Wichita taxpayers are being told the $615 million bond issue for USD 259 will cost a relative pittance. The district says the first $407 million (Question 1 on the November ballot) will not raise taxes, and the owner of a $300,000 home would pay only $75 on the remaining $208 million in Question 2. The real cost, unfortunately, is much higher.
The current bond issue is almost paid off, so property taxes would decline if voters don’t approve new debt. USD 259 doesn’t say how much taxes would decline, but at the current mill rate of 5.504, the owner of a $300,000 home is paying $190 per year. Add the new $75 from Question 2, and the homeowner would pay $265 in the first year and at least $5,298 over the 20-year life of the bond issue.
We say ‘at least’ because that is with no change in the mill rates or the home’s appraised value over 20 years. The cost would exceed $10,000 with a 7% annual appraised value increase with no change in the mill rates. It’s impossible to estimate how USD 259 would change mill rates over that period – they could slightly increase or decrease – but the homeowner would probably pay $5,000 to $10,000 more in property tax over 20 years than if the bond issue doesn’t pass.
The impact on businesses is even worse. Commercial property is assessed at 25% of its appraised value, so a business valued at $10 million would pay an extra $19,125 in one year and at least $384,000 over 20 years with no change in mill rates or the value of the business, and probably more than $500,000 with changes to both variables.
As a reminder, one mill of property tax costs property owners $1 for every $1,000 of assessed value.
Excessive taxation by USD 259
In theory, school districts impose property tax only to make principal and interest payments in the coming year, but it’s not unusual to see school boards collect more than necessary, as USD 259 has done over the last ten years.
The table below tracks activity in the district’s Bond & Interest Fund, with data from the Kansas Department of Education’s online database. USD 259 began the 2017 school year with $33.5 million in reserve; it collected $26.8 million in property tax and payments in lieu of taxes (PILOT), $17.6 million in state equalization aid, and $4.4 million from the federal government to compensate for foregone property tax from exempt federal property. After paying $44.4 million in principal and interest payments, the district finished the year with a reserve balance of $37.9 million.
It is also noteworthy that USD 259 is not allocating the interest earned on excess cash to the Bond & Interest Fund. Several million dollars should have been earned over ten years, and that money should be used to reduce property taxes to pay off the debt.
The proposed USD 259 budget for 2027 shows an ending cash reserve balance of $96.9 million. School district funds operate on a cash basis, like a checkbook; an increase in the ending cash balance means a district collected more than it spent. In this case, the district used almost $60 million of property tax to unnecessarily increase cash reserves.
Most likely, the district deliberately did that to make it easier to convince taxpayers to approve another bond issue. USD 259 has not published a cash flow forecast to show the timing of bond proceeds and debt payments over the next 20 years, but the extra cash is often used to supplement payments on new debt, enabling the (false) claim that new debt won’t increase taxes.
A cash flow forecast would also show whether the district is only making interest payments for a few years and paying tens of millions more over the life of the bonds than if it makes principal payments each year. Interest-only payments are another gimmick that supports the no-tax-increase claim; it reduces payments for a few years with the hope that higher property values will bring in more tax by the time principal payments come due.
The decision to support or oppose the USD 259 bond issue on the November ballot is up to each taxpayer. This analysis is only intended to help people make informed decisions on the costs.
