Memorandum                    

City of Lawrence

City Manager’s Office

TO:	Thomas M. Markus, City Manager
FROM:	Diane Stoddard, Assistant City Manager
DATE:	April 27, 2016
CC:	Casey Toomay, Assistant City Manager Bryan Kidney, Director of Finance
RE:	Tax Lid Update

The purpose of this memo is to provide some background and context for the City Commission’s upcoming discussions of the 2017 budget as it relates to the current tax lid law and likely action on legislation this session. 

2015 Tax Lid Law:

Very late in the session in 2015, the Kansas Legislature passed tax lid legislation to take effect January 1, 2018.  That legislation required that municipalities may not increase property tax revenues in an amount greater than the increase in the consumer price index (CPI) for all urban consumers as published by the U.S. Department of Labor, adjusted for inflation, without an election.  The law exempts growth in property tax revenue which comes from:

· New improvements to real property

· Increased personal property valuation, other than increased valuation of oil and gas leaseholds and mobile homes

· Property located within added jurisdictional territory; or

· Property which has changed in use.

· Revenue received from property tax levied for repayment of the principal and interest on bonds, temporary notes, etc.

2016 Tax Lid Discussions and Status:

Tax lid legislation has actively been discussed again this legislative session and it is clear that there will be new tax lid legislation passed that will likely move the tax lid up to a January 1, 2017 effective date.  This will have an immediate effect on budget discussions occurring this year for the 2017 budget.  When the legislature reconvenes later this week, Senate Substitute for H.B. 2088 will be finalized based on negotiations in the House-Senate Tax Conference Committee.  According to the League of Kansas Municipalities, there are several key provisions of the Conference Committee agreement and it appears that this agreement will serve as the basis for the ultimate legislation:

• January 1, 2017 implementation date. This means that the 2017 tax levy for the 2018 budget would be the first to be impacted by the tax lid. The original Senate bill was calling for an earlier implementation date, which would have affected the 2017 budget. 
• Growth factor applied to property tax revenues will be a 5-year rolling average of CPI.
• Elections may be held via regular election, special election or mail ballot.  Mail ballot must be via a prescribed timeline.
• Exemption for principal and interest for state infrastructure loans, bonds, temporary notes, and no-fund warrants. 
• Exemption for state/federal mandates adopted after July 1, 2015. 
• Exemptions for economic development incentives will be restored- this would exempt from the lid growth in property tax relating to expiration of property tax abatements, tax increment financing, NRAs, etc. 
• Exemption for costs relating to “law enforcement, fire protection and emergency medical services” except that any increased property tax revenue generated for these services shall be expended exclusively for these purposes but shall not be used for construction or remodeling of buildings.
• Exemption for court judgments or settlements of legal actions and legal costs directly related to those legal actions/settlements.

Staff may have further updates on this pending legislation in the coming days.  The point, however, is that this has a high likelihood to be a major issue for the 2017 budget as the foundation is set for the 2018 budget.