May 28, 2023 Supporting Manhattan-area entrepreneurs, businesses, events

Taxing Decisions

Manhattan voters resoundingly rejected a sales tax measure in November that would have covered a nearly $100 million shortfall for projects across the city. Some rejected the initiative because it would permanently add 0.3 percentage points to Manhattan’s sales tax. Others balked at one or more of the six projects it was designed to help fund. And some voted for the measure, fearing its failure would lead to property tax increases.

Whatever the reasoning, the proposed tax hike became only the second this century to fail at the ballot box, casting a shadow of uncertainty over how to fund projects that were pitched as ways to fuel Manhattan’s growth prior to the election. One project has been funded, and the other five are still live issues. They now will require tough debates on what type of taxes are used, the order in which they’re completed and likely more ballot measures for voters.

Voters also elected two new commissioners—Aaron Estabrook and Mark Hatesohl—along with incumbent Linda Morse. Their victories sent somewhat of a mixed message on spending.

Morse was clear that she saw all the projects as needs when sending the sales tax measure to voters. “We can’t just stop spending and say we’re not spending any more money,” she said at a June commission meeting. 

Photo by David Mayes

Hatesohl and Estabrook both campaigned on keeping property taxes flat, but campaigns are different than governing. Hatesohl is seen as a solid vote for fiscal restraint, similar to Wynn Butler, while Morse and Usha Reddi are generally more willing to spend on city projects, setting up Estabrook as a deciding vote on several issues, if the commission becomes contentious.

“There are areas where I align with Mark and Wynn, and there are areas where I think I’ll align with Linda and Usha, but my hope, and I’m not naive about this, is that we will find the common ground amongst the entire commission,” Estabrook says, pointing to his time on the USD 383 Board of Education as time when he built consensus for issues. “It won’t be 3-2 votes. I think our goal is to get to a 5-0 vote and be unified.”

What Voters Didn’t Like

Estabrook and Hatesohl spent plenty of time on voters’ doorsteps campaigning for their seats on the commission. Those talks gave them plenty of insight after the election. This biggest issue for voters was the permanence of the tax, though its perpetual nature would have allowed the city to issue bonds backed by the future receipts

“That was a big catching point for people that I spoke to,” Estabrook says. “They didn’t like the idea that it was a permanent sales tax, and it wasn’t earmarked. That was a pretty easy thing for them to say, ‘We don’t like this.’”

Hatesohl echoes Estabrook’s assessment. He also expresses surprise that Americans for Prosperity, a small government and anti-tax group, spent tens of thousands of dollars on mailers urging voters to reject the tax increase.

“The failure was, in one respect, one of education by proponents of the sales tax,” Estabrook says, noting an onslaught of misinformation by opponents like AFP and left-leaning detractors worried about the tax’s effect on lower-income households.

“I think if they’d promoted the sales tax as property tax relief and capping it…I think they would have had better luck,” Hatesohl says.

Stakeholders, like Aggieville Business Association Director Dennis Cook, know the defeat complicates efforts moving forward. 

“What we do know is that the [sales tax measure] would have been the easy path,” Cook says. “We’re going to go the not easy path.”

The Projects

While the sales tax failed, most of the projects it was slated to fully fund have continued to gain various amounts of momentum. The commission seated Jan. 7 will have to make decisions on how to keep that momentum going or decide if some projects need to be scaled back.

The new commission will have to decide how to move forward on five projects after commissioners voted in late December to build the Southeast Recreation Center at Douglass Park, in what was seen as a roadmap for other projects. The commission also gave the go-ahead for the $10 million Phase VI of the North Campus Corridor, which will add pedestrian amenities along College Avenue from Dickens Avenue north to Kimball. Kimball improvements will include a second left turn lane and median at its intersection with College Avenue. More than half of that money will come from the City-University Projects Fund, which comes from sales tax collected on campus and money from K-State Athletics.

Photo by David Mayes

Finally, the city committed to spend $13.4 million on the levee with construction set to begin this year and run through 2022. The federal government will pick up the remainder of the cost on the project, which will raise the levee between 1 and 3.3 feet. The earthen barrier starts at the intersection of Casement Road and Hayes Drive, follows the Big Blue River south to its confluence with the Kansas River then heads west to 15th Street. It protects more than $1 billion in property in eastern and downtown Manhattan.

A joint maintenance facility for the city’s fleet of vehicles would consolidate work currently done at four sites across Manhattan. A study by BBN Architects Inc. found “significant shortcomings” at all four of the facilities. The commission moved ahead with acquiring land near the city’s wastewater treatment facility for the estimated $12 million complex. The city has identified funding mechanisms for the bulk of the total, but still needs approximately $1 million.

The city has yet to commit general tax money to projects in Aggieville and at the Manhattan Regional Airport, though those are still in the works.

In Aggieville, the plan is to build a parking garage, improve roads, utilities and streetscapes and boost public Wi-Fi. The top estimate for all the work is about $30 million, including about a third of that amount going to the parking garage. The city has created a Tax Increment Financing (TIF) district that will use rising property values to offset some of the cost, but it will still need to find about $20 million to fund all the improvements. Commissioners could elect to only approve projects that the TIF could cover or vote to spend more money to fuel growth in the business district. 

The commission still has time to decide on the runway improvements, but the potential cost also has increased to keep it at its current width. 

A Range of Options

The next commission will have no shortage of options to cover the roughly $100 million shortfall for all the projects. Commissioners can put another sales tax on the ballot, raise property taxes, use fees for water, sewer and stormwater for some projects, delay others, transfer economic development money, reallocate money as debt is retired or some combination of all of the above.

The city will build the nearly $4 million recreation center without raising property taxes, but it also won’t reduce them as it pays off debt. Commissioners will use temporary financing to get the project going and wait to issue permanent debt until it pays off previously issued bonds. By 2024, the city will retire bonds that have required an annual payment of about $1 million. The rec complex and North Campus Corridor Phase VI will use a portion of those payments going forward.

While the temporary financing will blunt the impact of the rec center, it also buys commissioners time as they consider how to fund other projects. The short-term debt can be used for about four years before the city issues permanent bonds. It’s like paying off a credit card with a home equity loan, but the city receives much more favorable interest rates.

“With interest rates as they are, the city’s never in a hurry to permanently bond stuff because they get such cheap temporary note rates,” Hatesohl says.

Hatesohl and Estabrook both express support for a new sales tax initiative, but this time it would be targeted toward a specific project or two and include a sunset clause.

“I would like to see specific questions dedicated to projects with an end date,” Estabrook says. “That would be one way to fund them, in addition the blend of federal money for some projects, outside assistance, TIF districts. It’s a blended approach.”

Both listed the airport runway and levee as top priorities. The projects will receive substantial money from the federal government, but timing and scope are still unsettled, especially at the airport. In November, the FAA notified airport officials that they would only foot the bill for a 100-foot-wide runway, trimming a third off the current 150-foot-wide tarmac.

Photo by David Mayes

Before that notification, officials predicted the city’s shortfall for the runway rehabilitation would be $3.5 million. If it wants to keep the runway at its current width to accommodate charters flights for K-State and Fort Riley, it will have to contribute an estimated $8 million to $9 million.

The largest project without dedicated funding in place is the North Campus Corridor, which has another seven phases at an estimated price tag of $33 million. It will expand and modernize the corridor along Kimball Avenue from North Manhattan to College avenues, paving the way for the National Bio and Agro-Defense Facility, a federal laboratory that will research diseases affecting livestock. Officials project the work could support nearly 2,000 jobs in the corridor, with some estimating it could be much more.

That makes it a likely target for some economic development money, of which the city is projected to have about $6 million when the current sales tax expires in 2022. That’s well short of the goal, but officials are expected to seek reauthorization of the tax with one tweak.

Currently, the tax supports economic development efforts and some infrastructure and property tax relief. Estabrook, Hatesohl, Butler and others are interested in making the tax citywide, rather than specific to Riley County. This would capture sales on the Pottawatomie County side of the city.

Renewing the tax in Riley County would generate an estimated $30 million over 10 years, compared to a citywide tax that would net $50 million.

The economic development renewal also plays into how the city proceeds with asking other sales tax question.

“You don’t want to have a sales tax election every year,” Hatesohl says. “You can’t go every year asking for a sales tax increase, but if these projects are as important as we’ve been told they are, then we’ve got to figure out some way to fund them.”

The Growth Option

While Aggieville’s TIF district will generate enough money to build a parking garage, to make all the improvements in the business district will require new funding sources or exceptional growth, which would help fund every other project as well.

“I think there’s a component out there that sees Aggieville as a living area—it’d be great for high-density housing, like the apartments across Bluemont,” Cook says. “We have a chance for more things like that. A little bit of an urban feel. With that is the businesses that want to come in and be a part of that.”

Photo by David Mayes

It’s possible the garage paves the way for more investment in Aggieville, which would put more money into the financing district to pay for more improvements.

“You’re going to have a hotel that’s got a value of $8 million to $10 million that goes on the tax roll,” Cook says. “That will help us in the TIF because it wasn’t part of the district before the TIF was established. That tax base will come right back into the district for redevelopment.”

While the TIF creates a direct link to investment and redevelopment in Aggieville, that same feedback loop exists throughout the city.

The levee improvements could give businesses and homeowners more confidence to invest in their properties, increasing tax revenue. The airport saw record use in 2019. If the North Campus Corridor helps lure thousands of new jobs to Manhattan, there will be new office buildings paying property taxes, new residents buying groceries paying sales taxes. That will take some time to sort out.

“It’s that return on investment,” Hatesohl says. “Is the North Campus stuff going to get us that return—going to get us all the extra sales tax, property tax, jobs that have been promised from NBAF? Or is it going to be $30 million and 10 years until we get any return from that? I need to get more information.”

Greg Doering is a writer and photographer at Kansas Farm Bureau. He resides in Manhattan, Kansas, with his wife, Amy.

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