Johnson County residents push to end ‘secret’ property taxes that can blindside owners
When they toured model homes in 2018, Anh and Kevin Rongish say real estate agents never spoke a word about it.
They saw no signs.
And the mounds of paperwork involved in the transaction never notified them that their newly built home was drawn into a special tax district that would heap an additional tax on their property to fund road improvements.
Developers laid the groundwork for their special tax district more than a decade ago. But the couple only learned about it — and their $13,000 tax bill for the district — last year.
So-called benefit districts are used to help cover the costs of infrastructure in new subdivisions all over Johnson County. But in Olathe’s sweeping Cedar Creek development, a growing number of owners say they were never informed of the massive tax liabilities before buying their homes.
Kevin Rongish said the practice was akin to a grocery store calling a customer long after they’ve left asking for a few extra bucks.
“Well, what the heck? Why not just charge that up front?” he said. “Don’t go trying to have some mafia strong-arm tactic and pull money out of people after they’ve already purchased something. It’s insane.”
Developers for decades have relied on benefit districts in Olathe and other Kansas cities to help cover the costs associated with new residential development. The districts are generally proposed by developers, but must be approved by local governments who administer the taxes.
The logic is fairly straightforward: Olathe city leaders say that new developments must cover the upfront costs of roads, sewer and water rather than burdening the wider tax base.
But the practice has been pilloried by some homeowners, particularly within the Cedar Creek development off of K-10, where the developer has sought to not only add taxes to new homes, but to existing ones as well. An organized group of homeowners argue that the benefit districts are allowing the developer to pass on its own business costs to home buyers. And though state law requires that buyers be informed of any established tax districts, some residents say homes are being marketed and sold without any disclosure.
Cedar Creek officials declined to comment.
City council members say they have no appetite for slapping new taxes on existing homeowners. But Cedar Creek residents who aren’t in a current district worry it’s only a matter of time before they are drawn into a new tax boundary.
“To me, that’s just blowing smoke,” said Cedar Creek resident Nick Payne, who formed a group opposing the use of benefit districts in Olathe. “Until they actually pass a policy, stick by it and never again try to do what they did, I won’t believe it.”
Payne’s Cedar Creek home isn’t currently in a benefit district. But he and other neighbors worry that city leaders will look to finance needed improvements to nearby College Boulevard by assessing new taxes.
His group wants to see an end to benefit districts altogether. The way he sees it, they’re a means of triple taxing residents, who already pay regular property taxes on their homes and sales tax on purchases. If they won’t nix the idea completely, the group wants the city and developers to at a minimum do a better job of informing residents and would-be buyers that they could eventually owe thousands in special taxes.
“It’s really been Olathe’s dirty little secret,” Payne said.
Will Kansas lawmakers act?
City leaders say they haven’t been keeping any secrets about the long standing practice. But they acknowledge the unique circumstances at Cedar Creek have garnered more scrutiny than in the past.
Olathe Mayor John Bacon said benefit districts have been “very, very useful” in building out many new residential neighborhoods. He said developers can either pay for infrastructure costs up front and raise lot or home prices for sellers. Or, they can use mechanisms like benefit districts in which they pay down those costs over time.
“It’s a tool for developers to fairly spread out the costs that are associated with building infrastructure,” Bacon said. “They’re going to pass on the cost one way or another.”
Still, Bacon said the policy is worth reexamining — both in Olathe and in Topeka. The mayor said he welcomes a review by lawmakers, who years ago authorized the use of the special assessments.
Kansas Sen. Molly Baumgardner, a Republican from Louisburg, said the issue is already on the radar of legislators.
She understands the need to pay for new infrastructure. But Baumgardner said lawmakers have heard from too many residents who are not being made aware of the taxes before buying.
“There seems to be this breakdown in communication,” she said. “Residents feel they’ve been blindsided.”
Baumgardner said it’s among the rare issues that doesn’t divide politicians in Topeka by party lines.
“I think we certainly will be seeing action on this,” she said. “This is an issue where we need to make sure that information is really disseminated to Kansans. It has nothing to do with party lines. We have to strike the right balance of what would be appropriate oversight from a state standpoint.”
While she thinks the statehouse will consider the issue next session, Baumgardner isn’t sure that there’s any simple fix because so many of the complaints center on poor or no disclosure from sellers and governments.
“Oftentimes, the problem seems to stem or be exacerbated by poor communication,” she said. “It is difficult to legislate communication.”
‘Resort’ community built with benefit districts
On its website, Cedar Creek advertises a community with “resort style living.”
And it’s not hard to see why: the development blends the modern homes found in new subdivisions with a picturesque setting of limestone bluffs, waterfalls, winding roads and thick woods.
Currently, homes in the area are listed at $500,000 to more than $1 million.
But residents say a whopping, surprise tax bill presents difficulties even in one of the area’s most upscale neighborhoods.
Denise Holm, who has lived in The Meadows at Valley Ridge for nine months, said her neighborhood is full of retirees who have saved up their whole lives to move into the maintenance-provided portion of Cedar Creek. Many live on fixed incomes, she said.
“We’re retired and this was supposed to be our last house,” she said.
Holm got involved in the opposition movement after hearing about neighbors’ concerns. That was before she learned that she would soon owe $13,000 on her home.
“I was helping my neighbors with their benefit district because I thought it was so unfair,” she said. “And I found out I was in one. I didn’t even know.”
For her, the problem isn’t just the current tax. She wonders what could come next.
In some cases, neighbors have been drawn into more than one benefit district simultaneously. Holm said she has considered moving to nearby Lenexa where she doesn’t believe she would have to worry about a surprise tax.
“I don’t want to move again,” she said. “But I don’t want to sit and put up with this and worry about which benefit district they’re going to hit me with after this one.”
When reached on the phone, Ken Rosberg, president and supervising broker for Cedar Creek Realty, LLC, said the company had no comment.
From its earliest days, Cedar Creek was envisioned as relying on special taxes to help build out the community: In 2001, the city council approved a master plan that showed multiple benefit districts to help fund arterial roads in the area.
“The plan envisioned that eventually everyone in Cedar Creek would participate in a benefit district,” said Tim Danneberg, Olathe’s external affairs director. “And I believe the majority of property owners have participated or are participating in a benefit district.”
If homeowners have a choice of paying for infrastructure in their initial purchase price or a special assessment later on, Danneberg said they can actually save money through the special tax. That’s because the city issues bonds for the public improvements. Home owners can pay their share in one lump sum or repay the city over a 10-, 15- or 20-year schedule with interest. The city’s most recent bond issuance came with an interest rate of 1.1% — well below even the historically low average mortgage rates that are currently hovering around 3% for a 30-year fixed mortgage.
“That’s a heck of a deal on financing,” he said. “That’s like free money.”
He said benefit districts, which have been used about 70 times in the city, generally work well. In an ideal world, a developer would petition the city to create a new tax district before homes are sold. And every buyer would know about the assessments when house hunting.
But in Cedar Creek, there have been years-long lags between the time districts are created and when the taxes actually come due. That means homes can change hands multiple times before the assessments become due.
The city erects signs in neighborhoods that notify residents of the special assessments, though neighbors say they have been posted in far-away locations where they are unlikely to be spotted by current residents or those visiting model homes.
“If there is a disclosure, it’s possible it can get lost or glazed over when closing,” Danneberg said. “The challenge the city faces is we have no idea when properties change hands. So there’s not a way for us to reach people at the point of transaction and say, ‘Did you read your materials?’”
Consumers entitled to ‘full disclosure’
Kansas law requires that sellers disclose impending liabilities like special tax assessments to buyers before a sale.
Across the region, most real estate agents use a standardized seller’s disclosure form created by the Kansas City Regional Association of Realtors when marketing existing homes. In addition to asking about home repairs and damage, the form includes questions about bonds, assessments and special taxes.
In addition to those disclosures, most title companies would find the tax liability upon researching a home for potential buyers, said Max Gordon, an Overland Park real estate attorney.
“If a title company missed that, that’s another issue. But it’s pretty rare in my 40-some year career doing this,” he said, “especially because in our metro area and Johnson County in particular, subdivisions are platted and that information is pretty readily available.”
Gordon said he pushed for more disclosure surrounding benefit districts during his time serving on the Overland Park Council. While Kansas law authorizes municipalities to use benefit districts, he said they do represent a transfer of responsibility and costs.
“What’s really going on here, in my opinion, is a mechanism whereby the cost of these major infrastructure improvements get shifted, initially anyway, away from the municipality to the developer and then from the developer to the ultimate consumer,” he said. “And that’s really, in my opinion, what this is all about.”
Benefit districts allow developers to advertise lower rates for homes and home lots up front: if a homeowner will eventually pay $15,000 in special assessments, the developer could theoretically cut the cost of the lot by $15,000, giving him a competitive advantage in the market. Gordon acknowledged that many homebuyers would likely opt for special assessments at low interest rates rather than paying more upfront for new homes or lots.
“It’s probably a better way to pay,” he said. “But all consumers are entitled to full disclosure so they can make an informed decision.”
Other cities like Lenexa and Shawnee also use benefit districts to pay for infrastructure. Lenexa has 14 special benefit districts in which the projects are complete and property owners are currently paying special assessments. Another five are pending.
Lenexa spokeswoman Denise Rendina said the city doesn’t distinguish between old and new development in its policy, but encourages benefit district petitions to be submitted with participation from 100% of property owners within the boundary.
Kansas law requires that the petitions include approval from more than 50% of the property owners in the district. That’s why it’s often easiest for developers to establish districts on their own land before it is sold to individual property owners.
In Kansas City, developers generally pay the initial costs to construct roads, water, and sewer for new subdivisions, said Beth Breitenstein, spokeswoman for the city planning and development department.
The city then accepts improvements as municipal assets and takes over ongoing maintenance costs. In some cases, public-private cost share agreements can help defray development costs, but those are rare, she said.
The resistance marches on
In May, after homeowners protested, Cedar Creek withdrew its request to draw existing residents into a new benefit district to pay for road improvements. The developer came back with a new petition that only included its land in the new tax boundaries — a request the city council unanimously approved.
Council members said that action sent a message that they would protect current homeowners from new taxes.
“I think it’s fairly obvious from what happened with the last proposal that applying a benefit district on a lot of existing homes is not something I’m interested in doing,” Councilman Adam Mickelson told The Star. “There’s not a lot of appetite on the council for doing that.”
But that hasn’t quelled the opposition.
Payne’s Olathe Facebook group opposing the use of residential benefit districts has more than 500 members and residents have collected more than 200 signatures on an online petition.
And the practice will no doubt receive even more scrutiny as candidates campaign for upcoming city elections.
At-large candidate Dean Vakas wants to see the city move away from benefit districts and find other ways to pay for infrastructure projects.
“City Hall should say we understand residential benefit districts are frequently not good,” he said. “They should be our last resort. And we need to think our way through this without taxing the residents.”
If the city won’t abandon the practice, Vakas said it must do a better job of disclosing the often-opaque tax districts.
“There should be a moral and ethical obligation for City Hall to notify anyone who gets swept into a benefit district,” he said. “Certainly there’s a public hearing required before that happens. But if a benefit district is established, that person should receive a written confirmation so that they know exactly what’s happened.”
But for now, people like Anh and Kevin Rongish are stuck owing thousands of dollars in taxes they never expected.
The couple shared the seller’s disclosure documents they received with The Star. They had no mention of the tax assessment. Anh Rongish said the title company did note the tax liability, but she said she did not receive those documents until after they closed on the purchase of their home.
Had they known of the impending tax bill, they could have looked for other properties. They could have bought a lower priced home or possibly gotten more home for the same money elsewhere.
What’s worse, she said the tax will fund a road that she will rarely, if ever use.
“When I hear benefit district, I think of a benefit. So if I’m paying for it, it should benefit me,” she said. “This is for something I wasn’t notified of, and it’s for a road that is nowhere near me that I’m never going to use.”
Even if her fight is futile, Anh Rongish said the city must change its policy surrounding the taxes. Because more people are buying homes in her neighborhood. And even for all the recent uproar, they still don’t always know what’s in store.
“Those new homeowners know nothing about it,” she said. “It’s unfair that people still aren’t being notified.”
This story was originally published July 4, 2021 at 5:00 AM.
