The big shaft

Over the past 20 years, the legislature has denied more than $1.5 billion in property tax relief owed to Kansas cities and counties and ordered by state law. The money, now as much as $100 million annually, is derived from the Local Ad Valorem Tax Relief fund, framed in statutes that date to 1937, reinforced in the 1960s and enhanced in 1992.
For several decades, legislators routinely complied with the law, known as a “demand transfer.” It requires that 3.63 percent of state sales tax revenues be moved to the fund and returned to local governments in two transfers ‒ in January and July. Distributions are based on local population (65 percent) and property valuation (35 percent).
The law was created to stabilize and reduce local property levies, a payback to cities and counties for acting as a state tax collector.
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The legislature has routinely suspended the transfer each year since 2004, sidestepping its obligation. During those 20 years, local officials and advocates repeatedly asked lawmakers to adhere to law and share the revenue. Each year, the answer was no.
Melissa Wangemann, a lawyer for the Kansas Association of Counties, told the House Tax Committee in 2015 that lawmakers had shorted local governments by nearly $797 million since 1992, when they began to cut ‒ but not abolish ‒ the tax revenues owed to local governments. Of that total, an unpaid $742 million had accumulated between 2004, and 2015, when Wangemann testified.
In the eight years since her testimony local governments have been shorted another $776 million ‒ on recent average, $95 to $97 million per year.
From 2004 through this year, at least $1.5 billion in local tax relief has been sluiced away by legislators.
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Soon after her election in 2018, Gov. Laura Kelly, a Democrat, made the request for local revenue sharing, and has repeated the appeal in annual budget proposals. The Kelly administration estimates that the state will collect about $2.8 billion in state sales taxes next year. The city-county portion, 3.63 percent by law, is $101.64 million.
Last September, before the 2023 legislative session, House Democrats introduced a three-part plan to lower property taxes; the plan included refinancing the local property tax reduction fund.
The Democrats’ plan was to replenish the fund with $54 million and double the amount for four more years to offset (somewhat) the decades of nonpayment.
The plan was ignored.
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The legislature since 2004 has been dominated by large Republican majorities that have become increasingly conservative and influenced by hardcore special interest lobbies. Republicans today hold an 85-40 majority over Democrats in the House of Representatives and rule the Senate, 29-11.
Thanks to Kelly and a handful of GOP moderates, the state’s $9.4 billion operating budget carries a $1.7 billion (“rainy day”) reserve; atop this, the estimated budget balance is expected to increase to $2.6 billion in the budget year beginning July 1.
Republicans are eager to spend the Democrats’ savings. GOP legislators have long advocated income tax relief, especially for corporations and wealthy individuals. Their proposed flat rate for state income taxes, with great benefit to big business and high incomes, did not survive the governor’s veto this year. This plan is not dead.
Income tax relief, including the flat tax, multiple new exemptions and deductions, are likely focal points for the party’s 2024 election campaigns. Republicans are roused by the state’s multi-billion dollar surplus. They long for a spending spree that doles out billions in income tax cuts, an imaginary give-away fundamental to their election-year politics. No mention of local taxes, or local tax relief.
Meanwhile, local property and sales taxes continue to increase. A lot of the state’s multi-billion dollar surplus might be seen as money sluiced from local taxpayers.
The idea behind property tax relief is that the health of local government is crucial to the health of the state; without strong cities and counties, we cannot have a strong state.
Republican legislators seem to believe that local taxes are local matters; a billion, $2 billion hoarded in Topeka is the stuff of old statutes. Cities and counties, and the law, can wait.