KEPC WEEKLY UPDATE: Revenue, school payments, transpo cuts, school finance, ed funds, eco devo, Medicaid expansion, horn tooting

In this issue …

  • January revenue numbers out today
  • Without budget cuts, state can’t make payment to schools
  • Contractors, Economic Lifelines oppose highway cuts
  • Still no school finance framework
  • LOB bill would cut education funds this year
  • Audit says economic development programs are successful
  • Health care industry presses Medicaid expansion
  • Tooting our own horn


January revenue numbers out today

Kansas revenue collections for January are scheduled to be released today. Will they be up or down? The information could be crucial to budget discussions

January 15th was the deadline for the final estimated tax payments for 2014, which could be an important indicator about the state’s future budget outlook.

In what may or may not be related, the Senate Ways and Means Committee abruptly cancelled its meeting Thursday. One of the major items on the agenda was to take possible action on Senate Bill 81, the bill that “adjusts” current fiscal year spending.

Although it may mean nothing, such a cancellation suggests to many Statehouse observers that something is in the wind.

Without budget cuts, state can’t make payment to schools

The seriousness of the state’s budget problems hit home this week as Kansas lawmakers on budget committees were told that they need to hurry their work on the changes to the current year state budget.

Budget Director Shawn Sullivan said February payments to school districts will be affected if the rescission bill is not passed by February 17th. “In mid-February, cash flow gets tight,” Sullivan said.

This year’s budget (Fiscal Year 2015) is about $278 million dollars under water.

The House Appropriations Committee is working with House Bill 2133. The Senate Ways and Means Committee is working with a duplicate version, Senate Bill 81. The bills were sent to lawmakers by the Brownback Administration.

They are a combination of the Governor’s rescissions and supplemental appropriations to make the current year budget work.

The committees hope to have their bills out of committee and to the House and Senate floors by Tuesday.

The legislation picks up an additional $253 million from transfers to the general fund from their original purpose.

Here are some of the largest transfers in the legislation:

  • $158,479,087 – transferred from the KDOT State Highway Fund
  • $55 million – transferred from the Medical Programs Fee Fund of KDHE
  • $14.5 million additional transfer from the KPERS Key Fund (tobacco settlement money)
  • $5,219,827 – transferred from two vehicle funds at the Revenue Department
  • $7.1 million – saved from a reduced transfer to the Job Creation Program Fund of the Impact program
  • $4,200,000 – transferred from the Department of Aging (includes $1.2 million from the Problem Gambling and Addictions Grant Fund)
  • $3 million – transferred from the KDHE Underground Storage Tank Redevelopment Fund
  • $3 million – transferred from the Workers Compensation 2nd Injury Fund (NOTE: On Thursday in the House Appropriations Committee, Rep. Mark Hutton successfully offered an amendment in the House version of the bill to remove it. It is still in the Senate bill as of this writing).
  • $1,400,000 – transferred from the Department of Wildlife, Parks and Tourism (road and bridge funds)
  • $1,123,083 – transferred from the Economic Development Initiatives Fund
  • $1,000,000 – transferred from the Medicaid Fraud Prosecution Revolving Fund in the Attorney General’s budget
  • $500,000 – transferred from the Children’s Initiatives Fund

As I heard one legislator who serves in a leadership position admit this week, “We’re running out of money.”

Individual Republican House members say they are already being pulled into meetings with leadership urging them to vote for the rescission bill they have not seen.


Contractors, Economic Lifelines oppose highway cuts

The $158 million transfer from the state highway fund proposed is about $50 million more than Governor Brownback originally planned to offer. The additional money was reportedly added to help the state make payments to school districts on time in February.

The Kansas Contractors Association and Economic Lifelines, the state transportation coalition, both objected in written testimony submitted to the budget committees.

Kansas Contractors Association Executive Vice President Bob Totten said in his testimony that roads in Kansas could end up looking more like Missouri if the program is cut.

Totten said, “That s not good news for Kansas as many studies show that deferring maintenance is a poor infrastructure business decision from an engineering and cost/benefit perspective, and deferred costs will increase due to inflation. Contractors, suppliers and businesses will be directly impacted, many will be forced to lay off employees, and others may close..”

He added, “We believe that in addition to filling the budget holes in the coming years, projects in 2018, 2019, 2020 are at risk.”

Many contractors were at the Statehouse this week making their case known to individual legislators. As a group, they watch what’s happening with KDOT projects very closely. Their take is that a lot of routine maintenance will be delayed in order to be able to say the major projects promised will still be completed. They are also reiterating that jobs will be lost and some of them will go out of business.

As yet, there is no information on what specific projects will be delayed for FY 2015 and FY 2016 or what maintenance will be put off. Such a listing would likely lose votes for the rescission bills. In the House Appropriations Committee Thursday, more specific information was requested about the impact on projects.

Economic Lifelines Co-Chairman Johnnie Koger said in his testimony, “If we continue down this path of diverting T-WORKS funds to meet general fund shortfalls, there will be significant detrimental impacts, including lower job creation and higher costs to maintain the road network vital to our farms and businesses.”

In urging opposition to the transportation cuts, Koger said, “Cuts to transportation work at cross purposes with economic development opportunities for all Kansas businesses and ultimately affect safety on our highways.”


Still no school finance framework

There is still no word on how the Governor plans to distribute school finance money into “block grants” to school districts, while the school finance formula is suspended and a new formula developed. Legislators were told by Budget Director Shawn Sullivan that the Governor’s Office is still working on the distribution legislation.

As we told you last week, the Kansas State Department of Education states the proposal would result in $127 million less being spent directly on K-12 education in schools between FY 2015 and FY 2016.


LOB bill would cut education funds this year

A bill that changes Local Option Budget authority of school districts (Senate Bill 71) is being opposed by the education community.

The measure would cut this year’s K-12 budgets by an estimated $39.1 million. That’s approximately eight percent of state aid and 3.7 percent of adopted Local Option Budgets, according to the Kansas Association of School Boards.

The least wealthy districts in terms of assessed valuation per pupil would receive the biggest cuts.

Want to know how much your school district loses under this bill?

Here’s link to the State Department of Education web site listing. Click on the link and find your county and school district. The loss of funds will be in column 6. The file may take awhile to load.

The bill was introduced by the Senate Ways and Means Committee this week. A scheduled hearing in the committee was postponed on Thursday.

The committee chairman, Senator Ty Masterson (R-Andover), had scheduled possible final action on the bill for Tuesday.


Audit says economic development programs are successful

While waiting for budget decisions, several committees of the legislature have been reviewing a Legislative Post Audit of the state’s major economic development programs.

The verdict of the audit is that the programs have been successful.

The audit says the programs, “…appeared to yield positive returns on investment in terms of tax revenue generated for state and local governments.”

Other findings:

  • All programs appeared to generate a positive return on investment, which means that tax revenue programs generated exceeded the incentives they contributed.
  • The programs also appeared to generate more tax revenue in Kansas than an across-the-board tax cut equal to the incentive.
  • Of the 42 projects evaluated, the number of jobs created or retained had a more significant effect on return on investment than a project’s capital investments.
  • The likelihood a project occurred as a direct result of state and local incentives had a significant influence on rate-of-return.
  • A few projects involved companies that either closed or left the state, but the return to Kansas was still positive.

Here’s a link to the summary of the audit.


Health care industry presses Medicaid expansion

The pressure is growing on resistant Kansas legislators to consider Medicaid expansion under the Affordable Care Act, even though anything to do with Obamacare is considered a political lightning rod in Kansas.

This is happening as more Republican governors find a way to accept expansion.

Governor Mike Pence of Indiana announced Tuesday an expansion that uses federal funds to remake Medicaid in the state has been approved by the federal government. Enrollment in Indiana’s expanded Medicaid starts immediately and coverage begins February 1.

Much of the discussion in Topeka is in the House Vision 2020 Committee, chaired by Representative Tom Sloan (R-Lawrence). Sloan has scheduled meetings where health care industry leaders in Kansas have made their case for expansion, which is purposely being called KanCare expansion.

This week, the President and CEO of Via Christi Health, Jeff Korsmo, talked about the advantages. Korsmo said KanCare expansion would increase federal spending in Kansas by $2.2 billion from 2016 to 2020. He said Via Christi had to figure out a way to pay for $40.9 million in charity care in 2014.

Tom Bell, President and CEO of the Kansas Hospital Association said the group has statistics that illustrate the program pays for itself over time. He said 60 percent of those who would be covered are working.


Tooting our own horn

Since no one else will do it, we wanted to remind you that we have been right about a lot of things recently.

On January 14, the day before the Governor’s state of the state message and two days before he released his budget proposal, we made these predictions in the KEPC Newsletter:

“… the Statehouse grapevine is concluding that increased cigarette and liquor taxes will be in the mix.”

“Other speculation centers on speeding up the elimination of certain income tax deductions.”

“There has been some behind the scenes discussion in the Senate about changing the way the 2012 and 2013 income tax legislation works.  Instead of gradually reducing the rates until 2019, then diverting the excess of 2% into more income tax cuts, the rates would freeze at current levels.”

We accurately predicted a rainy day fund, or budget stabilization fund as the Administration calls it, would be part of the proposal. Our percentages were off a bit, but the mechanism was accurate when we predicted that revenues over a certain amount would go into a rainy day fund, then toward income tax reductions.

Since 2013, we have been predicting that the state general fund budget for Fiscal Year 2016 would be in significant trouble, with revenues much less than expenditures. We saw this coming due to the 2012 and 2013 Kansas income tax cuts. It turned out to be much worse than we imagined.

At the same time, we were wrong about the Fiscal Year 2015 budget, which we thought would have an ending balance at zero or slightly above. We knew there would be trouble, but were surprised when the consensus revenue estimating group pegged the problem at $280 million below a zero ending balance in the state’s checking account.

We don’t have a crystal ball. We just looked at the projected future budgets and compared them with projected future revenues. All this information was available from the legislature’s own staff.

At the same time, we could see from job growth information that’s available to anyone that Kansas was and continues to lag behind the region in recovery from the Recession.

Now if we could just predict the score of the Super Bowl.