City commission hears info on "revenue neutral rate" legislation
New public notice and public hearing requirements enacted this year by the Kansas Legislature will not only require Holton and other cities across Kansas to speed up their budgeting processes for 2022 — they could also result in “a cut in services for most cities” if they choose to stick to those requirements.
That’s what Holton City Clerk Teresa Riley told members of the Holton City Commission at their regular public meeting on Monday about legislation requiring the establishment of a “revenue neutral rate.”
State lawmakers may have intended the new legislation to curtail automatic property tax increases resulting from higher property valuations, Riley said, but the legislation could have a negative result on cities’ general funds if city governments choose not to jump through a few extra hoops to approve budgets with tax revenue increases.
“With prices increasing and our departments not being able to increase their budgets to allow for those increases, it’s going to create some issues,” Riley told commissioners. “It really doesn’t make a lot of sense right now.”
The legislation, Kansas Senate Bill 13 and House Bill 2104, followed the Legislature’s removal of the property tax lid and set new requirements on public notices and hearings if individual cities’ proposed budgets for the coming year seek to exceed the “revenue neutral rate” for those cities, commissioners noted.
The “revenue neutral rate,” as defined by the legislation, is the property tax rate in mills that would generate the same property tax revenue in dollars as levied during the previous tax year using the current tax year’s total assessed valuation, according to information released by the League of Kansas Municipalities, the lobbying organization for city and county government officials, and shared with commissioners.
“For our mill levy and our property tax, we cannot raise $1 more in revenue than we had last year,” Riley said of the legislation. “If there’s a change in our property valuation, a raise in that, then our mill levy will have to go down. They do not allow for any kind of inflationary change, no special projects we’ve got coming on, nothing.”
Riley said the “revenue neutral rates” for Holton and other Jackson County cities will be calculated by the Jackson County Clerk’s office and shared with cities by June 15.
There is a process by which cities can exceed their “revenue neutral rates,” involving giving notice to the county clerk by July 20, public notices on such action placed by Sept. 10, a tax rate and budget hearing giving taxpayers an opportunity to comment on the budget by Sept. 20, adoption of a resolution or ordinance to exceed the rate, adoption of a proposed budget and certification of the tax rate to the county clerk by Oct. 1.
If the city goes with the “revenue neutral rate” and a city budget finalized later in the fall shows a revenue total higher than that of the previous year, the city has to amend the budget or refund any property taxes levied in excess of the rate, Riley said.
Holton City Manager Kerwin McKee suggested that the “revenue neutral rate” legislation is not “a workable situation” for cities, particularly with inflation and other factors driving prices up. McKee also suggested that the city would end up “stealing money from other departments” to make up for any shortfalls in the general fund if the city opts for the rate and it results in a decline in revenues.
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