Candice Horbacz
This legislative session, Kansas policymakers remain focused on property tax reform and relief, with the Senate and House passing an assessment limit and a levy limit, respectively, in late February, setting the stage for a critical debate over the future of property taxation in the Sunflower State. The legislative efforts, embodied in Senate Concurrent Resolution 1616 (SCR 1616) and House Bill 2745 (HB 2745), represent distinct approaches to addressing the rising property tax burdens faced by Kansans, yet each carries its own set of potential benefits and significant drawbacks.
The push for property tax reform comes amidst a period of sustained growth in property values across Kansas, mirroring national trends. Home values in many parts of the state have seen double-digit percentage increases in recent years, fueled by a competitive housing market and inflationary pressures. While this appreciation benefits homeowners’ equity, it simultaneously translates into higher property tax assessments and, subsequently, increased tax bills, even if mill levy rates remain constant. This escalating burden has ignited widespread public demand for legislative intervention, making property tax relief a top priority for lawmakers. The existing "Truth in Taxation" law, enacted in 2021, aimed to increase transparency by requiring local governments to notify taxpayers of proposed property tax increases and hold public hearings. However, many legislators and taxpayer advocates argue that this procedural mechanism has not sufficiently curtailed the growth in overall property tax collections, prompting the pursuit of more direct caps on either assessments or levies.
The Legislative Journey: A Chronology of Reform Efforts
The current legislative session has seen a concentrated effort to advance property tax relief measures. SCR 1616, introduced in the Senate, swiftly moved through the chamber, passing with significant support in late February. Concurrently, HB 2745, originating in the House, also gained traction and was passed by its chamber around the same time. These parallel legislative actions underscore the urgency lawmakers feel in addressing the issue, but also highlight a fundamental disagreement on the most effective and equitable path forward. The passage of these distinct bills by their respective chambers means they will likely head to a conference committee, where differences will need to be reconciled. If SCR 1616, being a constitutional amendment, passes both chambers, it would then be put before Kansas voters in a statewide election, potentially as early as November 2024, for final approval. HB 2745, if enacted, would take effect as statutory law, potentially replacing or significantly altering the current "Truth in Taxation" framework.
Understanding Property Tax Mechanics in Kansas
In Kansas, property taxes are the single largest source of state and local revenue, crucial for funding essential public services such including K-12 education, county and city operations, police and fire departments, and local infrastructure projects like roads and bridges. The tax is levied on immovable property like land and buildings, as well as on tangible personal property such as vehicles and business equipment. A property’s tax liability is determined by its assessed value multiplied by the local mill levy rate. Assessed value is a percentage of the property’s appraised market value (e.g., 11.5% for residential property), while the mill levy is the tax rate applied per $1,000 of assessed value. Over the past decade, Kansas has seen consistent increases in both market values and, consequently, assessed values. For instance, state reports indicate that the statewide average residential property value has increased by approximately 30% over the last five years, translating directly into higher tax bills even without an increase in mill levies by local taxing authorities. This dynamic is what the proposed reforms aim to address.
Senate Concurrent Resolution 1616: The Assessment Limit Proposal
SCR 1616 proposes a constitutional amendment that would cap annual increases in the assessed value of real property and residential mobile homes at no more than 3 percent per year. This limit would apply to all classes of real property, including commercial and industrial properties, not just residential. Critically, the assessment limit would not apply in cases of new construction or significant improvements to a property, which would trigger a reassessment to market value.
However, a highly unusual and potentially problematic aspect of SCR 1616 is that the limit would generally remain in place even when a property changes ownership, unless the legislature later creates exceptions. This provision means the reduced assessment "runs with the property" rather than resetting upon transfer to a new owner. In most states with assessment limits, a change in ownership typically triggers a reassessment to the current market value. Under SCR 1616, a homebuyer acquiring an existing home would inherit a potentially artificially low assessed value, benefiting from a reduced tax base. Conversely, a buyer of a newly constructed home would pay property taxes based on its full, current market value. This creates a significant disparity and is a core point of contention for fiscal policy experts.
Economic and Equity Concerns of Assessment Limits
The assessment limit proposed by SCR 1616, while seemingly offering immediate relief, raises substantial concerns regarding market distortion and equity. Analysts from fiscal policy organizations warn that such a cap would inevitably create a widening gap between a property’s assessed value and its true market value over time. For example, if market values increase by 7% annually but assessed values are capped at 3%, the disparity would compound, leading to significantly undervalued properties on the tax rolls.
This distortion has several negative implications:
- Disadvantage for Newer Properties: Homebuyers purchasing newly built homes or properties with recent significant renovations would face higher tax burdens relative to those buying older properties whose assessed values have been artificially suppressed for years or decades. This effectively penalizes investment in new housing stock.
- Affordability Hurdles: While incumbent property owners would benefit from lower tax bills, the favorable tax treatment of older homes could actually inflate their market value, leading to higher sales prices. This creates an additional affordability hurdle for prospective first-time homebuyers who might face elevated purchase prices even if their initial tax bill is lower.
- Discouraging Development and Renovation: The preferential tax treatment of previously constructed properties makes new construction less attractive economically, potentially discouraging the development of much-needed new housing and commercial properties. Furthermore, property owners might actively avoid making value-enhancing renovations or improvements to their homes to prevent triggering a reassessment and losing their capped assessment. This could lead to deferred maintenance, blight, and even negative health or safety outcomes for residents.
- Shift in Tax Burden: Over time, as the gap between assessed and market values widens, the tax burden inevitably shifts. Those properties whose values are closer to market value (i.e., newer properties or those that have recently been significantly improved) will bear a disproportionately larger share of the overall property tax burden needed to fund local services.
- Legislative Flexibility and Mill Levy Increases: If approved by voters, SCR 1616 would amend the constitution, but the legislature would retain the authority to adopt an even lower assessment limit through a simple statutory change. Policymakers could theoretically cap assessments at 1 percent or even freeze them at current levels, further exacerbating market distortions. Moreover, nothing in SCR 1616 prevents local taxing authorities from increasing mill levies to compensate for the reduced assessment base. This could counter the intended tax relief and disproportionately burden properties not subject to the cap or those whose assessments are closer to market value.
Statements from real estate associations and economic think tanks often echo these concerns, pointing to California’s Proposition 13 as a cautionary tale where decades of assessment caps have led to massive disparities in property taxes between long-term owners and new buyers, distorting the housing market and impacting local government revenue stability.
House Bill 2745: The Property Tax Levy Limit
In contrast to the assessment limit, HB 2745 proposes a statewide property tax levy limit, replacing the current "revenue neutral" policy under Kansas’s "Truth in Taxation" law. Under HB 2745, local political subdivisions (excluding school districts) would face a 3 percent cap on the growth of their property tax collections compared to the previous year. If a local government adopts a budget that raises property tax collections by more than 3 percent, it would trigger a potential protest petition mechanism.
Certain property tax increases would be exempt from this cap, including those attributable to new construction, renovations, or improvements; the expiration of property tax abatements or Tax Increment Financing (TIF) districts; or property tax increases used to repay bonds, state infrastructure loans, or interest payments on obligations entered into before July 1, 2026. These exemptions are common in levy limit frameworks to allow for growth and necessary debt service.
The protest petition mechanism is a key feature of HB 2745. If a budget exceeds the 3 percent limit, voters would have 30 days to file a protest petition. The House-passed version of the bill specifies that a petition would be successful if 5 percent or more of the qualified electors who voted for Kansas Secretary of State in the most recent general election sign it. A successful petition would compel the governing authorities to adopt an alternative budget within seven days that adheres to the levy limit. If the petition is unsuccessful, the budget exceeding the limit would be permitted to take effect.
Analysis of Effectiveness and Potential Pitfalls of HB 2745
From a property tax collections standpoint, HB 2745 represents a more permissive default than the current "Truth in Taxation" policy, which, by default, aims to hold collections constant year-over-year unless specific public hearing requirements are met. Under HB 2745, a 3 percent increase in collections is allowed without triggering the protest mechanism. However, the mechanism for preventing undesired increases is arguably stronger under HB 2745: a successful protest petition would nullify increases over the limit, whereas "Truth in Taxation" relies primarily on procedural steps and public pressure.
Key considerations for HB 2745 include:
- Onus on Taxpayers: The protest petition model places the burden of action squarely on taxpayers. A budget exceeding the limit becomes law by default unless citizens proactively organize and successfully gather signatures. This contrasts with many levy limits in other states where exceeding the limit automatically requires voter approval at the ballot, placing the onus on the local government to justify the increase. Taxpayer advocacy groups have expressed mixed feelings, appreciating the direct power afforded to citizens but also noting the logistical challenges inherent in organizing successful protest petitions within a tight timeframe.
- Exemption for School Districts: A significant carve-out in HB 2745 is the exemption of school districts from the levy limit. Schools represent a substantial portion of property tax bills in Kansas. Under current "Truth in Taxation" laws, school districts are subject to the same transparency requirements as other local governments. Removing this constraint under HB 2745 could lead to school districts increasing their property tax levies more freely. This could result in many Kansans still facing overall sharper property tax increases, even if the county, city, and special district portions of their bills are capped. Local government associations and school administrators have voiced concerns about the financial implications of such limits, particularly for essential services, while school advocates argue that limiting school funding through property taxes would disproportionately affect educational quality.
- Flexibility vs. Constraint: While HB 2745 offers a stronger tool for voters to overturn increases, it also provides local taxing jurisdictions more default flexibility to increase property taxes year-over-year than under current law. This means the policy’s effect on constraining overall property tax revenue growth could be uneven, potentially having a stronger effect in jurisdictions that previously raised taxes despite "Truth in Taxation," but a weaker effect in those that had held collections constant.
Overall, levy limits are generally considered a more structurally sound mechanism for property tax relief by fiscal experts because they focus on controlling the growth of overall local government spending, which is the root cause of increasing property tax bills. When assessed values rise, a well-structured levy limit typically requires taxing authorities to automatically adjust the mill levy rate downward to keep overall collections within the specified cap. This approach maintains a direct link between property value and tax liability for individual parcels while limiting the overall revenue growth. However, for a levy limit to be truly effective, it must have minimal exemptions and a robust, accessible mechanism for voter oversight when limits are exceeded.
Broader Implications for Kansas’s Fiscal Landscape
The outcome of the debate over SCR 1616 and HB 2745 will have profound implications for Kansas’s fiscal landscape. Local governments, already navigating complex budget constraints, could face significant challenges.
- Impact on Local Services: A strict assessment or levy limit, especially without corresponding state aid increases or broadened revenue options, could strain local budgets, potentially leading to reduced funding for critical services such as public safety, infrastructure maintenance, libraries, and parks.
- Economic Development and Housing: The assessment limit’s potential to disincentivize new construction and renovations could slow economic development and exacerbate housing shortages, particularly in growing areas of the state. Conversely, a well-structured levy limit could provide predictability for businesses and residents, fostering a more stable economic environment.
- Balancing Relief and Responsibility: The legislative challenge lies in striking a balance between providing meaningful property tax relief to residents and ensuring that local governments have the necessary resources to provide essential services. Both bills attempt to address the public outcry, but their differing mechanisms carry distinct risks to market neutrality, equity, and fiscal stability.
- Future Legislative Actions: Regardless of which proposal, or a hybrid of both, ultimately passes, the property tax debate is unlikely to conclude. The implementation of either an assessment or levy limit will undoubtedly lead to new discussions about revenue adequacy, intergovernmental fiscal relations, and ongoing adjustments to ensure fairness and efficiency. The potential for a constitutional amendment vote on SCR 1616 also means that Kansas citizens will have a direct say in shaping the state’s long-term tax policy.
As Kansas lawmakers move forward, the critical task will be to thoroughly evaluate the long-term consequences of each proposal, weighing the immediate desire for tax relief against the potential for market distortions, equity imbalances, and impacts on local government capacity. While well-intentioned, an assessment limit like the one in SCR 1616 is broadly considered by fiscal experts to be less ideal due to its inherent market distortions and nonneutral shift of tax burdens. Instead, a focus on structurally sound levy limits, designed with minimal exemptions and robust voter oversight, is often recommended as the most effective path toward achieving sustainable property tax reform and relief without undermining the foundational principles of a fair and efficient tax system. The ultimate solution will require careful deliberation and a commitment to policies that benefit all Kansans equitably and sustainably.
