Several Overland Park city council members last week justified voting for a 10% property tax increase by noting that their mill rate is lower than other cities. During his condescending lecture to the residents who opposed the 10% property tax increase, Councilman Curt Skoog said having a lower mill rate than other cities shows Overland Park is wisely spending money. That ‘lowest mill rate’ mantra was repeated by other councilmembers, and it is a perennial excuse to avoid questions about spending and tax increases.
Council members may believe it to be true because it sounds plausible, but the ‘lowest mill rate’ mantra is a form of logical fallacy. Like the ancient assumption that the world was flat, proponents of the mantra have no analysis to prove their belief.
There is ample evidence, however, to disprove their assumption as found by comparing the budgets of Overland Park and Olathe.
Overland Park has assessed valuation advantage
The amount of property that people pay is a function of two variables – assessed valuation and the mill rate. Everyone in a city pays the same city mill rate, so you pay higher taxes than your neighbor if your valuation is higher.
It’s the same for cities on the receiving end, and in this case, Overland Park has a huge advantage over Olathe.
A mill generates one dollar of tax for every $1,000 of assessed valuation. Overland Park has $4 billion of taxable assessed valuation this year according to the Johnson County Appraiser, but Olathe only has $2.1 billion. One mill of property tax, therefore, generates about $4 million while in Olathe, one mill produces $2.1 million.
If both cities wanted to collect $50 million in property tax, Olathe would have to charge 24.2 mills but the Overland Park rate would be 12.5 mills.
The volume of assessed valuation that happens to be in Overland Park is the primary reason that their mill rate of 13.554 this year is so much lower than the 24.440 mills charged by Olathe.
It has nothing to do with Overland Park being efficient.
Different revenue mix
Each taxing authority determines how much of its budget is funded with property tax, sales tax, charges for services, and other revenue sources.
The adjacent table compares the revenue mix for Overland Park with Olathe’s, using spending from the Statement of Activities section of each city’s 2020 Comprehensive Annual Financial Report. Olathe’s revenue is reduced by $50 million, which is the estimated amount of charges for water, sewer, and trash (based on reported expenses). Overland Park doesn’t provide those services, so Olathe’s revenue must be adjusted to do a more realistic comparison.
Overland Park received 23% of total revenue from property tax compared to 27% for Olathe. Overland Park makes up the approximate 4-point difference by collecting more sales tax and other taxes; they got 44% of total revenue from sales and other tax versus 40% for Olathe.
Olathe had about 18% of revenue from (net adjusted) charges for services, compared to 9% for Overland Park. But Overland Park collected 14% from operating grants, contributions, and other revenue, whereas those sources only comprised 5% of Olathe’s total revenue.
This revenue mix analysis is a much smaller impact on Olathe having a higher mill rate, but it is further evidence that Overland Park’s lower mill rate has nothing to do with efficiency.
Efficiency can only be determined by comparing the cost per unit of output and other factors for each spending category, and even then, it would not indicate that either city is providing the same service at the best possible price. To our knowledge, no such analysis exists in either city.
But we don’t need any more research to know that Overland Park officials claiming the city is efficient just because it has a lower mill rate does not stand up to scrutiny.