Kansas gubernatorial candidate Paul Davis supported business tax cut that led to local tax increases

As he campaigns against Gov. Sam Brownback, Democrat Paul Davis uses a well-worn line about taxes.

“We do have a tax problem in this state,” Davis says in response to Brownback’s sweeping income tax cuts. “It is a property tax problem.”

If that’s the case, then Davis shoulders some blame.

Eight years ago, he backed a major tax cut for Kansas businesses that cost local government millions and in some cases led indirectly to property tax increases — the very type he campaigns against today.

“I’m going to make cutting property taxes my first priority when it comes to cutting taxes,” Davis said during a recent gubernatorial debate.

The 2006 tax break didn’t have an immediate impact, applying only to new machinery and equipment purchases starting that summer.

Gradually, local tax bases started to shrink as businesses began replacing old equipment with new equipment that wasn’t taxed any longer.

The tax cut affected various cities and counties differently depending on how much heavy industry they had on their tax rolls and when the machinery and equipment was replaced.

Some local governments, such as Lenexa and Wyandotte County’s Unified Government, raised taxes. Others, such as Johnson and Sedgwick counties, cut their spending to deal with the tax loss as well as the fallout from the recession.

A spokesman for Davis said the Democrat is committed to property tax relief.

“Paul has been one of the most vocal advocates for property tax relief in Kansas, and his record supports that,” spokesman Chris Pumpelly said.

He said Davis supported the legislation — like many prominent conservative lawmakers — because it was endorsed by business groups and helped farmers and small-business owners.

“This legislation was a fiscally responsible, pro-growth piece of tax policy that did not leave the state bankrupt, unlike the Brownback tax experiment,” Pumpelly wrote in a separate email.

Much like Brownback’s hotly debated income tax cuts, the property tax break was pushed by former Democratic Gov. Kathleen Sebelius to improve the Kansas business climate and create more jobs.

The bill passed overwhelmingly in the Republican-controlled Legislature, opposed mainly by several Wyandotte County Democrats.

The proposal was praised as a “long-overdue step” by a University of Kansas economist who would later support Brownback’s income tax cuts.

Cities and counties lobbied vigorously against the tax cut, predicting it would gut their tax bases and lead to higher property taxes, which ultimately proved prophetic. The amount of taxable machinery and equipment statewide has plummeted by about $1.1 billion, or 61 percent, since 2006.

Supporters predicted the tax cut would create more economic growth that would cover the lost revenue, a theme heard in today’s debate over the Brownback income tax cuts.

Lawmakers eventually agreed to ease the loss by repaying cities and counties for any revenue they lost from the tax cut for five years.

But those payments stopped earlier than planned in 2009, when the recession left the state grappling for money.

Cities and counties then had to patch the holes in their budgets. The tax cut ate away at their tax base as old business equipment came off the tax rolls, replaced by new equipment that was no longer taxed.

The League of Kansas Municipalities estimated that cities lost more than $360 million in revenue cumulatively from 2007 to 2011. No more recent estimate was available. It’s unclear just how many local governments across Kansas raised taxes to make up for lost revenues.

The effect was particularly pronounced in Wyandotte County, home to big industries that have equipment worth millions.

Wyandotte County’s Unified Government reported losing about $110 million in taxable property value for commercial machinery, or roughly $80 million in revenue, since 2006.

Before the tax cut was passed, machinery and equipment made up about 16 percent of the county’s tax base. It is now at about 6 percent.

The county has raised property tax rates about 14 percent since 2010, brought about by a lethal mix of the economic slowdown and the tax cut.

In 2011, County Administrator Dennis Hays said that repealing the tax would have “crippling” effects on Unified Government revenues for years to come.

“Those dollars were once used to pay for police and fire protection, street repairs and general operations,” Hays wrote that year.

The loss of the tax on machinery and equipment “was a big, big hit for us,” said Unified Government spokesman Mike Taylor.

Taylor concedes the tax cut helped companies like the General Motors, which has a plant in the county, but came at a cost to other taxpayers.

While the recession factored into subsequent tax rate increases, Taylor said the property tax exemption for machinery played a significant part.

“You take away a major source of income,” he said, “and it’s going to take its toll.”

In Johnson County, suburban Lenexa also suffered revenue losses because the tax exemption ate into a large chunk of its taxable property values.

Lenexa was hurt worse than other Johnson County cities because it had a high concentration of business parks with machinery and equipment.

The city lost about $156 million in taxable property values from 2008 to 2012. Machinery and equipment made up 15 percent of the city’s tax base in 2008. Four years later, it constituted 6 percent of the tax base. It now is about 3 percent of the city’s tax base.

Lenexa eventually raised property tax rates by 11 percent in 2012 to help offset about $2.5 million in revenue losses.

Lenexa Mayor Mike Boehm called the loss of the revenue a “shot in the gut” at a time when the city was still grappling with the recession.

He pointed out that many neighboring cities were able to limp through the recession by cutting back expenses. Lenexa had to go further, he said.

Douglas County also has raised property taxes 37 percent since 2008, partly because of the loss of the machinery tax.

The county lost about $39 million in taxable property value on business machinery and equipment since 2006. Where it once made up about 5.5 percent of the county’s tax base, it is now 1.4 percent.

County Administrator Craig Weinaug said that while the county’s tax rates have increased, they’ve grown faster than what’s been lost from the taxes on machinery and equipment.

Bigger factors leading to the tax increases included the county taking on new services given up by the state and lost revenues that came about because of changes in state law, he said.

Saline County has raised property taxes about 15 percent since 2012 as it saw its tax base eroded because of the loss of the machinery tax. County officials blame their slow-growing assessed property values — less than 1 percent a year since 2006 — on the loss of the tax.

“There isn’t any wiggle room,” said County Administrator Rita Deister.

“We’re pretty conservative around here. Commissioners do not like to raise taxes,” she said. “If we would have had that money, we probably wouldn’t have done the tax increase.”

This story was originally published October 28, 2014 at 6:34 PM with the headline "Kansas gubernatorial candidate Paul Davis supported business tax cut that led to local tax increases."