SOUTH HUTCHINSON, Kan. — The South Hutchinson City Council will have discussion of the 2023 budget at its meeting Tuesday night.
City Administrator Joseph Turner explained the consequences of the revenue neutral rate calculation in agenda documents provided to the council.
"The RNR refers to the amount of property tax revenue collected by the City via the mill levy. To stay “revenue neutral,” the City must collect the same amount of revenue in 2023 as it did in 2022.
"That means that if property valuations go up, the mill levy must be reduced. It also means that revenue from new construction added to the tax roll must be offset through a mill levy reduction to decrease total revenues.
"Taken to its logical extension and conclusion, a city will likely go bankrupt if it opts to never exceed the revenue neutral rate because ad valorem taxes are a significant share of the revenue generated in the general fund. Increases in the cost of doing business (e.g., inflation, salary increases, etc.) not captured by an increase in revenue from increases in county assessment valuations will eventually overwhelm the budget.
"Because the cost of doing business increases each year, a governing body must believe or be prepared to do the following if it truly wants to seek out a revenue neutral budget:
1. Believe that there is waste and inefficiency within the organization that needs to be rooted out and eliminated
2. Generate additional revenue by raising fees for various services/amenities
3. Be willing to cut expenses, programs, offerings, or staffing"
It is Turner's advice to the council that they not attempt to be revenue neutral this year.
"This organization as currently constructed cannot afford to go revenue neutral at this point," Turner said. " It is my recommendation that the Council declare its intent to exceed the RNR at the July 18th meeting."
He clarified that even if they decide to declare such an intent, that doesn't mean they can't go revenue neutral if they can figure out where to cut.
"Even if the governing body steadfastly believes in staying revenue neutral, there is a benefit to declaring an intent to exceed the RNR because it buys us more time to look at revenues and expenses before ultimately submitting our budget," Turner said.
The current mill levy in South Hutchinson is 43.500 mills. To stay revenue neutral, they would need to cut about $40,000 and reduce the mill levy to 41.886.