Ellinwood City Administrator Chris Komarek said there are a lot of unknowns as the city began its 2022 budget planning process at its June 8 city council meeting.

Many of those unknowns, he said, surround the impact of Kansas Senate Bill 13, a bill passed recently that is intended to increase transparency in property tax collections in the state.

SB13 requires all taxing entities to create budgets at a Revenue-Neutral Rate, setting a tax rate for the current year which results in the same revenue as was collected in the previous year. To create a revenue-neutral budget, if an entity’s property valuations (total value of all property owned) rise, then the entity must lower the mill levy accordingly to reach the RNR.

In the process of budget planning, if an entity expects to collect property taxes exceeding the RNR, all taxpayers within that entity’s district must be notified by mail and a public hearing must be held in addition to normal public budget hearings, explaining why the entity is expecting to need to collect more revenue.

As the city’s budget process begins in light of SB13, Komarek said the city’s goal is to create a revenue-neutral budget that doesn’t raise property taxes.

Komarek said the city is still trying to work through how exactly the bill will impact the city going forward. Initially, though, it creates more problems than it solves for the city.

One problem, Komarek said, is that when the city begins planning the budget process in the summer, they are working off of a property tax valuation estimate that usually is not finalized until November. What this means is they are trying to plan a revenue-neutral budget without knowing for sure whether or not the valuations will increase, resulting in higher property taxes at a stable mill levy.

Should the valuations then increase, Komarek said, the city would be required to pay back any additional property tax collected to each taxpayer within the city, resulting in additional expenses for the city. 

The city would also be on the hook for the notices mailed to taxpayers if it intended to exceed the RNR, thereby collecting more property taxes. The state has said it would cover this expense for the first two years the law is in effect; however, it would create a great deal of additional expense down the road, Komarek said.

In addition to the additional expenses created for Ellinwood and other entities, Komarek said the bill presents significant financial challenges to entities already reeling from the effects of COVID-19.

Like many of its residents, Komarek said the city has felt the sting of cost increases in many areas, including insurance, concrete, fuel, lumber and more. As a result of SB13, the city is trying to absorb these additional costs without raising any additional property tax revenue. This, he said, puts the city in a bind down the road.

“It just takes more money to do business,” Komarek said. “We can operate off of some of our reserves for a while, but those reserves are set back for future emergencies and if you use that money up then you’re in trouble.”