Economic stimulation comes at a price.
And that price could arrive in the form of higher property taxes for Kansans.
Franklin County taxpayers might see a more-than-9.5-percent mill levy increase under legislation proposed for debate in the 2013 Kansas legislative session. The bill up for consideration would further shift the tax burden from manufacturers to residents. Such an increase for county taxpayers would have profound effects — for better or worse — on county government and the people it serves, local officials said.
“It would be a bad effect for the county. We’d be losing money,” David Hood, Franklin County Board of Commissioners chairman, said. “We’d have no choice [but to raise local property taxes] in order to provide services. Or we’re going to have to start cutting services, and nobody wants to do that.”
The legislation would allow industries and manufacturers in Kansas to receive a tax exemption on the valuation of their property based on fixed machinery and equipment, effectively altering the definition of “personal property.” In other words, a manufacturer would not pay property taxes on machinery that was so affixed to the property that it affects the assessed valuation of the property. The legislation was considered in the 2012 session, but died in committee before the Legislature could vote on it. A study on the legislation was ordered and is expected to be released in spring 2013.
The Kansas Association of Counties recently sent a spreadsheet to all 105 county governments in Kansas that estimated the fiscal impact of such a fixture exemption on the county-only mill levy, which is used to figure a portion of local property taxes. All Franklin County taxpayers could see their county property taxes rise from 59.207 mills to 64.839 mills — an increase of 9.51 percent, according to the spreadsheet. That cost likely would shift more than $2.6 million in taxes to individual taxpayers to make up the difference in revenue that was lost from the fixture exemptions.
“It’s not a good deal,” Hood, who has been part of four county budget processes, said. “Somebody’s got to pick up the slack, and that’s probably what’ll happen.”
More than 60 percent of Franklin County’s revenue comes from ad valorem, or property, taxes.
While KAC’s figures are based on 2011’s property tax rate, the figures provided insight into what rates in 2013 might look like. For a person who owns a $100,000 home, his or her county portion of 2013 property taxes would be $745.93, compared to $607.99 in 2011 — an 18.5-percent increase.
The bulk of debate over the fixture exemption began with two large Kansas manufacturers, as well as lobbyists with the Kansas Chamber of Commerce, that argue such an exemption would promote economic development throughout the state.
The Kansas Association of Counties, however, maintains the companies are only looking to decrease their taxes — not boost the local economy. Such large manufacturers can survive without the exemptions, Melissa Wangemann, KAC legislative services director, said, while local governments likely will feel the strain if the legislation passes.
“The real hit, of course, is to local government since the lion’s share of our tax base is property taxes,” Wangemann said.
Increased mill levies will raise the property tax on homeowners, agricultural land owners and other taxpayers who do not have affixed machinery and equipment, Wangemann said. The value of county-only property able to be written off tax rolls statewide if the legislation passes, Wangemann said, is more than $400 million.
“No county can make up that kind of a hit, unless you start cutting law enforcement and road and bridges, which is the primary part of the county budget,” she said. “It’s going to fall on the people who remain — and who remains is going to be your smaller commercial properties who don’t have equipment and residential homeowners.”
An expansion of the property tax exemption on machinery/equipment also impacts the statewide mill levy on railroads and utilities, and decreases the availability of funding for education, Wangemann added.
Republican Blaine Finch, representative-elect for Kansas’ House District 59, said he would need to see the bill relating to the fixture exemptions before he took a solid position on it. A change that would push up the mill levy in a county typically is not a good thing, Finch said.
“Given that local governments are often struggling to try to make their revenue — probably just on the face of it — it’s not something that I’m interested in exempting at this point,” Finch said. “But that could be subject to change depending on the language of the bill and if there was a way to protect revenues for local governments.”
With Kansas Gov. Sam Brownback’s tax plan set to take effect in 2013, county governments have experienced decreased funding from the state. The idea behind Brownback’s plan, his administration has said, is to offer businesses incentives, including tax breaks such as the fixture exemption, to draw them into the state — thus improving the economy. Finch, however, is not convinced such efforts will benefit the state or taxpayers in the long run.
“We’ve just come off a year that we’ve been told over and over again by certain elements in Topeka that we need lower taxes in order to drive people to the state,” he said. “Increasing property taxes by trading off an exemption on fixtures isn’t going to do that.
“I don’t know that the trade-off would be nearly enough to drive the type of economic development it would take to make up for that kind of difference in taxes versus fixture taxation.”
Outgoing state Rep. Bill Feuerborn, D-Garnett, said the fixture exemption legislation could have a dramatic impact on Franklin County and Ottawa because of the businesses in Ottawa’s industrial park. The lawmaker agreed with Hood that the outcome would mean finding new ways to pay for services to which residents have grown accustomed.
“Nobody is going to come in [to the county commissioners] and say ‘I can do without this service now that you’re providing it, whether it’s fire or police or rock on my county roads,’” Feuerborn said. “It’s the same thing with the city. They’re not going to be asked to reduce what they do for the taxpayers.”
Feuerborn, who serves House District 5, but was defeated in the general election by Kevin Jones, R-Wellsville, said the lack of revenue from manufacturers’ property taxes would have to result in an increase in the local mill levy. While Feuerborn will not be voting on the proposed legislation, he predicted it will at least get out of committee, if not face a floor vote by the state House of Representatives.
Local economic development officials said it would be wise to take a watch-and-wait stance on the proposed legislation before anyone starts worrying too much about it. As Franklin County Development Council executive director, Jeff Seymour said he understands the concerns of county government, but many things could change before the bill becomes law.
“I think it’s really preliminary, though, to jump out on a position on this particular topic when there is so much left from this Legislature to kind of weed through,” Seymour said.
Incentives given to manufacturing businesses also should provide some type of economic benefit back to the state, Seymour said. It’s too early to tell, he said, whether the proposed fixture exemption incentive would provide that kind of mutual benefit.
Part of his job, Seymour said, is to make Franklin County enticing to manufacturers and businesses, but that involves a delicate balancing act between the many entities involved in the conversation.
“Our stance is we are very cognizant of the needs of the county and what they do for us, but we’re trying to balance open business environments as well,” Seymour said.
John Coen, Ottawa Area Chamber of Commerce director, agreed that several steps remain before a decision will be made on the exemption. How the bill looks now, and how it might look after the votes have been cast in the Legislature could be two very different pieces of legislation, he said.
“This is a look at possible legislation that will receive full vetting by the new Legislature when they convene,” Coen said. “The debate always starts some place, and it usually doesn’t end up where it started, because there is a lot of give and take.”
The chamber likely would back a piece of legislation that supports both commerce and industry, and that can go forward at an affordable rate — all while ensuring residents aren’t bearing extra economic burdens, Coen said. Tax incentives are a means of attracting industry to an area, Coen said, but the community itself also is an incentive.
“Our organization is going to be for supporting what will raise the standard of living, raise the payroll available to our citizens,” Coen said.
The KAC has vowed to continue lobbying the Legislature against the proposed fixture exemption legislation, Wangemann said, largely because every county in the state would see an increase in their county-only mill levies, ranging from less than 2 percent to nearly 40 percent, according to the KAC spreadsheet.