Property taxes rising in Kansas as home values grow. What will lawmakers do about it?

Gary and Leona Smith, who live on several acres in rural Miami County, paid more than $4,000 in property taxes last year.

For the retired couple in their 80s, the tax bill is their single biggest expense, driving fears they’ll soon be unable to afford to stay in their home. More residents are moving into the area to escape the city, Gary Smith said, causing home prices – and property taxes – to rise.

“Either you sell your home or you pay your taxes, I guess,” said Smith, an 87-year-old former employee of the Southwestern Bell telephone company.

A soaring real estate market leading to rising property tax bills has angered many Kansas homeowners in recent years. Lawmakers are now under pressure to take dramatic action amid a sense among some residents that the property tax system is fundamentally broken and after previous solutions have fallen victim to larger fights over tax policy between Democratic Gov. Laura Kelly and the Republican-controlled Legislature.

As local governments publish annual budgets this summer, offering residents a window into how much officials plan to tax their property, calls are growing for tax relief, especially for seniors and others on limited incomes. After the Legislature spent years fighting over income and sales taxes, property taxes are poised to be a dominant concern of the 2024 session.

Lawmakers introduced more than a dozen measures last year alone, including some the Legislature could approve next year. Among the most ambitious is a constitutional amendment that would limit how much, for the purposes of taxes, the value of a property can grow each year.

The Kansas Senate passed the proposal in April and it will go to a statewide vote in November 2024 if passed by the Kansas House. Support for the Republican-championed measure fell mostly along party lines in the Senate, but it has attracted some Democratic support as well as GOP opposition.

The Legislature could also choose to fully fund a local property tax relief program that has been dormant for two decades. The program, which redirects sales tax revenue to local governments, is supposed to spur cities and counties to hold down property taxes but has often been ignored by lawmakers in the past.

Some lawmakers are also pushing for targeted relief to benefit seniors, low-income homeowners and veterans through exemptions and other changes designed to shield these groups from effects of surging home values.

State Sen. Caryn Tyson, a Parker Republican who chairs the Senate Tax Committee, said the situation has become untenable for too many Kansans. If local governments do not get a handle on the situation, the state will have to step in, Tyson said.

“If we keep hearing from constituents, something’s got to give,” Tyson said.

Amendment draws support

Three major factors determine how much Kansas property owners owe. The first is the appraised value of a property, based on its fair market value. The appraised values of many homes have risen sharply in the past few years as buyers are willing to pay more and more.

The second is the assessed value of the property, or the percentage of the appraised value that is taxed. In Kansas, the assessment ratio for different categories of property is set in the state constitution. Residential property is assessed at 11.5% of appraised value, agricultural land at 30% and commercial property at 25%.

The final factor is the mill levy – effectively the actual tax rate. A mill is $1 per every $1,000 of assessed value. In addition to a 20-mill statewide levy that helps pay for public education, cities, counties and local school districts all set their own mill levies, meaning the total mill levy can change block by block in some areas.

This spring, the Legislature approved expanding how much of a property’s appraised value is excluded from the statewide mill levy, as well as expanded tax credit programs for injured and retired veterans.

The changes were included in two sweeping tax bills, one which enacted a flat income tax and another that combined a wide range of tax policies, including cuts for businesses competing with public services. Both were vetoed by Kelly, who rejected the policies as fiscally irresponsible.

“Two tax relief bills last session included property tax relief, but they were both axed by the Kelly/Toland Administration,” Kansas House Speaker Dan Hawkins, a Wichita Republican, said in a statement, referring to Lt. Gov. David Toland.

“Next session the House will work to pass a version of the Senate’s constitutional amendment and look at other options to lower the property tax burden on Kansans who are already overtaxed by the Kelly/Toland Administration.”

Kelly’s spokesman, Zach Fletcher, pointed to property tax relief the governor has signed and pushed for in recent years.

“Governor Kelly has been committed to fiscal responsibility while providing sustainable and affordable tax relief for hard-working Kansans. Because of Governor Kelly’s laser focus on this mission, she has signed legislation providing over $1 billion in tax cuts,” Fletcher said in a statement.

He noted that last year, after lawmakers failed to override her veto on the flat tax, Kelly proposed an increased property tax exemption that lawmakers did not consider.

Property values, as opposed to mill levies, sit at the core of much of the current frustration among homeowners. Growing home values means that many local governments can collect more tax revenue while also lowering their mill levy.

The Smiths’ appraised value jumped more than $92,000 – or roughly 25% – in a single year, Gary Smith said. And while the Miami County Commission last year stuck to a revenue-neutral mill levy rate, the commission’s proposed budget calls for collecting more revenue next year while cutting the mill levy.

“It just really makes it tough. You don’t plan on this when you retire and here we are, we have a nice place, but good heavens,” Smith said.

Tax bills go up even as mill levies fall

Roger Dart, an 83-year-old Leawood resident, said he believes he did a good job preparing for retirement after working at Kansas City Life Insurance Company. He’s lived in his current ranch-style home since the mid-1980s and doesn’t want to move.

But the appraised value on his home rose 37% in a year in the most recent appraisal, Dart said, and he doesn’t want to reach a point where all he can afford the taxes but nothing else.

“I don’t consider our house an investment, never have,” Dart said. “It’s an asset – a place to live, to raise a family.”

Johnson County has proposed a budget that would lower the mill levy by 0.25 mills to 24.358 mills. At the same time, the county anticipates property tax revenue will grow by about $31 million, according to county budget documents.

If approved, the mill levy rollback will mark the county’s fifth in six years, Johnson County Board of Commissioners Chair Mike Kelly said last month.

“In this budget, we are able to fund the programs and services upon which our residents rely, ensure equitable pay for our workforce, and still be fiscally responsible in balancing our 2024 budget by again rolling back the mill levy rate for our residents,” Kelly said in a statement.

Leawood Mayor Peggy Dunn, who has been in office for 25 years, said the city has attempted to hold down the mill levy during her tenure as mayor. The city is proposing a mill levy reduction for the coming year, but still expects to collect more revenue.

Leawood has felt the effects of inflation like everyone else, said Dunn, who isn’t running for reelection this year.

“The city is experiencing those same, dramatic increases in every one of our projects, whether it’s a building project for the city or a street project or a storm water project – all of our infrastructure expenses have really been skyrocketing due to materials and labor,” Dunn said.

The constitutional amendment approved by the Kansas Senate would limit increases in property valuations to 4% a year – making it more difficult for cities like Leawood to collect the revenue local officials want without mill levy increases.

Hawkins has pledged to pass a version of the amendment when lawmakers return to Topeka next year. It needs two-thirds support in the House and Senate to go to voters.

Proposals criticized

Richard Auxier, a senior policy associate at the nonpartisan Tax Policy Center in Washington, D.C., a joint venture of the Urban Institute and the Brookings Institution, said the policies Kansas lawmakers were considering would help people like Smith and Dart. But they would also provide tax relief to people who don’t need it, those who live in multi-million dollar homes with growing values.

“You’re basically helping people who have had a windfall,” he said.

Across-the-board property tax relief can serve a purpose, Auxier said, but state and local governments can make efficient use of funds with targeted exemptions and credits to help retirees or low-income Kansans most harmed by increases in their tax bills.

“If the biggest problem in Kansas is our low and middle income people not being able to afford their property tax bill, I don’t really know that this is going to be the way to help them out,” Auxier said of the proposed constitutional amendments.

The amendment by itself wouldn’t stop property tax increases because local officials could still vote to raise mill levies. Still, Rep. Adam Smith, a Weskan Republican who chairs the House Tax Committee, said he believed it would help “smooth things over a number of years” allowing homeowners to see more gradual increases.

House Democrats have proposed their own constitutional amendment, which would lower the assessment rate for residential property from 11.5% to 9%. The Senate rejected the idea when it was offered as an amendment during a floor debate over taxes.

While Smith held a hearing on the measure, he said he isn’t interested in advancing it over concerns it would shift the tax burden to non-residential property. For instance, the Kansas Farm Bureau testified against the bill because of fears of how it would affect agricultural land.

House Minority Leader Vic Miller, a Topeka Democrat, said the Democratic amendment is intended to restore the balance between residential, agricultural and commercial properties to what it was when voters last approved a constitutional amendment on property taxes in the 1990s.

If the Senate-approved amendment to limit valuation increases is brought up for a vote in the House, Miller said it will be difficult to vote against it. But he said he believes the measure is insufficient relief for Kansans and ignores market rates.

Still, Miller said, “I’m not going to rule it out because it is something.”

Program unfunded

Another possible path to property tax relief is the Local Ad Valorem Tax Reduction Fund, the program that hasn’t been funded since 2003 and would provide local governments with upwards of $100 million a year.

Kansas is required to send a share of its sales tax collections to cities and counties each year to fund, but lawmakers have continuously waived the rule – a decision that in the past helped shore up state budgets amid the Great Recession and fiscal shortfalls caused by Gov. Sam Brownback’s income tax cuts.

Kansas now sits on more than $1 billion surplus but reinstituting the program still faces long odds.

“It’s just not popular and it’s something that the Democrats have kind of latched onto recently because they know the Republicans won’t fund it,” Smith said.

Smith, a former Wallace County commissioner, said the tax reduction program for local governments is a good program but that it would need to change to push past political barriers. Currently, he said, a widespread belief exists among legislators that if the state gives local governments the funds they’ll simply spend it rather than reducing taxes.

House Democrats have offered a measure that would restart the program and then double the amount going into it. In an era of budget surpluses, there’s no excuse for inaction, Miller said.

“With the surpluses we have today there’s absolutely no reason we shouldn’t be fulfilling our statutory obligation,” Miller said.

Kelly has not prioritized funding for the program. Her spokesman, Fletcher, said the governor proposed funding for the program in 2020, but since then she has instead “focused more on ensuring tax relief goes directly to Kansans.”

Kansas Senate President Ty Masterson, an Andover Republican, rejected the idea of funding the tax reduction program for local governments, saying it “never worked as intended.”

Most local governments, Masterson said in a statement, “failed to use the money to reduce property taxes, but rather used it to spend more money. The better way is to get at the root of higher property taxes, which is the property valuation increases that are making the cost of staying in one’s home prohibitive.”

Dart, the Leawood homeowner, said he believes Kansas will eventually have to act on property taxes because local governments haven’t shown enough discipline to act on their own.

But whatever steps the Legislature takes won’t come in time for this year’s property taxes, leaving homeowners to wonder what will be on their bills when they arrive this fall.

“The people that work for the cities and the counties, they seem to do a great job, this is really a neat area,” Dart said. “But you just can’t keep going, at least from my perspective you can’t, because I don’t have the dollars to do that.”