Johnson County Appraiser has bad news!
COUNTY APPRAISER PAUL WELCOME (ABOVE) SEES BLEAK NUMBERS AHEAD, by Chuck Kurtz (the Sun)
OVERLAND PARK, KS – If there’s one thing that Johnson County Appraiser Paul Welcome can promise city officials, it’s that bad news is on the horizon for residential and commercial valuation figures. And that means decreased revenues. The county’s official 2009 valuation figures won’t be released by his office until March, but city officials already are concerned at what those figures will mean to their fiscal year 2011 budgets.
“This is very, very preliminary,” Welcome said. “(City officials) asked, ‘If you had to do something, what would you say?’ I said, ‘Probably 2 to 5 (percent decrease) on residential as a general rule and 5 to 15 (percent decrease) on commercial and that could actually go higher.” With commercial property comprising approximately 18.5 percent of the county’s total property tax revenues, a worst-case scenario, with a 5 percent decrease in residential and a 15 percent decrease in commercial valuations, would mean an overall property tax decrease of about 6 percent for 2009. For 2008, the overall decrease was 3 percent.
Until 2008, Johnson County had historically enjoyed a yearly 3 percent to 5 percent increase in valuations, which meant an automatic increase in revenue for the county and cities. But with the real estate market collapse in 2008 coupled with the economic recession, Welcome reported last March that more than 70 percent of all residential property in Johnson County had decreased in value, 23 percent remained flat and just 7 percent of the county’s homes saw an increase in valuation.
That sent city officials scrambling to find ways to shore up budgets. Then came layoffs, hiring freezes, wage freezes, capital projects put on hold, and equipment purchases postponed, all in an effort to maintain services without increasing taxes. Now it appears city officials will be doing the budget scramble again. Overland Park City Manager John Nachbar said no matter how Welcome’s numbers end up, the city’s budget is still a process that has to be worked through by applying a variety of options.
“There’s so much complexity to our municipal budget,” he said. “There are probably hundreds of doors I need to open and try, and I won’t know the final answer until I’ve gone through everything, and I’m not there yet. “We’re hearing (the total county valuation decrease) could be as much as 11 percent; it’s more on the commercial side than the residential. I know that both of those markets have been deteriorating and we’ve been in a mode of cutting and adjusting downwards for 18 months now and it just continues.”
How many more cuts Overland Park’s budget can absorb without layoffs, a cut in services or a tax increase, Nachbar said he did not know. “I don’t know how to answer that,” he said. “We’re going to have to continue to find out how to live within the revenues that are available to us. I’m just at the very beginning of working with my staff on updating our five-year forecast. “I know it appears at first blush that we’re not at a point where things are improving, that’s for sure. I’ll know a lot more in the next 45 to 60 days.”
Overland Park’s budget, unlike most other cities in Johnson County, relies heavily on sales tax revenues. But the news there is not good, either, Nachbar said. “Sales tax is the critical revenue source for us,” he said. “That’s not to downplay property tax. Property taxes represent 18 to 19 percent of our revenue stream, but really the bulk of our revenue is sales and it’s still declining.” Nachbar said at this time, he is not planning to introduce a budget with a tax increase.
“Ultimately (a tax increase) will be a community decision,” he said. “At some point, if it gets bad enough, people will have to decide if they prefer to have reductions in service rather than a tax increase. Before I (recommend a tax increase), I’m going to be continuing to figure out how we, as a government, are going to have to live within our revenue constraints. “(A tax increase) is not a route that anyone is anxious to go down especially in these tough economic times when everyone in the community is suffering.”
County Manager Hannes Zacharias echoed Nachbar’s assessment. “We are not looking at tax increases,” he said. “I think we’re looking between a negative 4 and a negative 7 percent reduction in property valuations, total for the county. I want to stress these are very preliminary figures and things will change over the next several months so we’ll see what happens, but we are monitoring it very carefully.
“We’re also looking at other issues as far as the county is concerned that may offset some of that reduction. Mortgage registration fees for us, for example, which we get between $16 and $25 million, we’ll budget $16. We might be there this year, might be better next year by virtue of the number of houses that might indeed sell, so that could be an off-setting revenue coming in.” He also said sales tax revenues could be better than last year.
“To what extent we don’t know,” he said. “It probably won’t be dramatically robust, but we have a hard time thinking it’s going to be big negative numbers; we think it might even be positive. “But trying to forecast now what things will look like in 2011 is difficult.” In the county’s five-year projection, Zacharias said the county is moving toward a smaller work force and possible reductions in service. “We are gearing ourselves for worsening revenues and we think ultimately we are going to be a smaller organization than we are today,” he said.
“We’re going to have fewer employees. We’ll lean upon our departments to try to find ways to downsize through attrition and hopefully without layoffs while trying to maintain services. “We also have built in some salary increases in 2010, which we think are appropriate because even though we might be a smaller organization in the future, we want to make sure that those employees that are here are compensated appropriately.
“Expectations of services are still there, so we have to find a way to respond and be more efficient where we can and if not, then we need to talk about services and lowering the expectations and the reduction of services.” He said the county’s approximately $130 million in reserves has been and will be crucial during the current economy. “That has really helped us plan for this five-year period and I think we are in a very good condition to try and weather this storm and get a soft landing of how the economy goes in the future,” he said.
The reserve is about 35 percent of the county’s general fund and Zacharias said he anticipates it going down to 20 percent. “The lowest we can go is 15 percent, maybe 12,” he said. “I would like to go down to 20 percent and that keeps us better in line to maintain our triple A bond rating, which is very important because as we borrow money for infrastructure improvements as the economy heats up, we want to go ahead and reduce our interest costs as much as possible.”
The higher the bond rating a government has, the lower the interest rate will be on money borrowed. Welcome said he anticipates making a preliminary announcement sometime in January. “Because everyone was always used to the 3 to 5 percent increase in values, last year I gave them a report in January of what I thought the values were going to do commercially and residentially,” he said. “I’ll probably do that again.” Welcome said he would like to have a magic button he could push to improve the county’s economy. “Everyone tells me, ‘You’re not very positive,’” he said. “I’m just a reflection of what’s happening in the market.”
To view a feature on property value assessments, click the play arrow.