the previous year, taxing authorities must first send a written notice to property owners detailing (1) the amount by which their property tax bill would increase and (2) the date, time, and location of the public hearing at which the increase will be considered.
After taking these steps, if local taxing authorities still wish to adopt their proposed increase, they may do so, but this process enhances transparency and provides a venue for taxpayers and their local elected officials to discuss the matter face to face. This ensures taxpayers have a voice in the process while giving local taxing authorities flexibility to adopt property tax increases when they believe—after hearing from constituents—those increases are justified.
Notably, Kansas’ Truth in Taxation law is structured like a soft levy limit, where local taxing authorities can increase total property tax collections only after taking certain steps: in this case, notifying taxpayers and holding a public hearing. A true levy limit would go further by instead requiring local taxing authorities to receive voter approval to increase property tax collections above the limit.
Kansas had various levy limits in place for much of the 20th century, and again from 2017-2020, but the most recent levy limit—the “property tax lid”—was repealed in 2021 after receiving widespread criticism for being riddled with exemptions that rendered it ineffective at constraining property tax collections growth as desired. If policymakers wish to limit property tax increases, a tighter levy limit without exemptions would be a structurally sound reform to consider.
Such a limit could, for example, allow growth 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. Alternatively, it could restrict year-over-year collections growth to a certain percentage of the prior year’s collections to reduce real property tax collections over time, for a certain number of years or until some specified target is reached.
Either way, a levy limit would help keep property tax liability in check for all taxpayers. To the extent property tax collections would be allowed to grow within the constraints of the limit, those increases would be distributed among taxpayers in proportion to the increases in their properties’ taxable appraised values, promoting fairness and neutrality. In situations like the current one, where most residential properties’ assessed values have increased substantially, a tight levy limit would help prevent valuation increases from resulting in substantially higher property tax bills.
Of the various types of property tax limitations, a levy limit is by far the most structurally sound solution. An assessment limit like the one proposed in S.C.R. 1603 risks introducing harmful economic distortions into Kansas’ property tax system.
Specifically, S.C.R. 1603 would amend Kansas’ constitution to create an assessment limit that would restrict increases in a property’s taxable appraised value to no more than 3 percent annually. This limit would apply to all classes of real property (residential, commercial, industrial, agricultural, etc.). However, the limit would not apply when new construction or improvements to a property increase its taxable appraised value, as well as in other specified (but less common) situations.
Notably, S.C.R. 1603 as amended contains a provision that specifies that the assessment limit would remain in place when the title is “transferred, changed, or conveyed to another person or entity, unless the legislature enacts provisions that provide for exceptions.” This provision is highly unusual, as it means that the reduced assessment runs with the property—not with the owner (as with the portability provisions in some states with assessment limits). A new owner purchasing an existing home would benefit from a reduced assessment, while someone purchasing a new home would pay full freight. This would increase the market value of older homes while making new construction more expensive, discouraging the development of new housing stock or any substantial renovations.
As such, the benefit would flow almost exclusively to existing owners, to the detriment of new or younger would-be homeowners, even if they intend to purchase an older home. The favorable assessment of older homes will increase their value, yielding higher sales prices for incumbent owners, while making the return on investment for any newer stock much lower. As much as policymakers might want to help those who already own a home, having existing homeowners—who are typically much better off than would-be first-time owners—subsidized by new owners would prove counterproductive in the long run.
Additionally, the explanatory statement that would accompany the proposed amendment on voters’ ballots specifies that the amendment would “limit annual valuation increases to 3%, or a lesser percentage as provided by law” (emphasis added). Therefore, if state policymakers wished to adopt a stricter assessment limit that, for example, restricted valuation increases to 1 percent annually—or even capped assessments at their current levels—that would be authorized under the state’s constitution without requiring separate voter approval.
While well-intentioned, assessment limits are not an ideal solution because, over time, they create wide gaps between a property’s taxable appraised value and market value. Furthermore, the proposed assessment limit would do nothing to prevent taxing jurisdictions from increasing property tax rates, known as mill levies. These higher rates will, of course, disproportionately burden those whose assessments are closer to market rate (those with newer housing).
Instead of limiting taxable appraised values in a structurally unsound and distortionary manner, policymakers should keep the focus on how much revenue is actually needed and desired to fund government services rather than on the specific amount by which a property’s appraised value fluctuates from year to year.
Under a levy limit, as property values rise, local taxing jurisdictions would be required to adjust their mill levies downward to bring in no more than the authorized amount of revenue. This would help protect taxpayers from sharp tax increases while creating budget stability and predictability for local governments. For those most at risk of being unable to afford fluctuations in property tax liability, Kansas already offers several forms of targeted property tax relief, including essentially freezing property tax liability for many seniors. Moving forward, policymakers should ensure these forms of targeted relief continue operating as intended while keeping the overall property tax system as neutral and structurally sound as possible.
It is worth noting that H.B. 2011 contains a well-structured—albeit strict—levy limit, but the proposed limit would apply only to the statewide school finance levy. Specifically, beginning in tax year 2025, H.B. 2011 would increase the amount of a residential property’s appraised value that is exempt from the statewide school finance levy from $75,000 to $100,000 and reduce the mill levy from 20 to 18.5 mills. Then, beginning in 2026, a levy limit would take effect that would adjust the mill levy to generate the same amount of revenue as was collected in 2025, with no allowance for new construction or inflation. To prevent a loss of revenue to schools, this legislation proposes increasing revenue transfers from the State General Fund to the State School District Finance Fund. While the legislation does not propose increasing state income or sales taxes to offset the property tax reduction, such a decision would put upward pressure on state tax rates and could reduce the likelihood of 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.
An alternative approach might at least account for inflation and certainly for new growth, since governments should expect to collect more revenue from additional homes and homeowners. Pushing the cost of offsetting new growth onto the state government is particularly undesirable when people move from one Kansas jurisdiction to another. Because the old jurisdiction would be able to collect taxes up to its previous amount, even with a potentially declining population, that jurisdiction could still effectively raise taxes, while a jurisdiction receiving new residents could not, and instead would need to be subsidized by state revenue.
As Kansas policymakers consider ways to provide long-term property tax relief, a well-structured, exemption-free levy limit would be a structurally sound and effective reform to consider.
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