KEPC UPDATE: Income tax bill, cuts & tax debate, S&P bonds downgraded, economist, Medicaid expansion, STAR Bonds

In this issue …

  • House Tax kicks out an income tax bill
  • Senate delays cuts and tax increase debate
  • S & P moves Kansas bonds to negative
  • Economist questioned about tax policy
  • Medicaid expansion hearings continue next week
  • Intense STAR Bonds review next week


House Tax kicks out an income tax bill

By a bi-partisan vote of 13 to 9, the House Taxation Committee has passed House Bill 2178, which is now a tax reform bill that is designed to help Kansas get out of its budget problem.

Here’s what’s in the bill as we understand it:

  • The business tax exemption is eliminated
  • A third tax bracket is added of 5.45 percent. It applies to single taxpayers that make more than $50,000 and married taxpayers that make more than $100,000
  • The bill is retroactive to January 1 of this year
  • Medical deductions (which were eliminated previously) are restored at 100 percent
  • The so-called March to Zero trigger mechanism that lowers income taxes in the future is eliminated

Here’s the committee vote:

Voting for:  Sawyer, Wolf-Moore, Concannon, Ruiz, Burroughs, Proehl, Alcala, Ohaebosim, Francis, Eplee, Gartner, Kelly and Phillips.

Voting against:  Williams, Themesch, Rafie, Mason, Corbet, Davis, Hawkins, Rahjes and Smith.

The bill now goes to the full House of Representatives for debate.

We do not know how much money the bill raises exactly.  However, it appears it will be much more than the proposal the Senate was to debate Thursday, but postponed.

Senate delays cuts and tax increase debate

Meanwhile the Senate’s day was not as productive.

On Thursday, the Kansas Senate unexpectedly postponed debate on a bill to cut the current budget.  Leadership said there are not enough votes to pass the legislation.  Senators are being given the weekend to think things over and talk to constituents.

The legislation, SB 147, would have imposed a 5 percent cut on school districts and 3 percent on higher education.  Support began to falter when senators saw school finance runs that showed what would happen to the school districts they represent.

Statehouse observers and lawmakers had expected a long day of debate.  All Senate committee meetings for the day had been cancelled.  Behind the scenes strategies included reducing the cuts to three percent for schools, but even that failed to gain the 21 votes needed when senators were surveyed.

A second bill that was scheduled for debate would have increased income taxes and eliminated the business income tax exemption.

Senate President Susan Wagle (R-Wichita) and other Republican Senate leaders said because the situation is serious, no bills would be considered for passage until the budget solution is advanced in the Senate.  Kansas faces a $320 million shortage to fund the current year (FY 2017 budget).

In a curious related event, the Senate Assessment and Taxation Committee held a quick meeting afterward where a series of bills were introduced, perhaps to either raise money or put pressure on some senators to support the cuts.

The bills introduced included:

  • A three year moratorium on PEAK (Providing Employment Across Kansas)
  • A three year moratorium on HPIP (The High Performance Incentive Program)
  • A three year moratorium on new STAR Bonds (Sales Tax Revenue Bonds)
  • A bill that returns pass through wages to income tax
  • A bill that allows medical expenses to be deducted on state income tax
  • A bill that taxes Regents employees retirement, an issue that has been floating around in discussions


S & P moves Kansas bonds to negative

The bond ratings agency Standard and Poor’s has reportedly revised Kansas’ credit outlook from stable to negative.  The reason given: weak economic trends and “structural budget pressures.”  Standard and Poor’s downgraded Kansas credit rating in July.

According to a story in the Lawrence Journal-World, S & P Global Ratings ranks Kansas bonds as AA-.

The newspaper says, “Only three states – Illinois, New Jersey and Kentucky-have lower S&P ratings than Kansas.”


Economist questioned about tax policy

The House Taxation Committee, in an effort to get a handle on good tax policy, brought in Wichita State University economist Dr. Ken Kriz this week for a session of Q and A.

Kriz is the Distinguished Regents Professor of Public Finance at WSU.

During questions and answers, Kriz said there is no tax you can increase and not have a negative effect.  Some are less negative than others.

Kriz also said taxes are usually not a huge part of how people or businesses make their decisions.  It’s more about regulations and quality of life.


Medicaid expansion hearings will continue next week

Three days of Medicaid expansion hearings were held in the House Health and Human Service Committee this week.  The bill is HB 2064, the KanCare bridge to a healthy Kansas program.  Supporters packed the hearing for two days.  Opponents were heard Thursday and will continue next week.

It appears likely that the committee will be allowed to debate, amend, and vote on the bill, possibly next week.


Intense STAR Bonds review next week

STAR Bonds (Sales Tax Revenue Bonds) will expire this year without legislation to continue to program.

Sales Tax Revenue (STAR) Bonds provide Kansas municipalities the opportunity to issue bonds to finance the development of major commercial, entertainment and tourism areas and use the sales tax revenue generated by the development to pay off the bonds.

The program has been somewhat controversial because some lawmakers fear it is diverting sales tax revenue that would otherwise flow to governments.  Supporters say the developments would not take place without STAR Bonds.  Projects like Village West and the NASCAR Track in Wyandotte County have used STAR Bonds, as well as tourist attractions like Strataca, the underground salt mine museum near Hutchinson.

The Senate Commerce Committee will hold informational meetings next week on STAR Bonds and whether changes need to be made to them before the legislation is renewed.


Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.