Town Talk | City commissioners consider $3.5 million property tax rate hike, largest increase in at least 50 years

photo by: Shawn Valverde/Special to the Journal-World

Downtown Lawrence, looking north, is shown in this September 2023 aerial photo.

Here’s a little Lawrence trivia: If city commissioners approve the city manager’s recommended $3.5 million property tax increase, it would be the largest such increase in Lawrence in at least 50 years.

The amount of that increase will likely depend on the size of your wallet. The 3.5-mill increase would increase the municipal tax bill on a $300,000 home by about $120 a year. That’s next to nothing to some, but significant to others.

On top of that, the city is asking for a 0.05 percent sales tax increase (5 cents for every $100 spent) to increase funding for affordable housing initiatives. That proposal would require a municipal election before it could be implemented. The idea of increasing the property tax rate would only need approval from three of the five city commissioners.

I’ve been covering the city of Lawrence since 1994, and I can’t recall a property tax increase comparable to the 3.5 mills proposed by City Manager Craig Owens. Large increases have been relatively rare at City Hall. The last time the city increased the levy by more than a mill was in 2017.

On Monday, I was able to quickly find information on the city’s property tax rate going back to 1973. Indeed, the city did not see a $3.5 million increase in its property tax rate during that period, although there was one year when it came very close.

That year was 1980, when the city raised its levy by 3.47 mills. The more interesting numbers from 1980, however, were 8 percent and 13.5 percent. The first number was the national unemployment rate in 1980, and the second number was the annual inflation rate during the year. The economy was in a recession, and longtime city officials told me it was one of the toughest times for the city in recent memory.

The year 2024 has certainly not been all sunshine and roses, but it has not been all roses either. The economy is not in recession, and while inflation has been above its historical average, it is nowhere near 1980 levels.

Still, the city may be on the verge of raising its property tax rate more than it did in 1980. So what’s happening with Lawrence in 2024?

In short, it’s more about what’s not happening. Sales tax revenues are no longer soaring. They’re still increasing, but not at a record pace, which is bad news for the city’s budget, this year and next.

Let’s start by looking at this year’s balance sheet: The city had planned to collect $45.3 million in sales taxes for its general fund. But after six months of collecting sales taxes, it now expects to collect only $39.3 million for the year. In other words, $6 million that the city thought it would use to fund its general operations is gone.

The city’s general operating fund is now expected to end the year with a budget deficit of about $2 million. It will draw money from its savings account — called a fund balance in the city budget — to make up the difference. That savings account will end the year with about $23 million. The city had projected its savings account would end the year with about $29 million. The city avoided major service cuts in 2024 by agreeing to live with a smaller savings account, essentially.

But city budget officials don’t want to do that by 2025. They want to replenish the savings account to about $27 million. To do that, they’re proposing the biggest property tax rate increase in at least 50 years, as well as cuts to the fire department, parks and recreation, and more.

City commissioners will ultimately make the final decision on whether and how much to increase the property tax rate. There is no time when a property tax rate increase is popular, but that is certainly not the case now. Home values in the city have been rising rapidly over the past two years, meaning property tax bills are increasing even if the property tax rate itself remains stable.

With housing values rising, many people are wondering why the city is in a situation where it is looking to raise the property tax rate. The answer is simple: sales taxes. In 2021, the city’s sales tax revenue increased by a record 9%. People started spending again after the pandemic and inflation pushed up prices, and therefore sales tax revenue. In 2022, sales tax revenue reached historic highs again, increasing by about 8%.

The city has grown accustomed to those numbers. While city leaders didn’t think it would last forever, budget officials were counting on growth rates of 5% or more. They were disappointed in 2023, when sales tax revenues rose just 3.8%.

They might be scared in 2024. Through June, Lawrence’s sales tax revenues were up just 1.1%.

In short, that’s the problem. It’s been brewing for a while, and we’ve been talking about it for a while. I typically write a column each month about the city’s sales tax revenue. Here’s an excerpt from what I wrote in late 2023: “If Lawrence posts a second year of tepid sales tax growth, the red flags could start flying a little more furiously at City Hall, and the risk of a property tax increase could rise with them.”

What you have today is a red flag on top of City Hall. Now we’re going to see how the city commissioners respond to it and what it means for your tax bill.