Plans for a south-central Kansas school district and two cities to issue bonds have been delayed after the Legislature passed a bill limiting the ability of local governments to raise new property tax revenue.
Officials from the cities of Mulvane and Valley Center as well as the Mulvane School District said they were forced to call off bond sales after lawmakers passed a bill giving voters the power to veto a budget if it spends over 3% more than they did the year before.
The legislation sets up a process where voters can sign a protest petition when local governments, including schools, spend more than they did a year earlier plus the Midwest consumer price index up to 3% more, whichever is less.
Typically, protest petitions are used to initiate elections. This type of protest petition would veto a local government budget outright if it’s signed by enough voters.
The bill allows for a protest petition if it’s signed by at least 10% of the registered voters as of Jan. 1 in the taxing jurisdiction where the protest petition was filed.
The bill did not exempt bond issues, which opponents said would limit local government’s ability to raise revenue for needs they might be facing.
The bill is now in the hands of Democratic Gov. Laura Kelly. The House voted 63-59 to pass the bill in the waning hours of the regular session. It passed 22-18 in the Senate.
The governor is expected to decide whether to veto the bill in the next couple of days.
The Legislature returns Thursday to consider veto overrides. The session could last until Saturday. Late nights Thursday and Friday are anticipated.
A leading Republican lawmaker questioned why local governments couldn’t wait to see if the governor vetoes the bill before deciding to move ahead with their bond sales.
Austin St. John, the Mulvane administrator, said his city had planned to finalize a bond sale April 8.
But he said the purchaser of the bonds backed off last week, referring to the property tax bill that the Legislature sent to the governor after passing it March 27.
St. John said the bond issue was for $5.2 million and would have paid mostly for the infrastructure to serve new housing developments on the north side of the city.
St. John said the bill capped property taxes and the purchasers were worried how it would affect the city’s ability repay the bonds.
St. John said the city plans to make another attempt to sell the bonds while noting the limits imposed by the property tax bill – assuming it’s enacted.
He said those limits could have repercussions for the interest rate the city pays.
“We are anticipating higher interest rates regardless of the veto or not on our next bond sale,” St. John said in an interview.
He said the city hit the bond market “at a good pretty good spot” when it got a 3.67% interest rate on its bonds, which was lower than the 4% the city’s financial adviser anticipated.
“We don’t anticipate lucking out like that on the second round,” he said.
St. John said the city issued temporary notes to pay for the infrastructure work, which is already completed.
The bond issue would have repaid those temporary notes, which got the construction work started on the project.
He said those temporary notes will now generate more interest that will have to be paid for from the proceeds of the bond sale.
Meanwhile, the Mulvane School District, numbering 1,800 students, had to cancel a $45 million bond sale for school improvements approved by voters last fall, said Superintendent Jay Ensley.
The money was to be used for deferred maintenance, roofing projects and school security enhancements at the district’s four school buildings, he said.
It also was to be used to renovate and rebuild parts of a middle school constructed in 1954.
Ensley said the city was supposed to close on the bond sale April 1, but the city’s bankers notified officials the day before that the property tax bill was making bond buyers jittery.
He said the bill raised questions about whether the school district would be able to repay the bonds given that the bond issue would require a 10.64-mill property tax increase.
“Investors were spooked, so to speak, and understandably backed out,” Ensley said. “I understand that, and I understand why.”
Ensley said the district needs to wait and see how events progress in Topeka before deciding on a course of action.
“We really, really hope that the governor vetoes the bill,” Ensley said.
“I understand the intention of the bill of trying to lower taxes,” he said.
“I just feel like at the late hour that it was passed, the lawmakers, the legislators probably didn’t understand the ramifications it would have on taxing entities,” he said.
Meanwhile, the city of Valley Center has put off the sale of $13.5 million in temporary notes and a general obligation bond to support new housing development and repay earlier temporary notes issued for drainage, paving and housing infrastructure.
The temporary notes and bond were supposed to be sold Tuesday.
Cyndra Kastens, the Valley Center administrator, said the city put the bonds out for bid March 3, but bond lawyers said the sale would have to be called back because of the potential change in the law that became clearer March 27.
Kastens said there was potential legal liability for the city since the financial conditions for issuing the bonds had changed between the time the bonds were put out for bid and when they were set to be sold this week.
The bill “changes our ability to pay our debt, and we did not disclose that when we put it out to bid,” Kastens said in an interview.
Kastens said the city needs the revenue from the temporary notes to finance infrastructure for new housing projects the city is committed to and that are already under construction.
Kastens said the city asked lawmakers to exempt bonding from the bill.
An earlier version of the property tax bill approved by the House excluded payment of bonds and temporary notes that existed prior to July 1, 2026.
The bill also excluded new property taken into a city as a result of annexation and revenue from the expiration of tax breaks when the property returns to the tax rolls.
It also excluded the construction of new structures or improvements and the remodeling or renovation of existing structures or improvements.
The Senate removed those exceptions when it passed the bill. The exceptions were not part of the final bill voted on by the Legislature and sent to the governor March 27.
“We’re not trying to stop the bill,” Kastens said.
“We’re asking to please consider that there needs to be appropriate amendments so that the bill doesn’t just cut cities off at the knee from being able to take care of existing debt obligations that we have already committed to and are in their works,” she said.
“If a bill is going to go, the only thing we’re asking is consideration of those debt obligations and those incentives to return to the tax base,” she said.
“I think oftentimes, it sounds like cities are saying, ‘No, no, no, don’t do that,'” she said.
“We’re trying to provide options for a way to make it all work well and still meet the goal.”
“There just needs to be some consideration for things already committed to and already underway,” she said.
Senate President Ty Masterson was asked about the situation in Mulvane – it was the only confirmed case at the time – and he was skeptical about bond issues being delayed.
“I’ve not heard that story,” Masterson said.
“If that’s the case, that seems like there’s something more to it. All that group would have to do is wait a minute and see if she vetoes it and then it’s done,” he said.
“Then, there’s no excuse not to buy the bonds if that was the only reason.”
Republican state Rep. Adam Smith of Weskan, chair of the House tax committee, said Tuesday he had been briefed about what was playing out with Mulvane and Valley Center as well as the Mulvane School District.
“This is just one of those unintended consequences of trying to restrict local governments whether it’s cities or schools,” Smith said.
He noted that the House version included exceptions that included bonding, especially those approved by the voters as was the case of the Mulvane School District.
“We knew there would be some potential issues, just didn’t know how many outstanding bonds there were,” Smith said.
Smith said leading bond attorneys have informed him that there are 13 school districts and 12 local governments across the state that are now in the process of issuing bonds.
House Speaker Dan Hawkins was not available for comment about the issues facing the cities and school districts, but he backed the bill on social media in response to a Wichita Eagle story about Wichita and Sedgwick County asking the governor to veto the bill.
“You can learn a lot by who’s upset by property tax relief,” the speaker posted on X.
“When the same folks that drive property taxes through the roof are attacking this bill, you know you’re on the right track,” he posted.
“We’re putting taxpayers back in control. If Gov. Kelly wants to help Kansans, she will immediately sign HB 2745 into law.”
