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. The legislative actions come as Kansans grapple with rising property valuations and an increasing burden on homeowners and businesses, fueling a persistent demand for tax relief across the state. While both chambers aim to address constituent concerns regarding property tax growth, the proposed solutions represent fundamentally different approaches with distinct economic implications for the state’s real estate market, local government funding, and taxpayer equity.
The Genesis of Reform: Addressing Kansas’s Property Tax Landscape
Property taxes constitute the single largest source of state and local revenue in the U.S., funding critical services such as schools, roads, police, and fire departments. In Kansas, these taxes play an especially significant role in local government budgets, often representing a substantial portion of a homeowner’s annual expenses. Over recent years, Kansans have witnessed a notable surge in property valuations, driven by a robust housing market and inflationary pressures. This appreciation, while beneficial for property owners’ equity, translates directly into higher tax bills, even if local mill levies remain unchanged. This situation has ignited widespread public outcry and placed property tax relief at the forefront of the legislative agenda, prompting lawmakers to explore various mechanisms to curb the growth of these levies.
The current debate builds upon previous legislative efforts, most notably the 2021 "Truth in Taxation" law. This policy aimed to enhance transparency by requiring local governments to provide public notice and hold hearings whenever they propose to collect more property tax revenue than the previous year. While successful in fostering greater transparency and public engagement, the "Truth in Taxation" law does not impose a hard cap on revenue growth, instead relying on public pressure to constrain increases. Many legislators and taxpayer advocacy groups argue that this mechanism has proven insufficient in stemming the tide of rising property tax burdens, necessitating more direct and binding limitations.
Senate’s Approach: SCR 1616 and the Assessment Limit
The Kansas Senate passed SCR 1616, a resolution proposing a constitutional amendment that would fundamentally alter how property values are assessed for tax purposes. If approved by voters, SCR 1616 would limit annual increases in the assessed value of all classes of real property and residential mobile homes to no more than 3 percent per year. This cap would apply continuously, meaning the reduced assessment would run with the property itself, rather than resetting upon a change of ownership. The assessment limit would not apply to new construction, significant improvements, or other less common circumstances, allowing for some flexibility in valuation for newly created value.
Proponents of SCR 1616 often highlight the immediate relief it could offer to long-term homeowners facing rapidly escalating property tax bills. By capping the growth of assessed values, the measure aims to provide predictability and prevent "tax sticker shock" that can force residents out of their homes. From this perspective, it offers a tangible mechanism to protect vulnerable populations, such as seniors on fixed incomes, from being priced out of their communities due to soaring property taxes.
However, the proposed assessment limit has drawn significant criticism from economists, real estate professionals, and some taxpayer advocates due to its potential long-term distortions and inequities. The most significant concern revolves around the widening gap between a property’s assessed value and its actual market value over time. As market values continue to appreciate at rates exceeding 3 percent, older properties would benefit from artificially suppressed assessed values, while newer properties would be assessed closer to their full market value.
This disparity creates a non-neutral playing field in the real estate market. For instance, a homebuyer purchasing an existing home whose assessed value has been capped for years would benefit from a significantly lower tax basis compared to a buyer of a newly constructed home, who would pay taxes on the full, current market value. This preferential treatment for older properties could inflate their sales prices, making homeownership even less accessible for first-time buyers who are already struggling to enter the market. Simultaneously, it could disincentivize new construction, as developers and buyers would face higher relative tax burdens, potentially stifling the development of much-needed housing stock and commercial properties.
Furthermore, critics point out that the continuous nature of the cap, even upon ownership transfer, is highly unusual compared to assessment limits in other states, which often reset upon sale to reflect current market conditions. This unique feature in SCR 1616 amplifies the potential for market distortion and inequity. The resolution could also inadvertently discourage property owners from making value-enhancing renovations or improvements, as such actions might trigger a reassessment outside the 3 percent cap, leading to higher tax liabilities. This disincentive could lead to deferred maintenance, impacting neighborhood aesthetics, property values, and potentially even health and safety outcomes for residents.
Another critical analysis of SCR 1616 highlights that while it limits assessed value, it does not inherently limit local government spending or overall property tax collections. Local taxing authorities could, in theory, increase mill levies to compensate for the capped assessment growth, thereby nullifying the intended tax relief for some property owners and disproportionately burdening those whose assessments are closer to market value (i.e., owners of newer properties or those who have recently made improvements). Moreover, if this constitutional amendment is approved, the legislature would retain the authority to adopt an even lower assessment limit through simple statutory changes, potentially exacerbating these market distortions in the future. In its initial year (tax year 2027), the assessment limit would prohibit increases of more than 3 percent compared to the property’s tax year 2022 assessed value, potentially leading to substantial reductions in initial assessed values for many properties.
House’s Alternative: HB 2745 and the Levy Limit
In contrast to the Senate’s approach, the Kansas House passed HB 2745, which proposes a statewide property tax levy limit. This bill would replace the current "Truth in Taxation" policy, though it would retain certain modified public notice and public hearing requirements. Under HB 2745, local political subdivisions (excluding school districts) would be subject to a potential protest petition if they adopt a resolution that raises property tax collections by more than 3 percent above the previous year’s collections.
A levy limit is generally considered a more neutral and structurally sound solution for property tax reform. Unlike an assessment limit, which targets individual property values, a levy limit directly controls the total amount of property tax revenue that local governments can collect. When assessed values rise across a jurisdiction, a levy limit typically requires taxing authorities to adjust the mill levy rate downward to keep overall collections from exceeding the specified cap. This approach directly addresses the root cause of rising property tax bills: increased local government spending, rather than merely masking the symptoms of rising valuations.
HB 2745, however, includes several provisions that make it more permissive than levy limits found in many other states. Firstly, certain property tax increases would not be constrained by the 3 percent cap. These exemptions include increases 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. While some exemptions are common and necessary (e.g., for new construction to avoid penalizing growth), the breadth of these exceptions could significantly dilute the impact of the limit.
Secondly, the mechanism for preventing undesired tax increases relies on a protest petition. When a local budget exceeding the 3 percent limit is adopted, voters would have 30 days to file a protest petition. Under the House-passed version, a successful petition would require signatures from 5 percent or more of the qualified electors who voted for the Kansas Secretary of State in the most recent election. A successful petition would compel the governing authority to adopt an alternative budget within seven days, adhering to the limit. If the petition fails, the higher budget would take effect.
Critics of this mechanism argue that it places the onus squarely on taxpayers to proactively organize and act to prevent tax increases. In most robust levy limit frameworks, a budget exceeding the limit cannot become law by default; instead, it typically requires explicit voter approval at the ballot. By contrast, HB 2745 allows the higher budget to take effect unless a successful protest is mounted, potentially leading to a default increase in many jurisdictions where organizing a petition drive proves challenging.
A significant carveout in HB 2745 is the exemption of school districts from the levy limit. In Kansas, a substantial portion of property tax revenue is dedicated to financing schools. Under the current "Truth in Taxation" law, school districts are subject to the same transparency requirements as other local entities. Removing them from the new levy limit could mean that while county, city, and special district portions of property tax bills might be constrained, overall property tax increases for Kansans could still be substantial due to potential increases in school district levies. This exemption could also shift public scrutiny and pressure onto school districts, as they would be the only major local entity without a hard cap on revenue growth, potentially leading to increased public dissatisfaction without corresponding funding relief.
The Legislative Path and Divergent Futures
With the Senate passing SCR 1616 and the House passing HB 2745, the legislative process now enters a critical phase. The two chambers must reconcile their differing approaches, likely through a conference committee. The outcome could be a compromise bill that combines elements of both, or one proposal might gain ascendancy. Given that SCR 1616 is a constitutional amendment, even if passed by both chambers, it would still require approval by Kansas voters in a statewide election. HB 2745, as a statutory change, would only require legislative passage and the Governor’s signature to become law.
The debate surrounding these proposals highlights the complex challenge of property tax reform. While taxpayers universally desire relief, local governments face increasing costs for services and infrastructure, often compounded by inflation and state mandates. Any solution must strike a delicate balance between providing meaningful tax relief and ensuring that essential public services remain adequately funded.
Broader Implications and Stakeholder Reactions
The implications of either bill, or a combination thereof, are far-reaching.
- For Homeowners: SCR 1616 offers direct, capped assessment growth, potentially slowing the rise of tax bills for long-term owners but creating inequities for new buyers. HB 2745 offers more indirect relief by capping overall revenue, but its permissiveness and school exemption might limit the total impact.
- For Local Governments: Both bills impose constraints. SCR 1616 could force mill levy adjustments or a shift in the tax burden to newer properties. HB 2745 directly limits revenue growth (with exceptions), potentially requiring local entities to prioritize spending more carefully. The exemption of schools in HB 2745 could place greater pressure on other local entities to absorb tax relief efforts.
- For the Real Estate Market: SCR 1616’s assessment cap could significantly distort the market, favoring older properties and potentially stifling new construction, impacting housing supply and affordability. HB 2745’s levy limit is generally more neutral to market dynamics, as it allows assessments to track market values while controlling the overall tax take.
- For Economic Development: Distortions caused by assessment limits could make Kansas less attractive for new development. A well-structured levy limit, however, can provide predictability for businesses and homeowners, fostering a more stable economic environment.
Statements from various parties underscore the divided opinions. Taxpayer advocacy groups generally favor stronger limits, but some express concern over the potential for market distortion in SCR 1616 and the permissiveness of HB 2745. The Kansas Association of Realtors has voiced apprehension regarding assessment limits and their potential to create an unfair playing field. Local government associations, while understanding the need for tax relief, consistently emphasize the challenges of maintaining services with constrained revenue, particularly without corresponding reductions in state-mandated programs or new funding sources. School administrators, if HB 2745 passes as is, would likely express concern over being singled out and potentially facing increased public scrutiny for any future funding needs.
In conclusion, Kansas stands at a crossroads in its approach to property tax reform. The legislative efforts reflect a genuine desire to alleviate the burden on taxpayers, but the contrasting methods proposed by the Senate and House highlight the inherent complexities and trade-offs involved. While well-intentioned, an assessment limit like SCR 1616, particularly one that runs with the property, risks creating significant market distortions and inequities over time. A levy limit, as proposed in HB 2745, is generally a more structurally sound mechanism for controlling property tax growth by focusing on government spending. However, its effectiveness hinges on minimizing exemptions and ensuring a sufficiently robust mechanism for taxpayer input and approval of increases. The ultimate outcome of this legislative session will significantly shape Kansas’s economic landscape, real estate market, and the funding of critical public services for years to come, underscoring the importance of a thoughtful and equitable resolution.
