Rural Kansas hospital missed out on $2 million in taxpayer funds that went to cities instead

Downtown Elkhart, Kansas, in September 2023. The city is one of three in the state's southwestern-most county that received nine years of taxpayer money meant for the local hospital. (Photo by Max McCoy/Kansas Reflector)

TOPEKA — People in one of Kansas’ southernmost counties noticed in 2014 their local hospital was struggling, so they voted to create a sales tax that would direct funds to keep their health care system afloat.

In the decade that followed, the Morton County hospital only received about half of the sales tax revenue it was owed, missing out on nearly $2 million.

The cities of Morton County received the money instead.

The Kansas Department of Revenue, for nine years, sent checks to Elkhart, population 1,726; Rolla, population 356; and Richfield, population 30, and the cities spent that money.

David Thompson, the county attorney, told a committee of legislators Tuesday in Topeka the clerical error that led to the misappropriated funds “was just an oversight — an accident.”

Rep. Ken Rahjes, a Republican from Agra, called the situation “head-scratching.”

Sen. Rick Kloos, a Berryton Republican, wondered how the cities didn’t realize they had extra money in their coffers for so many years.

“It just bewilders me how you can have that kind of money coming in that long of a period of time and somebody didn’t recognize,” Kloos said.

Thompson pitched the committee on forcing the state to pay the $1.9 million in lost revenue, without interest, to make the hospital whole.

But finger-pointing preempted solutions and the root of the problem.

“The county’s position is this is Department of Revenue’s mess,” said Thompson, who is also the Elkhart city attorney, “and we’ve already spent a lot of time and effort trying to clean this up.”

Republican Sen. Rick Kloos, back left, asks Morton County attorney David Thompson, right, during a Dec. 2, 2025, committee hearing in Topeka, Kansas, how three cities went nine years without realizing state checks weren’t meant for them. (Kansas Reflector screen capture of Kansas Legislature YouTube channel)

When the Morton County Commission put the voter-approved sales tax on ballots, it cited the law incorrectly. It used a statute’s subparagraph 1, a general tax provision, instead of subparagraph 5, which is dedicated to health care facilities. Under the first section, retail sales tax revenue should be distributed proportionally between a county and its cities. Under the fifth, revenue should be sent to a county, which then spends it on the health care facility.

The commissioners realized their error soon after ballots were cast. Before the retail sales tax became law in 2015, they passed a series of ordinances to try to fix it.

But the revenue department adhered to the initial iteration of the ballot measure, doling out about half of the countywide sales tax revenue to the county and the other half to its cities. The money went into the cities’ general funds. The mayor of Elkhart did not immediately respond to a request for comment.

Thompson acknowledged the county made a mistake. But it corrected that mistake, he said.

Kansas Attorney General Kris Kobach issued a nonbinding opinion in May that affirmed Morton County’s stance, concluding the will of the voters was to direct all sales tax revenues to the county hospital.

“The question here is whether the electors of Morton County understood what their vote meant on the ballot proposal,” Kobach wrote. “We believe they did.”

The county’s resolutions, formal election notices and the ballot question indicate that voters were aware they were being asked whether they wanted to fund the hospital through a sales tax, Kobach said.

Since Kobach’s opinion, monthly checks containing the full revenues have been delivered to the Morton County Hospital. They total about $36,000, Thompson said.

Richard Adams, who has been CEO of the hospital since August, said the recent checks doubled the previous amounts.

He said that money helps with overhead, operating costs and recruiting staff in an environment where rural hospitals across Kansas ride thin margins. All rural hospitals are struggling, said Adams, who was the hospital’s chief financial officer for two and half years before retiring and then returning to take the CEO role.

Hospitals vie for the same nurses and field the same cuts in Medicaid reimbursements. He said when a hospital disappears, a town tends to dry up.

“It feels like we’re just being squeezed from all directions,” he said.

He credits the local support of the hospital for keeping it afloat. It is the county’s largest employer, according to Thompson.

The recent increase in sales tax revenue provides a cushion. A $36,000 monthly check isn’t monumental, Adams said, but carrying that over 12 months makes a marked difference.

“From the hospital’s standpoint, if the funds were designated for the hospital and they were diverted or put somewhere else, then, yes, whoever made the mistake should own up and then the hospital should be compensated or made whole,” Adams said.

The revenue department has argued Morton County could seek reimbursement from the cities rather than the state.

“For me, the issue really goes back to what happened in 2015,” said Ted Smith, chief counsel for the state revenue department, at the Tuesday legislative hearing.

“And really was it a clerical error?” he said.

The department’s position, Smith said, is that the matter is “a little more substantial than that.”

He said the commissioners’ initial ordinance “sort of tied the department of revenue’s hands.” He argued the department doesn’t have the authority to assume the will of the voters and the county should have taken the matter to court.

Instead, Smith said, “I think both parties just sort of shrugged their shoulders.”

The legislative committee, which handles claims against the state, did not order the county to be reimbursed. Lawmakers voted to send the issue on to another committee, which could take it up in the 2026 legislative session that begins in January.

However, Rep. Marty Long, a Ulysses Republican whose district encompasses Morton County, said he will wait to take direction from the county commissioners. He said in an interview he plans to attend the commission’s regular meeting Monday, at which point he could decide whether to pursue legislation.

He said he has questions that need answered.

“I don’t like to look for fault in these kinds of things, but there was probably either a miscommunication or something happened,” Long said. “I haven’t gotten to the bottom of it yet.”