KEPC UPDATE: Perfect storm, school finance, flat income tax, senate budget, highway bonds, rescission, Medicaid veto

In this issue …

  • A perfect storm of issues
  • House committee builds school finance bill
  • House Tax Committee forwards “flat income tax”
  • Senate passes a budget
  • House budget includes highway bonds
  • Rescission bill agreement reached
  • Brownback vetoes Medicaid expansion
  • BILL TRACKING

 

A perfect storm of issues

Legislative leaders are beginning to call them “The Big Three.”  They are the big three issues of the 2017 Kansas legislative session and they began coming together this week with heavy activity on all three expected next week.

The Big Three are:

  • The budget
  • The income tax
  • School finance

The legislature is not meeting today (Friday) but will return for the final week of the legislative session next week.  At the end of the week, they will have what’s called First Adjournment.  After breaking for three weeks, they come back May 1 for the veto session.

Leadership in the House of Representatives hopes to see major advancement on a portion of all three big issues by the First Adjournment.

The senate has already passed a budget.

 

House committee builds school finance bill

Once the Kansas House of Representatives adjourned Thursday for their three-day weekend, the House K-12 Education Budget Committee began meeting to write a new school finance formula.

As of this writing, the committee was working into late Thursday evening.  It was apparent the committee would not finish a formula Thursday evening when at least one item was tabled until Monday.

The committee is using HB 2410 as a base.  That’s the bill that Committee Chairman Larry Campbell (R-Olathe) put forward with the help of House Education Committee Chairman Clay Aurand (R-Belleville).

As of this writing, the committee members appeared to be heavily amending the bill.  We will have to wait to learn (and understand) the results until all of the work is done and Kansas Department of Education officials have a chance to produce data that shows the impact on local school districts.

Among those who have successfully proposed amendments is Representative Melissa Rooker (R-Fairway).  Rooker has been very active on school finance and is considered a leader on the issue among Moderate Republicans and many Democrats.  On the Democrat side, Representative Ed Trimmer (D-Winfield) is considered the go-to guy on K-12.  He’s also deeply involved in the discussion.

KEPC will try to get you information on the bill as soon as possible.

 

House Tax Committee forwards “flat income tax”

After Governor Brownback’s veto of an income tax increase bill February 22, we’ve been waiting to see what’s next.  The House Taxation Committee waited for the Senate Assessment and Taxation Committee to come up with something but that hasn’t happened yet.

So, this week, the House committee has forwarded a “flat tax” bill to the full House of Representatives at the request of Speaker of the House Ron Ryckman (R-Olathe).  Democrats opposed the measure.  Many Republicans on the committee also don’t like the bill but were called in by the Speaker and urged to send it out to the floor for debate.

Here’s what’s in Substitute for House Bill 2395:

  • Business pass-through income would be taxed, retroactive to January 1, 2017
  • Certain non-wage business income losses could be claimed
  • There would be a single 5 percent tax bracket, beginning January 1, 2018 (current law has two brackets of 1.6 percent and 4.6 percent)
  • The “March to Zero” trigger mechanism that lowers rates in the future is repealed
  • Medical expenses would be allowed as itemized deductions. Those deductions were repealed in 2015 in an effort to save money
  • Standard deductions would be increased from $3,000 to $7,500 for single taxpayers; from $7,500 to $15,000 for married filing jointly; and from $5,500 to $11,000 for heads of household
  • The sales tax on food and food ingredients would be reduced from 6.5 percent to 5 percent on January 1, 2019
  • The food sales tax reduction would apply to bottled water, but not to alcoholic beverages, tobacco, candy, dietary supplements, soft drinks, or food sold through vending machines

The best guess on how much it brings in?

The Department of Revenue says the increase for FY18 (beginning July 1, 2017) is $373.7 million.  For FY19, the amount increases to $472.7 million.

The bill is expected to be debated in the house next week, but it is not listed on the agenda for General Orders on Monday.

The Ranking Minority on the Tax Committee, Representative Tom Sawyer (D-Wichita), is an accountant.  He quickly pointed out that some single taxpayers income tax liability would go up 29 percent and some married taxpayers with two children and $70,000 of income would see an increase of 48 percent in Kansas income taxes under the bill.

The Kansas Department of Revenue agreed with Sawyer’s calculations.

Some Moderate Republicans who voted to get the bill out of committee tell me they will not vote for it on the House floor.

The hallway talk is this bill will fail, but may have to be debated to move the process forward.  In addition to concern about income tax increases for lower income Kansans, the bill does not appear to bring in enough to meet the needs of the state, particularly for school finance.

Meanwhile, the Senate Assessment and Taxation Committee continues to discuss a similar flat income tax proposed by Senate Majority Leader Jim Denning (R-Overland Park).  That committee is scheduled to continue income tax discussion, beginning at 8:30 a.m. on Monday morning.

The Kansas Center for Economic Growth (KCEG) has put out an informational piece critical of flat income taxes.  It’s available online.

 

Rescission bill agreement reached

An agreement on the current fiscal year budget has been reached by House and Senate negotiators.

The current fiscal year for Kansas ends on June 30 and the budget is deeply in the red.  The rescission bill is HB 2052.  It does not cut K-12 or higher education.

It relies on transfers from the Pooled Money Investment Board (PMIB), to be paid back in six payments sometime in the future.  State KPERS contributions are reduced with further review of more KPERS contribution delays in May during the veto session.

Nobody really likes any of that, but the only other options are deep cuts.

A final vote on passage is expected next week in the House and Senate.

 

Senate passes a budget

While the Kansas House of Representatives was dramatically talking about Governor Brownback’s veto of Medicaid expansion Thursday, the Kansas Senate was passing a budget for the next two years. The vote was 25 to 15.

The spending in the bill, which funds Fiscal Year 2018 and 2019 budgets, is not currently supported by expected revenues.

Once an income tax increase is passed, along with a school finance bill; another bill will adjust everything to fit.  That’s most likely to come during the veto session in what’s called the Omnibus Appropriations Bill.  That’s the final catch-all bill of the session that balances everything.

The Omnibus bill is usually the final bill, or nearly final bill, passed in any legislative session.

 

House budget includes highway bonds

Meanwhile, the Kansas House Appropriations Committee has passed their version of a two-year budget on to the full House for debate.  That’s expected next week.  It is House Bill 2364.

Like the Senate budget passed on Thursday, it currently creates deficit spending, but relies on an income tax bill to be passed in the future.

Without more revenue, the House budget has a negative $248.6 million ending balance for FY18 and negative $237 million ending balance in FY19.

Like the Senate budget, the House version uses PMIB loans and delayed KPERS payments to balance the budget until new income tax revenue arrives.

Also like the Senate budget, it does not cut K-12 education or higher education.

There are two items of interest that provide some hope for highway supporters who have suffered through raids on the highway fund over the past years, delays of major projects, and a dramatic drop on basic preservation (maintenance).

The bill suspends the 18 percent limit on annual debt service to the highway fund for FY 2018 and 2019.  It also provides authority to bond an additional $400 million for KDOT, which would provide a much needed infusion of funds.

How bad is it?  During a little reported presentation to the Senate Ways and Means Committee January 25, KDOT predicted a substantial decrease in preservation projects under Governor Brownback’s proposed budget at that time.  KDOT officials said only $28 million was available for preservation projects, compared to $88 million in FY 2017.

The bonding authority will provide some breathing room and more attention to maintenance.

Expect a debate on the House floor next week on the two-year budget.  It is not on the General Orders list of bills for debate on Monday in the House.

 

Brownback vetoes Medicaid expansion

A rapid series of events on Medicaid expansion took place this week on House Bill 2044.

A week ago on February 23, the House passed the bill, 81 to 44. Here’s how House members voted.

The Senate passed the bill on Monday, 25 to 14.  Here’s how Senators voted.

Governor Sam Brownback vetoed the bill on Thursday morning.

Within minutes, opponents of Medicaid expansion in the House brought the matter up for a motion to override the Governor.  They weren’t trying to help the bill.  This was a parliamentary maneuver.

They didn’t want supporters to have the time to whip up support for an override.

After some discussion and motions, expansion supporter Representative Russ Jennings (R-Lakin) made a motion to lay the veto override on the table.  It passed 81 to 43 on an unrecorded vote.

That gives health care providers and other Medicaid expansion supporters the weekend to whip up support for a veto override.  It takes a majority vote (63) to bring the veto override vote back before the House.

Supporters of Medicaid expansion need 84 votes in the House to override a veto.  If successful, the override will go to the Senate, which must have 27 votes to override a veto by the Governor.

 

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.