Cities take hit from Sprint refunds

By: Loren Stanton, Staff Writer

A blow to state and county tax revenues also is being dealt at the city level.

The Sun reported last week that a large and unexpected tax refund due a major Johnson County corporation would cause a $22 million shortfall in state revenues this year. Cities also have been notified that they will be affected by the refunds.

Overland Park City Manager John Nachbar has informed the City Council that revenue projections for the next five years must be lowered by about $26 million because of the repayment.

Nachbar is legally prohibited from naming the company involved, but an official for Overland Park-based Sprint confirmed last week that the corporation had requested and received from the state authorization for a significant refund.

Other cities in the county also have been notified by the Kansas Department of Revenue that they will be affected by the rebates. But the amounts in those other communities are considerably less dramatic than the one Overland Park is experiencing.

Lenexa Finance Director Doug Robinson said his city plans to make up for its estimated $1.4 million refund expense this year completely with reserve funds. Lenexa was hit harder than most other area cities because it also is home to some Sprint operations.

Sprint apparently overestimated how much it would owe in what is called a compensating use tax. The fee is applied to property shipped from out of state to consumers or companies for use or consumption in Kansas.

“This is causing no immediate cash flow problems, because we have strong (monetary) reserves,” Nachbar said. “But it means we need to adjust our projections on expenditures to match the revenues we have.”

Cities do not need to write a check to pay the rebate. Instead, Nachbar explained, compensating use tax revenues that are paid in the future to the state will not be distributed to cities. Those new revenues will instead be used to pay the refund.

Overland Park’s budgets for the remainder of 2008 and for all of 2009 will be deprived of an estimated $13.6 million because of the refunds. The city’s revenue projections for 2008 through 2013 are being lowered by about $26 million.

As a result, the city either will need to reduce its planned expenditures over that period or find other sources of revenue. In a written report to council members, Nachbar suggested doing a little of both.

Among the spending cuts offered as options were to delay construction of two roadway projects on 159th Street. A $1.16 million improvement between Pflumm and Quivira roads could be delayed one year to 2012, and a $4.4 million project between Antioch Road and Metcalf Avenue could be delayed two years to 2012.

Among revenue increases recommended for consideration was a hike of $20 per case in court costs charged in Municipal Court. That would generate an estimated $2.5 million over five years. Other possible fee hikes and how much they would produce over five years include ambulance transport fees, $1 million; building permit fees, $4 million; and excise taxes, $1.35 million.

Among cost-saving options offered but not recommended was returning to an unpopular road maintenance process. Several years ago the city responded to citizen complaints about the “chip seal” method of preserving streets. The process involves spreading oil and rock on the road, thus leaving a rough surface. Residents favored, and the city converted to, a more costly process called microsurfacing, which provides a much smoother surface. Returning to the rougher roads to get past this rough patch revenue-wise would save $2.5 million over five years.

The City Council is scheduled to meet July 21 to discuss the tax refund’s impact and how the city will respond.