Potential loss of millions in property tax revenue hangs over Johnson County budget deliberations

Big box stores like Target have pushed back on Johnson County’s approach to valuing commercial properties, which has raised the specter of budget shortfalls in the future.

A dark shadow of angst loomed over public discussion of the county budget Monday night as residents and commissioners considered the possible impact of appeals made by big box retailers on their property values that could cost local governments millions.

“What are we going to do when we lose that tax appeal and now we’re short by hundreds of millions, probably, per year?” asked winery owner Kirk Berggren, during a public hearing on the county’s $1.26 billion 2020 budget.

County Chair Ed Eilert. File photo.

Commission Chairman Ed Eilert sought to reassure the roomful of county residents and staff that the county would use its reserves or cut spending to counterbalance the potential revenue loss from property tax appeals by Walmart, Target and other retail outlets. He stopped short of promising there would be no tax levy increase in the future to cover some of the possible $20 million the county could lose if the stores are successful in court.

The total loss to all taxing bodies in the county could be close to $133 million, according to an analysis by the county appraiser last spring.

Although several speakers came to the meeting to thank the commission for beefing up the mental health staff, the so-called “dark store” appeals dominated commission comments afterwards.

‘Dark store theory’ prompts requests for belt tightening

Walmart recently prevailed in an appeal against Johnson County’s property tax valuation, setting off a wave of concern across local governments.

The “dark store” term is shorthand for the rationale retailers have used to appeal their property values, and hence the property tax they pay. Retailers have challenged the county, saying property values for their brick and mortar should be based on what the property is worth whether it is doing brisk business or closed. The Kansas Board of Tax Appeals recently sided with Walmart on this question. But that decision, like earlier ones for other retailers, could be appealed in court. If the county loses there, a tax refund to the corporations would be likely.

If big retailers continue to win, the results could be catastrophic for county, city and school budgets, elected officials have said. Stephanie Berland was among the speakers who urged the county to take action now to prepare. “As I sit around the kitchen table and tighten my belt I expect the county manager, deputy county manager, the two assistant county managers, the directors, their assistant directors and their analysts to sit around the conference table and tighten theirs,” she said.

Gardner City Council member Rich Melton was also concerned. “I’m worried about what happens to our tax bill if that comes down not in our favor,” he said. Melton suggested the county look to ways to make revenue from county-owned land. Selling off land would be an extreme example, but Melton said there ought to be other ways the county could leverage its land as a source of revenue.

Commissioner Mike Brown delivered blistering remarks saying the county commission and staff failed to prepare. “When we’re looking at a potential shortfall, how can we sit here and push forward? How does the county manager push forward? How do we as commissioners agree to keep raising the budget?”

“Did one department in the county not ask for additional resources,” he continued. “If so, how many didn’t ask for additional resources? Anybody have a number?…Crickets.”

“Nobody wants to give up anything. Everybody wants to grow it forever. It’s going to go until it falls in on itself and then what will we do? Tax all of you. Because that’s the solution. There is no other solution.”

Other commission members were more measured. Commissioner Janeé Hanzlick said her constituents have been happy with the efficiency of county government. “Yes, there are things that may be coming down the road but at this point in time we have no control over that. To think that the sky is falling until we know what’s going to happen would be very irresponsible of us when we have needs here in our community that have to be met.”

The county has weathered recession in past years and staff is doing a good job finding efficiencies, Hanzlick said.

Commissioner Steve Klika said taxpayers expect quality services and education. Quality of life issues have to be maintained, he said. “If we don’t maintain these services at some type of level we will fall into a trap.”

Even so, Klika said tough times could be ahead. “I am a little afraid of what the impact of the (tax appeal board) decision will be. I would challenge us, as a board and staff to start having our plan A’s and B’s in place.”

Several speakers thanked the commission for additions to the mental health budget. Through a sign language interpreter, Pamela Siebert of Shawnee said she appreciated the addition of a deaf services clinician to the staff. Others urged the commission to continue to fund mental health because affordable options in the county will help vulnerable people and will save the county in the long run.

The discussion is the final phase of budget preparation before the commission takes its vote. Almost a third of the county’s revenue comes from property taxes. The 2020 budget calls for a taxing rate of 26.013 mills, which is the same as last year. With growing property values, the average amount paid on the average property would increase by about 5.8 percent, or $4.50 a month.