City questions funds distribution
Legislators promise to help
By Bobbi Mlynar
Saturday, April 19, 2008
A disappointing distribution of 2008 state funds may have been an unintended consequence of the legislative process.
City manager Matt Zimmerman, four members of the city commission, Director of Administrative Services Larry Bucklinger and City Attorney Blaise Plummer met with state Sen. Jim Barnett and Rep. Don Hill Saturday morning to explain their concerns over the city's relatively small share of the 2008 "Machinery and Equipment Slider" monies.
The M & E Slider was enacted in 2006 to help replace property taxes lost when machines and equipment were exempted from taxation or were abated. The exemptions were intended to create a more favorable tax climate to attract business and industries to the state. The statute was amended in 2007 to provide a formula to distribute the funds, according to an April 7 memo prepared by Bucklinger and Plummer.
Concern over distribution percentages arose when city officials found the City of Emporia would receive substantially less from the M&E Slider funds than initially had been presumed. The state paid the total money -- $353,078 -- to Lyon County to distribute among the taxing units.
According to the memo, the city received $52,064.49 from the Business M&E share and $16,982.02 from the Telecom and Utilities Slider fund, for a total of $69,046.51.
In comparison, Lyon County's share of the M&E was $68,695 and the Utility Slider share was $45,943, for a total of $114,638, about $45,000 more than the city's share.
Bucklinger and Plummer met with County Controller Dan Slater, who worked on apportioning the funds, to discussed how the figures were determined.
Slater showed the men a substantial amount of work papers and information about the methodology used in the computations. Slater told them he had spent considerable time on the telephone, getting directions for the apportionments from employees of the Kansas Department of Revenue.
"We follow along with what he's doing, but we're not sure exactly why it happened that way," Bucklinger said. "We can't say it's wrong, but you can't say that it's really correct, either."
Mayor Bob Agler said that the official interpretation of distribution from Alan D. Conroy, director of the Kansas Legislative Research Department, coincides with what city leaders believed had been enacted.
"The way I read this, this does not even begin to agree with what was done," Agler said. "This seems to be right on formula with what the assumptions were, and it talks about local units of government, not county assessments. ... "
Bucklinger said the city needed a clear understanding from the legislature on how the distribution should have been done.
"They did what they were told by the Department of Revenue to do," Zimmerman said. "This isn't about the county at all. This is about the legislation itself."
The formula used to compute shares concerned city leaders, who said that directions for distributions seemed contradictory. The Utility Slider money was meted out in percentages, with the city getting about 28 percent of the total. The 28 percent is the city's share of all of the property taxes levied on property in the city. The M&E shares were calculated differently.
"Still and all, our share of the total is very small, and our thought is that probably most of the machinery and equipment in Lyon County is found within the City of Emporia," Bucklinger said. "We're having some trouble relating the concepts to how the detail came down."
The memo stated that according to the League of Kansas Municipalities, the intent of the bill was to "make the amount of payment proportional to the dollar amount lost by each taxing unit, not (proportional) to the mill levy rate."
Shares of the Slider money distributed to all of the taxing entities in the county were based on the differences between the M & E taxes collected in 2005, compared to the amounts collected in 2007.
"The greater an entities' reduction in taxes collected, the more slider money it received," the memo said.
"It appears there are issues that can cause changes in the amounts that were lost other than the machinery and equipment," Bucklinger said during the meeting Saturday. "One is mill levy changes."
Because the school finance law allocated more funds to the Emporia school district, the district for the past two years was able to lower its mill levy for property tax purposes. As a result, the school district collected less money in property taxes; that circumstance gave the school district a financial windfall from the M & E Slider monies, city officials said.
The Emporia school district received $112,234 in Slider funds, plus $30,767 from telephone and utilities funds, for a total of $143,001, according to the funds distribution list attached to the memo.
"That's kind of why we're unsure this is all working the way it's intended to work," Bucklinger said.
North Lyon County school district received $10,605 and Southern Lyon County received $3,696. Some school districts whose enrollment districts include small areas in Lyon County also received funds, including Morris County, $1; Lebo-Waverly, $10; Eskridge, $1,486; and Chase County, $150 -- also received funds.
"When you do the Slider calculations, the way they've been done, the school district gets a huge windfall and the county and the city don't," Commissioner Jeff Longbine said.
Townships around the county received distributions, ranging from $21 for Bushong up to $655 for Americus. Watersheds, fire districts, recreation centers, libraries and cemeteries also received allocations.
"Correct me if I'm wrong," Plummer said, "but I don't think any of the school districts were requesting any of this. ... I understand the idea to distribute among all taxing entitites, but it wasn't requested by all taxing entities."
Definition of statute complicated the situation further.
"It was supposed to apply to entities that levy taxes on industrial equipment and machinery," Plummer said, adding that the county is the entity that actually levies the taxes.
He disagreed that the library and recreation commission would be eligible for a distribution because neither levies taxes. The city levies for the library and the school district levies for the rec center.
Plummer said that amendments often were necessary to amend well-intentioned bills coming out of the legislature, and this bill may need clarification to make funds distributions more equitable and to avoid punishing taxing units when they are able to lower their mill levies.
"It's the doctrine of unanticipated consequences," Plummer said.
"I agree with Blaise -- unintended consequences," Hill said later in the meeting. "And that's often, perhaps too often, the case."
Hill said he was on the taxation committee when the original legislation was passed, in part at the urging from Hill's Pet Nutrition, which was beginning to consider expansions in Kansas.
Zimmerman said it was not a mistake to remove the property taxes; the problems lay in the amendment and how the bill has been implemented.
"Where you thought it was going is where we thought it was going as well," Barnett said.
Both Hill and Barnett said they would begin working on the problem on Monday, to find out whether the distribution had been misinterpreted or whether changes are needed for clarification.
The issue also could become before an interim study committee, with legislative research department working with Hill and Barnett to define the scope of the work for the interim study.
Hill said that something could be done early in the session next year so it could be complete for the 2009 distribution in late February or early March.
"That would be an ambitious time table, but I specifically asked the questions whether that was at least in the realm of possibility, and it is," he said.
Although it does not often happen, the legislation could be made retroactive, to be effective Jan. 1, 2009.
Barnett mentioned that demand transfers from state to local governments are scheduled to be re-instituted in 2010, if the legislature decides to fund them.