Central - Sunday, July 20, 2008 23:35 - 0 Comments

City mulls property tax dilemma

By Kris Hilgedick
khil@newstribune.com

Because of a change in state law, senior Jefferson City staffers recently warned council members they’ll have to make some “fairly serious” decisions this fall regarding the city’s property tax rate.

Every August, as part of its budgeting process, the council establishes the property tax rate. Historically it has been lower than the “ceiling” permitted by state government. (For example, this year the city’s property tax rate is 46 cents per $100 of assessed valuation; the “ceiling,” in comparison, is 54 cents - an eight-cent difference.)

The question is: Will the council raise property taxes? Will they maintain the current levy? Or will they do something in between?

If they don’t make a choice to raise the levy higher than 46 cents, it may be another two years before they have the opportunity again.

Traditionally Mayor John Landwehr and his council colleagues have not raised taxes. In fact, in fiscal year 2006, the rate was rolled back from 48 cents to 46 cents. It’s been as high as 70 cents.

Each penny yields about $82,000 in revenue for the city.

However, with sales taxes shaky, fuel expenses burgeoning and the need for a public ambulance subsidy looming, creating a sound city budget for the next fiscal year won’t be easy.

Senate President Pro Tem Mike Gibbons, R-Kirkwood, and the lone Republican contender for attorney general, spent the 2008 legislative session fretting that some taxing jurisdictions - particularly those near St. Louis - were taking advantage of biennial property value reassessments.

He complained property values rose so quickly that waves of unanticipated revenue were being funneled into community coffers, without voter approval. “It was a hidden tax increase,” said Gibbons.

His bill, SB 711, aimed to stop that. “We want to protect taxpayers from being taxed out of their homes and businesses,” he said.

Under Gibbon’s new law, rollbacks are mandated in reassessment years. Regardless of whether a taxing jurisdiction is operating at or below its ceiling, it must roll back its tax rate to counter reassessment increases.

The idea is similar to one voters passed in 1980 at the urging of vocal tax opponent Mel Hancock of Springfield - who later served eight years in Congress from southwest Missouri.

The Hancock Amendment prevented revenue collections from mounting, without voter approval, more than its formula allowed.

Under the amendment, communities with too much revenue roll back tax-rates to equal whatever they collected the previous year, with a few exceptions.

So, if Hancock already constrained windfalls from assessed valuation growth, what’s the problem?

Gibbons explained no one from the Hancock era conceived taxing districts would lower rates below the imposed ceiling.

People just assumed they would raise taxes to the maximum.

Gibbons believes some savvy districts set their tax rates low, reaping the benefits when assessments caused property values - and thus taxes paid on that property - to increase.

But some Jefferson City officials don’t see it that way.

They feel they operated conservatively for years by keeping tax rates low. “The city has made a conscientious effort to reduce property taxes,” said Nathan Nickolaus, the city’s attorney.

Nickolaus believes taxing districts, like Jefferson City’s, will be hurt more than those groups that set their rates at the maximum allowed.

Tax ceilings in Cole County are relatively stable: 54.8 cents (2005), 54.9 cents (2006) and 54.42 (2007).

However, numerous counties have seen their total assessed valuation growth at rates greater than 10 percent.

Initially, Jefferson City staffers worried, if they don’t raise rates to the 54-cent ceiling this fall, they’d lose the capability to do so forever.

“That’s the biggest misconception,” said Brian Schmidt, director of the state’s Joint Committee on Tax Policy.

The limitation exists in the state-mandated reassessment years, which happen every other year in Missouri. New assessments become official Jan. 1, 2009.

Schmidt conceded communities will be “locked in” for a while and many cities will essentially write two-year budgets.

Gary Markenson, director of the Missouri Municipal League, said Gibbons’ approach was the “most reasonable” tax reform floated at the Capitol last spring.

“You don’t lose it forever … just during the year of reassessment,” Markenson said.

Jefferson City Finance Director Steve Schlueter has some concerns about the yo-yo effect. But his main concern is: “How are we going to make the case … if we don’t have a good reason to raise property taxes?”

Schlueter added: “No citizen is going to say, ‘Please, raise my taxes.’”

Property taxes are an important, but not critical, component of general revenue. The fund is filled from three major sources: sales tax, utility franchise fees and property taxes.

Landwehr has never considered property taxes a way to balance the budget.

“The only way I would consider using any part of the (eight cents) is if there’s an important new service that the taxpayers would accept as a wise investment,” said the mayor.

But having the ability to lift the rate a cent or two - or keep it stable - is one way to make the budgeting process more flexible.

Those extra eight cents also represent a way for the city council to fund “big ticket” projects - such as ambulance service.

“We’ve conservatively reserved that eight cents, because it was a place we could go in a crisis, such as the 1993 flood,” said Landwehr. “It’s our backstop. We’re losing our flexibility because the General Assembly is going to arbitrarily freeze our levy.”

But Gibbons feels local officials can always approach the voters.

“If they choose, they can always go up,” Gibbons said. “We didn’t want to take away the decision of the voters.”

Other advantages of SB 711, say supporters, is the increased transparency for taxpayers, who will be given earlier notice and estimates of their tax bills. Also local officials no longer can apply higher levies to future, unknown assessments.

The city isn’t the only local taxing jurisdiction considering the impact of SB 711.

Jason Hoffman, the chief financial officer for the Jefferson City Public Schools, said the district isn’t facing the same concerns as the city, mainly because the district’s tax rate is as high as state law allows without a voter-approved waiver (which the district never has asked citizens to consider, yet.)

“We levy up to the maximum amount,” said Hoffman.