KEPC WEEKLY UPDATE: Halfway – no school finance, revenue buffet, ag tax, unemployment, ROZ, arts districts

In this issue …

  • Legislature is at the halfway point; still no school finance plan
  • More tax bills added to the revenue buffet
  • Ag land property tax issue heats up
  • Unemployment Insurance bill passes the Senate
  • Is ROZ in trouble?
  • Arts districts tax credit hearing is next week

 

Legislature is at the halfway point; still no school finance plan

The Kansas Legislature is now at the halfway point of the session, known as the “turnaround.” This week was the deadline for getting most bills out of their house of origin. However, several bills in the House of Representatives have been “blessed,” a process that keeps them alive when the Speaker of the House sends them to a committee that is exempt from the deadline rules.

Legislators are taking a very long weekend and will return to the Statehouse on Wednesday.

A bewildering phenomenon of the session is that over six weeks have now passed since Governor Brownback said he wanted to suspend the current school finance formula and replace it in the interim with block grants for school districts; yet there is still no bill, or even an outline of how that will work.

It’s unclear if districts will be held harmless or receive less money. It appears that new obligations will be placed on districts to fund locally what has been funded by the state previously. It also looks like certain categories of aid will disappear.

The amount of money Governor Brownback wants to spend is clear, but the impact on local school spending and how the money will be distributed is not.

 

More tax bills added to the revenue buffet

So many new tax increase bills have been introduced in the past few weeks, it’s hard to keep track. Most are not scheduled for a hearing, but appear to be on the back burner for later, in case they are needed.

In House Taxation Committee Wednesday, bills were introduced on:

  • A 10-year limit on property tax exemptions for renewable energy resources or technologies
  • A tax on aviation fuel
  • Tax rates on businesses with or without employees
  • STAR bonds and urban development

Also this week, we saw a bill in the House (HB 2392) that is the twin to a Senate Bill (SB 260) that taxes passive income. As I wrote earlier in the week, the bills seem to reverse some of the income tax cuts for business by taxing certain income from rental activity or business activities in which the owner does not materially participate. It could include property income or rent income.

There is a hearing in House Taxation next week on HB 2307, which includes many of the Governor’s proposed tax changes. The bill includes a tax amnesty program, accelerated reduction of income tax deductions, setting up a budget stabilization fund, and changing the mechanism for cutting income tax rates in the future.

That bill also includes the sort-of “freeze” on income tax rate reductions.

 

Ag land property tax issue heats up

Although hearings are not scheduled on it, the bill that increases property taxes on agricultural land (SB 178) continues to be a hot topic of discussion. Farm groups are fighting the change, saying it will devastate the industry and rural communities.

The current system uses an eight-year average to determine value for tax purposes, as well as net income. House Bill 178 changes that to a five-year average, based solely on cash rental rates.

According to an Associated Press story on the legislation:

“The Kansas Department of Revenue estimates the state would collect an additional $173 million in property taxes, while counties, school districts and local communities would take in an additional $717 million, a total annual increase on agricultural land of $890 million. Increases would vary county to county and by the type of land, and owners would see an average statewide property tax increase of 569 percent on each irrigated acre.”

The issue is being pushed by State Senator Jeff Melcher (R-Leawood) who reportedly promoted it at a special meeting of the Johnson County Legislative Delegation over the weekend. The issue has the potential to split rural and urban Republicans in the legislature and we have heard rumblings that some Republican senators exchanged words over the issue on the Senate floor.

The House Agriculture and Natural Resources Committee has scheduled an informational presentation for Wednesday afternoon on use value appraisal of agricultural land by staff from the Kansas Department of Revenue. No doubt that’s a reaction to the push for the Senate bill.

The bill is seen by many as a way to make up for revenue lost by the income tax cuts.

 

Unemployment insurance bill passes the Senate

Changes to the state’s unemployment insurance (UI) tax have passed the Kansas Senate and are headed for the House of Representatives.

The proposal moves from an “arrayed” system to a “fixed” system, based on an employer’s experience rating that reflects their usage of the unemployment system. Many businesses have complained they have had no claims or few, yet pay big UI taxes.

The bill came out of the Senate Commerce Committee, which added language suggested by the Kansas Department of Labor, which supports the change, but was concerned about the rates and how they affected the solvency of the unemployment insurance fund.

You can read the supplemental note on the bill, which is kind of layman’s explanation, here.

 

Is ROZ in trouble?

The effectiveness of the Rural Opportunity Zone (ROZ) program in Kansas is being questioned by some lawmakers concerned about its cost. The program is scheduled to sunset without legislation passing that extends it.

77 Kansas Counties have been designated Rural Opportunity Zones. People who move to a participating county from out of state can have their Kansas income tax waived for up to five years. They also qualify for a student loan forgiveness program.

At least three urban Republican legislators on the Senate Commerce Committee are questioning the usefulness of the program.

Here’s a link to a Topeka Capital-Journal story on the Commerce Department meeting.

 

Arts districts tax credit hearing is next week

A hearing is scheduled in the House Federal and State Affairs Committee next Thursday for a bill that establishes arts and cultural districts. It’s House Bill 2368.

Any city can establish one or more of these districts for the purpose of supporting the arts and cultural venues. The city can grant a property tax credit against the real property taxes on any building or improvements to facilities located in the district, so long as they qualify for use by a qualifying residing artist or an arts and cultural enterprise.

The bill says the tax credit cannot be granted for more than ten years and has to be prorated to reflect the portion of the building that qualifies. I guess that means if there’s an art gallery upstairs, but other businesses in a building, it’s the part of that the art gallery occupies that gets the tax credit.

The tax credit can’t exceed:

  • 80% of the property tax for the first five years
  • 70% for the sixth year
  • 60% for the seventh year
  • 50% for the eighth year
  • 40% for the ninth year
  • 30% for the tenth year