Johnson County advisor outlines effects of SB 1 on property tax revenue; council sets conservative 2026 budget guidelines

Johnson County financial adviser Mike Reuter told a special joint meeting of the Johnson County Council and Board of Commissioners on June 25 that recent state legislation will substantially reduce local assessed valuation and shift revenue decisions toward local option income tax (LOIT/LIT) choices, creating multi-year fiscal planning challenges for the county.

Reuter opened his presentation by summarizing how “Senate Bill 1” and the House amendments—particularly language attributed to Representative Thompson and follow-up fixes in what he called the Department of Local Government Finance (DLGF) bill—change homestead supplements, introduce a new homestead credit and widen deductions for rental and agricultural property. “They took a very complicated system and they doubled down on it,” Reuter said, explaining those changes will reduce assessed valuation (AV) and move more revenue decisions to income-tax-based options for counties and municipalities.

Why this matters: Reuter estimated the county could lose roughly $2,000,000 annually from the new homestead credit alone and several million more when combined with circuit-breaker effects. He said the county can adopt up to a 1.2% local option income tax for itself and that municipalities also can adopt rates up to 1.2%, creating divergence in revenue across jurisdictions. Reuter urged the council to consider whether to use LOIT capacity to replace lost property-tax revenue and to weigh the political choices that follow.

Major points from Reuter’s presentation

- Homestead and credits: The supplemental homestead deduction will phase toward a much larger share of assessed value in later years; Reuter said the new homestead credit will be a “true loss of revenue.” He estimated the county’s share of the new credit to be about $2 million per year (estimate subject to certification next spring).

- Business personal property and farm ground: Reuter described staged increases in business personal property exemption thresholds and a lower capitalization rate for farm acreage; both reduce taxable base in future years, particularly hurting rural jurisdictions dependent on farm ground as their tax base.

- Local option income tax (LIT/L OIT) changes: The county can adopt up to 1.2% LIT (previously a combined model shared among units); Reuter ran back-of-envelope numbers showing how much of the 1.2% the county would need to adopt to replace specific revenue lines (for example, roughly 0.27% of the 1.2% to approximate general-fund receipts discussed in his model).

- Growth appeals and timing: Reuter said guidance from the Department of Local Government Finance leaves the current growth-appeal process in place for 2026 and 2027 (but effective changes in the new LOIT model will start for 2028). He recommended Johnson County try to secure a growth appeal for the coming year because the prior-year property tax drives next year’s LOIT distribution under the current model.

- Bridge and highway funding: Working with Highway Supervisor Luke Masten, Reuter included a modeled $3,000,000 annual levy for cumulative bridge needs as a starting point for planning. He noted that the county previously transferred the old bridge-fund cash to the general fund and explained options for reestablishing or reappropriating that cash in future budgets.

Council budget guidance and procedural decisions

After questions and discussion, council members reached a consensus on preliminary budget guidance for the 2026 budget cycle: they will not hold the separate multi‑day budget workshops used in some prior years; instead individual council members will meet with assigned liaisons and departments before first reading. The council also directed that departments use zero-based budgeting for non-personal-service lines and set a preliminary guideline of a 3% budget assumption for employee pay (personal services) as a conservative starting point to be revisited when the wage‑and‑classification (WIS) study and updated revenue figures arrive.

Reuter and staff stressed the preliminary nature of many numbers: he said the county should have a certified assessed valuation available around August 1, and the full impact of the new homestead credit will not be known until next spring when tax abstracts are completed.

Quotes attributed in meeting

- “They took a very complicated system and they doubled down on it,” Mike Reuter said describing the legislation’s effect on tax calculations.

- On the new homestead credit, Reuter said it is “a true loss of revenue” and that the county’s share is his rough estimate of about $2,000,000 annually.

- Highway Supervisor Luke Masten confirmed the county still has approximately $1.3 million in general‑fund cash that formerly lived in the cumulative bridge fund and said that cash can be used for projects underway but cannot simply be moved back without an appropriation process.

Next steps and outlook

Reuter asked the council to treat the current presentation as an early, conservative model and said the county has time to adjust choices before 2028’s LOIT model change. He recommended waiting for certified AV in August, incorporating departmental budget submissions, and reviewing the WIS pay and classification report when it is available in July. Council members emphasized conservative planning, noting Johnson County’s relatively strong cash position but highlighting the need to avoid “knee‑jerk” reactions while preparing for multi‑year revenue shifts.

Votes at a glance

- Council/Commission consensus: No separate budget workshops this year; individual liaison meetings with departments instead (consensus agreement recorded in the meeting).

- Council guideline: Preliminary 3% assumption for employee pay (personal services) and zero‑based budgeting for other categories (consensus/direction recorded).

- Motion to adjourn: Moved and seconded at the close of the meeting; the meeting was adjourned.

Ending

County staff and the financial adviser will update the fiscal plan as certified assessed valuation and final WIS study figures arrive; the council scheduled the formal readings and public hearings under the ordinary timetable described in the meeting material and instructed departments to prepare budgets consistent with the guidance given.