TOPEKA, Kan. — Homeowners in one Olathe neighborhood are rallying behind a new piece of legislation that could impact how new infrastructure is paid for.
Wednesday, the House Local Government Committee held a public hearing to discuss HB2518, a bill dealing with special taxing districts commonly referred to as benefit districts.
What is a benefit district?
Benefit districts are intended to pay for infrastructure improvements within a specific area. To create a benefit district a city or county would levy a special tax assessment on property owned within the selected boundary.
Additional tax is collected on properties within that district and the money is then used to help pay for infrastructure improvements like the creation of a road or a new utility line.
At least 50% of landowners within the proposed district boundary must agree to petition the city to create the district. However, a single developer may petition a city to create a benefit district on their own land.
What does HB2518 do?
Before a benefits district can be established, the city or governing body must hold a public hearing. The bill would require the governing body to mail a notice to homeowners with property within the proposed district informing them of the hearing.
If the district is approved, the governing body would be responsible for notifying property owners within the district. HB2518 would require the governing body to mail homeowners a formal notice before the district can be formed.
Under current state law before entering into a real estate contract, property owners are required to disclose to potential buyers that the property is subject to a special improvement district assessment.
If approved, the bill would require the owner to disclose information on the benefit district during negotiations and include the disclosure in the real estate contract. If the seller does not disclose the information, the contract may be deemed void.
Anh Rongish bought her first home in 2018 in northwest Olathe. Shortly after, Rongish said she was mailed a letter claiming she owed $14,000 in taxes on the property.
“The tax was for a benefit district that was approved in 2008, yes 2008, and it was never disclosed to me in my contract. This benefit district is to build a road at least a quarter-mile away from my house and I will never be using that road. The road will be built in a current empty field so that the developer can continue to build more houses for profit,” Rongish said.
Rongish said she is concerned about a lack of communication and information offered when new homeowners plan to move to the area.
“There is development north of me that will subject new homeowners with two benefit districts. There is zero signage and no disclosures. These assessments per homeowner are ranging from $40-65,000 for these benefit districts. This is egregious considering the average income in Kansas is about $32,000,” Rongish said.
Denise Holm’s home is located within an established benefit district in the Cedar Creek neighborhood in Olathe. Holm said she would be willing to pay for repairs or upgrades for existing services, but feels the construction of new roads and utility lines should be the responsibility of the developer, not the financial obligation of neighboring homeowners.
“I’m paying for someone else’s waterline, because I already have water. I’m paying for a parkway that I’ll never use because it’s on the wrong side of my house. That’s what does not make sense on this. This is not a special tax assessment that we are all used to paying to rejuvenate and repair services that we need in infrastructure,” Holm said.
Nick Payne also lives in Cedar Creek development. Payne said he feels the current process acts as a loophole for developers and wants the bill amended to completely eliminate the use of benefit districts in Kansas.
“It can’t just be about notification, it can’t just be about signs. It’s got to be about stopping this tax grab,” Payne said.
Erik Sartorius, Executive Director for the League of Kansas Municipalities, said his organization supports sending notices to homeowners in proposed benefit districts ahead of a public hearing.
Sartorius expressed concern about the portion of the bill suggesting the approved benefit district ordinance not be considered valid until property owners have been notified by mail.
“I think it causes a lot of confusion. It causes uneasiness with some bond council about whether if a benefit district is created and bonds are to be issued for an improvement; Does this leave open a hole that that benefit district could be invalidated down the road while bonds have been issued?”
Under state law, sellers are required to tell potential buyers if the home is under a special assessment, but Sartorius said if benefit districts are not common in a certain city homebuyers might not know what to look for.
“There are a million different ways these [districts] are created. In some areas of the state special [tax] assessments are a dime a dozen. Everybody knows they are out there. Everybody expects them. In other parts of the state, you talk about a special [tax district] and folks have no idea what you’re talking about, because it’s never been something used,” Sartorius said.
Mark Tomb with the Kansas Association of Relators said his organization does not support invalidating a real estate contract if the special assessments aren’t specifically listed in the contract, because owners are already required to disclose that information to the buyer.
“What happens if it’s years later? That just really puts a cloud on the transaction. It’s just really not advisable at all,” Tomb said. “There should certainly be additional disclosures, but invalidating the real estate contract is not a good solution.”
Tomb said benefit districts are a tool used by developers to create subdivisions all across the state. Last year the Olathe City Council passed a resolution to limit the creation of benefit districts within the city.
The state committee will continue to review HB2518 at a later date. If the bill is approved by the legislature, the new policy would go into effect on July 1.