What could happen if HB 2745 is NOT vetoed by the governor
On Friday evening, the Kansas Legislature passed S Sub HB 2745 that allows voters (through a protest petition signed by 10% of voters) to effectively veto a budget with property taxes increased beyond the CPI (inflation index), or 3%, whichever is lower.
If not vetoed by the Governor, a number of financial risks could arise for local governments, including …
- Cumulative Revenue Erosion: Because the 3% cap acts as a bottleneck during years of high inflation (it was 8.0% in 2022), property tax revenue could quickly fall behind actual costs, creating a permanent ever-growing revenue gap.
- Loss of the “Gold Standard” in Municipal Bonding: The bill restricts the ability of local governments to issue unlimited tax general obligation (ULTGO) bonds backed by the issuer’s authority to levy property taxes as necessary in order to ensure repayment of principal and interest due in-full and on-time.
- Bond Rating Downgrades: The bill could trigger downgrades of municipal bond ratings, making it harder for cities and counties to secure affordable financing for infrastructure and other critical projects.
- Higher Debt Service Costs: The loss of ULTGO authority would result in higher interest rates on future borrowing, increasing long-term debt service costs and placing additional strain on already limited local budgets.
- Difficulty Selling Debt: With the loss of ULTGO authority, selling debt at reasonable interest rates may become difficult, if not impossible (especially for small and medium sized cities) leading to increased borrowing costs and limited access to capital markets.
- Existing Debt: Existing obligations that depend on planned future tax revenue could require cuts to essential services, such as police, fire, or public works.
- Mid-Stream Project Terminations: Projects that are currently underway but not yet fully bonded could be forced to stop, resulting in “half-completed” infrastructure and wasted investments if future funds dry up.
- Canceled Planned Projects: Any planned projects may have to be canceled if bond funding can no longer be secured, stalling community development and improvements.
- Returned Grants: Grants already awarded to local governments might need to be returned if they require a local funding match that is no longer feasible.
- Loss of Economic Development and Housing Opportunities: Without access to financing, cities may be unable to support or attract new businesses and housing development, undermining job creation, housing availability, and local economic growth.
If the Governor does veto this bill, the Legislature still could attempt an override or additional legislation for the remainder of the 2026 session.
To discuss specific projects or concerns, contact your Ranson Financial Municipal Advisor.
