June 24, 2024

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Taxpayer, KJI say USD 348 violated revenue-neutral property tax law

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When the Baldwin City USD 348 Board of Education raised property taxes a whopping 17.8% this year, the board also passed a resolution adopting the revenue-neutral rate.  But the revenue-neutral rate means property tax cannot increase — it stays the same as budgeted for the current year.

A private complaint filed with the Board of Tax Appeals by Michael Kennedy and an amicus brief by the Kansas Justice Institute, which, like the Sentinel, is owned by the Kansas Policy Institute, argue that Baldwin City’s tax increase is in violation of the Kansas Truth in Taxation Act.

On Sept. 14, 2022, the Baldwin City school board voted to “accept the revenue neutral rate as presented, in a special meeting.

However, the district notified the County Clerk that it is increasing the school’s mill levy from the revenue-neutral rate of 47.486 to 55.945.

Kennedy quickly noted this was anything but revenue neutral and tried to call the board’s attention to it.

“I immediately recognized this as erroneous on their part if their intention was to exceed the revenue neutral rate, as I understood the legal definition of ‘revenue neutral tax rate,'” Kennedy said in an emailed statement. “But at the time, I didn’t necessarily understand the implications under the statute.”

Kennedy said the audience was told the board “didn’t have the budget yet,” but needed to approve the “maximum authorization” for planning or discussing a planned budget.

Immediately after the “revenue neutral” vote, the board then began the budget hearing.

“Of course, once they voted on the tax levies,” Kennedy said. “They immediately showed a proposed budget that fully utilized every dollar of the levy they’d proposed (which exceeds the revenue neutral rate).”

Kennedy waited until the minutes had been fully approved and then made his next move — filing a complaint with the Board of Tax Appeals.

“I learned I was one of (if not the) first person to ask for the form and file a complaint to BOTA on this matter,” Kennedy said.

In his complaint, Kennedy points out that the Truth in Taxation Act defines “revenue- neutral” as “the tax rate for the current year that would generate the same property tax revenue as levied the previous tax year using the current tax year’s total assessed valuation.” 

KJI Litigation Director Sam MacRoberts, in the amicus brief he filed with BOTA agreed.

Noting that — absent a resolution authorizing exceeding the revenue neutral rate — USD 348 simply cannot collect taxes in excess of previous year revenue.

“Taxing entities can’t increase property taxes above their ‘revenue neutral rate,’ unless they fulfill a number of statutory obligations,” MacRoberts wrote in the brief. “First, they need to notify the public they’re seeking to exceed their revenue neutral rate; second, hold a public hearing before September 20; and third, validly pass a resolution approving the revenue excess rate by a majority vote.

“To that end, an entity that doesn’t follow the Act’s three basic requirements can’t collect taxes in excess of their revenue neutral rate — instead, they’re required to either issue tax refunds or reduce the taxes levied, if uncollected.”

Both MacRoberts and Kennedy noted — USD 348 did not adopt a resolution authorizing them to exceed the neutral rate, but one that restricted them to the neutral rate.

“USD 348 will probably argue that it meant to adopt a revenue excess rate,” MacRoberts wrote in the brief “And because it meant to do so, it should be allowed to do so, no matter what the Truth in Taxation statute says or means. But that’s not right — or constitutional.”

“Governments aren’t above the law,” litigation director Sam MacRoberts said in a release. “In our view, USD 348 didn’t follow the legislature’s requirements, so they can’t force people to pay a tax that wasn’t lawfully imposed.” 

BOTA had a hearing on the complaint on Dec. 5, 2022, but as yet there has been no decision rendered.

Kennedy said he is concerned about the lack of transparency.

“As patrons of USD 348 struggle to keep up with ever-rising property taxes (33% in three years for my family),” he said. “We deserve a fully transparent process by which USD 348 shares details of their budget needs and comes prepared to discuss their justifications at the public hearing.   

“I do not believe USD 348 was being transparent … on the night of the public hearing to consider exceeding the revenue neutral rate; on the contrary, it was easy to witness as a member of the public at the meeting – or by anyone else watching the video recording of the meeting – that they were being purposely obscure by refusing to discuss details of why a 16% increase in tax levies was necessary. They may have met the statute’s requirements of notification and scheduling of the public hearing, but there was no ‘Truth in Taxation’ afforded the public as the statute aspires.”

Truth in Taxation, revenue-neutral rate explained

The Truth in Taxation Act, signed by Governor Laura Kelly in 2021, is based on Utah and Tennessee legislation that has existed for decades. In Utah, the effective property tax rate declined 7.5% between 2000 and 2018, but the effective tax rate in Kansas jumped 22% at the same time.

The bill requires any taxing authority that intends to increase its revenue-neutral mill levy must first notify citizens of their intent, hold a public hearing to take comments, and then vote on the entire tax increase they impose.

Prior to this legislation, taxing entities would often claim to be “holding the line” on property taxes by approving an identical mill rate (one mill is equal to $1 per $1,000 of assessed valuation) but collecting more revenue as a result of increased property values.

This created an ‘honesty gap’ in taxpayers’ minds.

As an example, Overland Park property taxes jumped 320% between 1997 and 2020, and the mill rate increased by 46%. The 274-point difference is the honesty gap.

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