Kansas Republicans want to end program for local property tax cuts, cut state tax instead

Kansas Republicans are advancing plans to abolish an unfunded program intended to help local governments provide property tax relief.

Instead of putting money into the local ad valorem tax reduction fund for the first time in two decades, Republican lawmakers would formally end the program and put money toward cutting state property taxes.

Both of those are ideas that House Speaker Dan Hawkins, R-Wichita, advocated for before the legislative session started. He said, "You can bank on LAVTR will be repealed" and that Republican lawmakers would look to cut a couple mills worth of state property taxes.

Republicans say the logic behind their bills are that the LAVTRF, if it were funded, would be roughly the same amount of tax relief as cutting the state mill levies.

"Instead of having the confusing language in statute, not being funded for over 20 years, we're just going to get rid of the language so that it's not there and provide true property tax relief for approximately the same dollar amount," said Sen. Caryn Tyson, R-Parker and the Senate tax chair.

The Senate GOP plan was passed out of a tax committee last week after not discussing the bill since a public hearing 13 months ago. The House plan was introduced last week, and a tax committee had a public hearing on it but has not yet acted on it.

A host of local government representatives lined up to oppose the House bill.

"I feel like Don Quixote and this room looks like a windmill," Mike Taylor, a lobbyist for the Kansas County Commissioners Association, said of his lobbying in favor of the LAVTRF. "But I'll try it anyway."

What are the Republican plans?

Republicans in the House and Senate have similar plans that abolish the local ad valorem tax reduction fund, the city county revenue sharing fund and discontinue transfers to those funds plus the special city county highway fund.

Where the plans differ is how they would cut the state portion of the property tax bill.

Property taxes are largely used to fund local governments, but the state is responsible for 21.5 mills. Of that, 20 mills help fund local schools, 1 mill is used for state educational buildings and 0.5 mills are used for state intuitional buildings.

Senate Bill 94 would eliminate the 1.5 mills combined for state building construction and maintenance.

House Bill 2815 would cut the 20 mills to 18 mills, then further cut it in the future as valuations rise in order to raise the same dollar amount of revenue.

How much would state property taxes be cut?

The Senate tax committee passed its bill without an updated fiscal note.

The Kansas Department of Revenue estimated the House plan would cut statewide property taxes by $94.2 million in fiscal year 2026, $136.2 million in FY 2027, $180.1 million in FY 2028 and $226 million in FY 2029.

More: Want property tax cuts? Here's a comparison of plans from Kansas Republicans and Democrats

How much money are local governments losing?

The funding formula in current law would have the state send $130.5 million to local governments via the LAVTRF in the current fiscal year. But another provision in the law caps it at $54 million a year — an amount the Legislature has refused to fund.

The fiscal note on the House bill said the state general fund would keep more than $170 million a year by not transferring money to local governments. Using FY 2026 numbers, the LAVTRF would lose $54 million, the city county revenue sharing fund would lose $102 million and the special city county highway fund would lose $15.3 million.

The state last transferred money to those funds in FY 2003.

The bill would not affect a separate revenue source for the highway fund that amounted to over $89 million in 2022.

Would Legislature backfill lost property tax revenue?

The Senate plan would backfill most of the lost property tax revenue with transfers from the state general fund, starting at a combined $62.7 million in fiscal year 2025.

But the move would equate to $14.4 million less for state building funds, as the current mill levies bring in about $77.1 million combined. Legislative staff said the reason for the discrepancy was likely due to the backfilled funding not taking into account motor vehicle tax revenue.

The cut would grow in the future, because property tax revenues were estimated to grow by about 5% a year while the state transfer would only grow by 2%.

Blake Flanders, the Kansas Board of Regents president and CEO, told lawmakers during a February 2023 hearing that the money generated from the current 1 mill for the education building fund is "inadequate."

The fiscal note said the Regents estimated it would cost $1.2 billion to bring all mission critical buildings into a "state of good repair," and that $154 million a year is needed for ongoing maintenance to prevent further backlogs.

The one-half of a mill goes into a state institutions building fund established in the Kansas Constitution to provide tax funding for a variety of state buildings, such as the veterans' homes, schools for blind and deaf students, the juvenile correctional facility and buildings serving people who are mentally ill and developmentally disabled.

Switching from a dedicated property tax to a transfer from the state general fund would also mean that lawmakers could withhold the money during a budget crunch — a point made in testimony on the bill. That could also mean financing of school building maintenance would be viewed as a riskier investment, leading to higher bonding costs.

The House plan did not include a provision to replace the lost funding to K-12 public education through both the initial cut to the mill levy and through freezing the amount of revenue. The fiscal note warned that if lawmakers enacted the bill without a corresponding increase in school funding, the Kansas State Department of Education would have to reduce state aid to school districts.

Rep. Tom Sawyer, D-Wichita, said the school finance law should automatically provide the funding not raised by the mill levy.

Leah Fliter, a lobbyist for the Kansas Association of School Boards, described it as a "pinky promise to backfill from the general fund" and said "we hope and trust that would happen."

More: Kansas lawmakers had big ideas for property tax cuts. Here's what they've done so far.

Funding was cut during budget crunch

Kansas stopped funding the LAVTRF because the state was in a budget crunch.

Rep. Henry Helgerson, D-Eastborough, said it was his idea to cut the LAVTRF funding to save the state roughly $100 million.

"I'm the one that started this mess in 2004 because we had a budget crunch," Helgerson said. He described it as "we took advantage of the cities and counties" while he "didn't think about all the the other ramifications."

Jay Hall, a lobbyist for the Kansas Association of Counties, said the state started sharing revenue with local governments in 1937 and formally established the LAVTRF in the 1960s. The city county revenue sharing fund was established in 1978 to share revenue with local governments after the state took over taxing tobacco and alcohol, which had previously been taxed by localities. Likewise, the state started distribution highway funds to local governments in 1949.

"Cities are frustrated that when LAVTR was put in place, they gave up established revenue sources in exchange for a promise that a portion of these funds would be returned to cities," Duncan said.

Those broken promises have been costly.

"If you add it all up, cities and county governments in the state of Kansas have lost $3.5 billion in promised revenues," said Taylor, the lobbyist for county commissioners. "It's no wonder property taxes have gone up."

Despite that history, Americans for Prosperity-Kansas written testimony described it as, "at a fundamental level, LAVTRF is a state subsidy for localities."

Rep. Shannon Francis, R-Liberal, introduced the House bill. He was a county commissioner when the state stopped funding the LAVTRF.

"It was devastating to our budget," he said.

Now that he's a legislator, he supports permanently ending the LAVTRF.

"For 20 years we haven't done this, and I think it's time to just get it off of the statute book," Francis said.

Will funding be restored during budget surplus?

Now that the state has a burgeoning budget surplus, legislators are divided on whether to reinstate the funding.

Democratic Gov. Laura Kelly has proposed reinstating the $54 million funding while House Democrats have proposed the full amount in the statutory formula.

House Minority Leader Vic Miller, D-Topeka, said he wants the Republican plan to make it to the House floor, where it could be amended during debate.

"We can just find out how popular giving $130 million to local government to address property taxes, how popular that might be," he said.

Rep. Stephanie Sawyer Clayton, D-Overland Park, said she thinks the solution is to actually fund the LAVTRF, not eliminate it. Francis said that if legislators did that, local governments might not cut taxes.

"They can choose to lower taxes if they want, or they can choose to spend it," he said.

That has been a common criticism from Republicans, who have sometimes likened the LAVTRF to a slush fund.

Legislative staff explained that the way the LAVTRF technically works, it is more of an offset to local property taxes. Whether it ultimately reduces taxes depends on how the local government uses it.

Spencer Duncan, a lobbyist for the League of Kansas Municipalities and a Topeka City Council member, said legislators can work with local governments to address concerns that the LAVTRF money would not be used as intended.

"Don't you think that we as a state should be responsible for paying our obligations?" Sawyer Clayton asked Francis.

"The realities are we have not made this transfer for 20 years," Francis said.

"Just because we haven't done it doesn't mean that we shouldn't," Sawyer Clayton said. "We could just, like, pay it. We have the money."

"We can also give it directly to our constituents without that intermediary deciding what they want to do with it," Francis said. "It's a policy decision."

He suggested that if the LAVTRF is not repealed, "it can continue to be a political football that gets raised you know every election and and we never do it."

"I get so tired," Miller said, "of hearing politicians — and call it a political football if you want to — but politicians, specifically state representatives and senators, telling taxpayers there's nothing we can do to lower your property taxes, when we can do everything if we'll just fund what's on the statute books as our responsibility rather than erasing the responsibility through this legislation."

Officials disagree on what is best for property tax relief

Francis said cutting the state mill levy is better because it is direct tax relief.

Tyson said that direct tax relief instead of the LAVTF also means "we don't have to worry about all the arguments we heard of will the money go for a tax relief or will it go to grow government."

"The reality is LAVTR does not provide property tax relief; it has not provided that property tax relief; it will not provide that property tax relief," said Jonathan Lueth, of AFP-Kansas.

Taylor said fully funding the LAVTRF at the $130.5 million figure would be a bigger property tax cut than the Republican plans to cut the state mill levies.

For an owner of a $200,000 house, the House Republican plan to cut the state's school levy by 2 mills would equate to about $36 in tax relief in the first year. That levy exempts roughly the first $42,000 in appraised valuation.

Miller said the median home price in Shawnee County is about $185,000.

"I'm sure they'll be jumping for joy," Miller said sarcastically, about the "$36 of overwhelming property tax relief."

The Senate Republican plan to cut 1.5 mills would be about $35 in tax cuts on a $200,000 home.

Taylor said most counties could cut their levies by 3-4 mills, while Shawnee County could cut its tax levy by 3.5 mills.

A cut of 3.5 mills would be about $81 in tax relief on a $200,000 house.

Hutchinson city finance director Angela testified that Reno County could reduce its tax levy by 3.632 mills if it had LAVTRF funding. She said the LAVTRF also helps smooth out local fluctuations in property tax.

But Republicans prefer their plan.

"Senate Bill 94 absolutely reduces property taxes for Kansas citizens, and so I think it is a good thing," said Sen. Virgil Peck, R-Havana, who introduced the original bill. "And since we have not ... funded some of these funds for 20-plus years, we just as well clean up our statute books."

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: Kansas Republicans want to abolish program for local property tax cuts