Westwood, Kansas: a capital conundrum

Authored by Ben Hart

Merriam-Webster's definition of a conundrum is, "an intricate and difficult problem; a question or problem having a conjectural answer. One City in the Kansas City metropolitan area was faced with a capital conundrum: streets and storm systems built in the 1960s and 1970s that have reached or surpassed their lifespans. The conundrum was how to apply a new resource to the problem the City had never been able to tackle.

First a little background. The City of Westwood Kansas is a first-tier suburb of the greater Kansas City metropolitan area. Both a residential community of approximately 1,700 people and a city of business and commerce as it is home to several University of Kansas Hospital facilities including the Richard and Annette Bloch Cancer Care Pavilion, and other corporate office and retail businesses.

The City's operating (General Fund) budget is approximately $2.7 million. The City provides for parks and recreation, public works (streets and stormwater), and police services. The only utility fund the City maintains is its stormwater utility funded by a storm water utility fee. In addition to the City's operating budget residents were facing nearly $5 million in street rehabilitation and stormwater capital projects in the city's five-year capital budget. Of that total $1.8 million were high priority projects identified by the City in either a failing or already failed status.

In the fall of 2017 Baker Tilly was hired through and RFP process to assist the City in coming up with a strategy to answer its capital problem. The first step of the strategic planning process had already been completed by the City - identifying its highest priority projects - $1.8 million which the city did not immediately have available.

The next step for the city was to evaluate its options to proceed with the $1.8 million in projects immediately. Baker Tilly, along with the City Administrator and Public Works Director discussed several options including:

• The CIP "Pay-as-You-Go": 
  
• Increase the Mill Rate / Property Taxes:
  
• Increase City Fees:
  
• Special Retail Sales Tax:
  
• Continue to budget approximately $200,000 per year, completing projects only as cash is on hand.  Downsides: Further delays needed projects, more expensive approach in the long run because construction costs/inflation will increase at a higher rate than the municipal bond interest rate.
• The current FY 2018 Westwood city property tax mill levy is 21.307 mills. For Westwood, 1-mill generates about $25,000 per year.
• The current storm water utility fee in Westwood is $1.00 per month, for every 500 square feet of impervious surface area on a property. This fee structure currently generates approximately $96,000 per year, that can only be used for storm water improvements.
• Westwood's current local rate of 1.0% is the lowest municipal sales tax rates in Johnson County.  In 2017 it generated about $430,000.

Over the course of the fall and late winter the city council held several meetings with Baker Tilly and city staff to evaluate the 4 options and ultimately arrive at a consensus in moving forward. The City selected a 1/2 cent sales tax to fund the infrastructure projects for several reasons.

• The City Council has the authority to increase the property tax mil rate, but that rate increase would only apply to Westwood property owners. In addition, to make substantial progress the tax rate would increase by just over 60%.
• Other users of Westwood streets, including the many thousands that live outside Westwood, would not contribute to an increase in the property tax mil levy. Sales tax would be paid by more than just those residents who call Westwood home.
• Lastly, the City Council felt that an issue this important should be the decision of the Westwood voters.
• A dedicated special infrastructure sales tax ensures that all money collected must be used ONLY for the infrastructure needs.

The city elected to use a mail in ballot process for the 1/2 cent sales tax decision. In Kansas cities can establish a special purpose citywide retailers' sales tax. In this case the special purpose would be used for its specific street and stormwater CIP. The sales tax goes into effect October 1, 2018 and sunsets after 10 years.

With 39% of the registered voters casting a vote the measure passed 81% Yes, 19% No. Conundrum solved.

For more information on this topic, or to learn how Baker Tilly municipal specialists can help, contact our team.

Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and wholly-owned subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities.