As property values and taxes rise, is a Kansas constitutional amendment the solution?

As rising property values bring higher taxes for Kansas homeowners, top Republican lawmakers plan to make a proposed constitutional amendment a top priority.

The idea on the table is to limit property valuation increases to a maximum of 4% per year, unless there is a market transaction.

But there is no guarantee that limiting assessment growth would result in lower property taxes. That's because local governments could still raise the mill levy to bring in the same amount of tax. And for those who do benefit, it would likely be because the tax burden is shifted onto others.

"It does not in any way limit the growth of local property tax revenues," said Edward Penner, of the Kansas Legislative Research Department.

Republicans plan to pursue property tax constitutional amendment

The resolution, SCR 1611, was rushed through the Senate last spring without a committee hearing and passed with the needed two-thirds majority on a largely party-line vote. It came days after the chamber rejected by one vote a similar proposal in SCR 1610 to limit increases to 3%, which had been proposed by Sen. Caryn Tyson, R-Parker and chair of the Senate tax committee.

House Speaker Dan Hawkins, R-Wichita, said last month it will likely be one of the first pieces of legislation to be voted on in the House when the Legislature reconvenes in January.

"I will bring that to the floor immediately at the start of next session," Hawkins said.

If the House passes the resolution as is with a two-thirds majority, the amendment would be on the November 2024 general election ballot. If approved by a simple majority of voters, it would take effect in tax year 2025 — meaning people would first notice any affects with their December 2025 and May 2026 tax bills.

While GOP leadership will likely put pressure on lawmakers to back the idea next session, a special tax committee meeting last week showed there is some opposition to the idea.

What the property tax constitutional amendment does

The concept of limiting valuation increases to 4% is the simple part. Where it gets more complicated is how exceptions work, Penner said. Various technicalities in the language make it unclear how all the exceptions would apply to various circumstances.

Selling a property would reset the value to the market. But title transfers also may do that — such as to the homeowner's trust for estate planning purposes, to a family member through inheritance or to remove a deceased spouse.

That means there is a financial disincentive to move to a nicer home or to a different side of town.

"Relocating means they'll lose the value of the preferential tax treatment they have accumulated over time due to years of undervaluation," said Katherine Loughead, a policy analyst at the Tax Foundation, a conservative-leaning think tank.

Making an improvement to a house, such as adding a deck or adding a garage, could also reset the value, depending on definitions and interpretations.

County appraisers would still have to appraise for fair market value every year. The valuation notice would then either show the fair market value, as long as it is no larger than a 4% increase, or the notice would show a 4% increase.

It is also written to apply to all real estate, despite legislators expressing particular concerned in residential property valuation growth.

Would an amendment help prevent seniors from being taxed out of their homes?

"It's meant really to protect the fixed income, particularly seniors," Senate President Ty Masterson, R-Andover, said last month.

He said his recently deceased neighbor was one of the original homeowners in a neighborhood built about 60 years.

"He was paying more in property tax than his tax, mortgage and insurance was when he paid it off," Masterson said. "And so he just never contemplated that, right? For him, he wasn't selling his house. It didn't matter, you could say his house is worth a billion dollars, but it didn't change anything for him."

Loughead told legislators that a property tax assessment limit would do more harm than good in Kansas.

"Many people can sympathize with that goal," she said. "Because it's not uncommon for homeowners to initially purchase a home they can afford with a property tax bill they can afford initially, but then eventually find themselves struggling to pay the higher property tax bills that often accompany appreciation in home value."

If preventing people from getting taxed out of their homes is the goal, there are better and more targeted ways, Loughead said — such as "generous" changes already made to the state's Homestead Property Tax Refund Program.

"I would assert that Kansas now already offers a very generous property tax limitation for those most at risk of being unable to afford rising property tax bills," she said. "So I would say that that makes an assessment limit unnecessary."

The constitutional amendment would also benefit older Kansans who stay in the same home for decades at the expense of shifting a greater tax burden onto younger, first time homebuyers.

"Under an assessment limit, newer homeowners who are oftentimes younger and have lower incomes and less accumulated wealth, usually end up facing higher effective property tax rates than residents who have owned their homes for longer and who are oftentimes older and have higher incomes and more accumulated wealth," Loughead said. "So there is a large amount of tax shifting that can occur under an assessment limit."

Some benefit, some don't, under a cap to valuation growth

It is difficult to determine whether any individual property owner would benefit from capped valuation growth because there are so many factors, Penner said.

"I understand that's the exact issue that you want to try to tease out, is what is the implications of this, but it's really hard to say without creating a pretty detailed hypothetical," Penner said.

He did walk through a few hypotheticals to show legislators how a 4% cap could play out — and who would benefit and who would not. His scenarios were based on the assumption that local governments would likely adjust their mill levies to bring in a certain level of revenue regardless of valuation changes.

"If all properties were over the cap by a comparable level, it doesn't really matter," Penner said. "If all property is under the cap, it doesn't really matter. It's when you have distribution of the growth value of properties where it starts to matter."

Penner described a situation where your property value increases by 7%, while all other properties see a 4% increase. Since your property is brought down to 4%, you would benefit.

But just because your property value increase gets capped does not guarantee you benefit.

He also described a scenario where all properties had valuation increases greater than the 4% cap. In such a situation, a property with a 5% increase would be brought back down to 4%, as would a property with a 20% increase. The owner of the property with the 20% would end up better off under a subsequent mill levy increase than the owner of the 5% property.

"The 5% growth property, while seeming to benefit from the cap because it's pulled back down to 4%, would actually still see its property tax bill be higher than it otherwise would have been because the benefit is afforded to those that grow even faster than it," Penner said.

Would the new property tax system be more fair or less fair?

Rep. Mike Amyx, D-Lawrence, said the intent for using fair market value was a belief that it fairer. He expressed concern that a cap would be less fair.

"My goal here is to make sure that there's fairness and in all of this, and that people's taxes actually go down," Amyx said.

Tyson said a homeowner could see her value go up because neighbors have remodeled and sold at higher prices.

"So she is seeing an exorbitant increase in her valuation without doing anything to her property, nothing," Tyson said. "And so she's literally about to be taxed out of her home. So how fair is that with the current system?"

The shifting of tax burden from some property owners to others means an assessment limit has "pretty little economic justification," said Loughead, the Tax Foundation analyst.

"Behind the scenes, there's a lot of inequity being created where some property owners are getting their valuations artificially limited, while others have to bear the full brunt of the property tax burden," she said.

New homebuyers who had their property reset to fair market value would be stuck with a higher share of the tax increase compared to longtime homeowners who had their valuation growth capped.

"An assessment limit might be politically popular among current homeowners," Loughead said. "But it could make Kansas substantially less popular or less attractive to future homebuyers because over time, a 4% assessment limit would introduce pretty highly unequal tax burdens across similar situated properties."

That could also stifle new home construction, said Saline County appraiser Sean Robertson, who represented the Kansas County Appraisers Association. Years of undervaluation would also mean that if the housing market were to ever go down, homes would likely still see a government property valuation increase.

Tyson said she thinks properties in Kansas are "are being overvalued and not accurately valued."

Robertson said real estate prices jumped because of an influx of federal money, historically low interest rates, historically high savings and historically high incomes.

"I think it's a very good possibility that this will reduce complaints and appeals about property values," Robertson said. "What we hear most often is it went up too much, regardless of if the value is accurate. I think people like consistency over accuracy, to be honest."

Consistency helps individuals and businesses better budget for their property tax bill, he said. But the bifurcated two sets of rules creates inequity between similar properties.

"You'd have owners of similar properties in the same area that can face very different tax burdens," he said. "However you want to characterize that as fair, unfair, I could see both ways, but it certainly would create an inequity."

Jason Alatidd is a statehouse reporter for the Topeka Capital-Journal. He can be reached by email at jalatidd@gannett.com. Follow him on X @Jason_Alatidd.

This article originally appeared on Topeka Capital-Journal: Would Kansas Republican property tax constitutional amendment be fair?