KEPC UPDATE: Education fix runs dry in 2020, state and fed tax changes create uncertainty, property tax lid in House.

In this issue …

  • Brownback education fix runs out of money by 2020
  • State income tax increase and federal tax cuts combine to create uncertainty
  • Local property tax lid bill may be debated in House soon
     

Brownback education fix runs out of money by 2020

Governor Sam Brownback said in his State of the State Message to the 2018 Legislature Tuesday that he wants the Legislature to comply with the Kansas Supreme Court decision on education by adding $600 million to education over the next five years. That immediately brought strong criticism from Brownback’s own Republican leadership in the Legislature, who said five years was too long and would force a tax increase in future years.

Brownback’s goals for the State Board of Education were:

  • 95 percent graduation rate
  • 75 percent of students should be continuing education after graduation
  • Accelerate movement to Kansas Can school redesign

Brownback’s five strategic objectives for K-12:

  • Higher average teacher pay than any surrounding states
  • Increase the number of school counselors and psychologists by 150 positions each year for five years, making a total of 750 new positions
  • At least 50 schools participating in Kansas Can school redesign project
  • Every high school should offer at least 15 hours of dual credit at no cost
  • Every high school should offer, at no additional cost, the choice of taking the ACT or WorkKeys assessment

Brownback called for the Legislature to put a constitutional amendment on the ballot to “stop the never ending cycle of litigation.

During budget committee meetings on Wednesday, Budget Director Shawn Sullivan did not offer any way to pay for the new spending other than normal growth of the budget. Lawmakers say that means the state will be have no money by 2020 to pay for the increased education spending.

Here’s a link to Budget Director Shawn Sullivan’s PowerPoint presentation on the budget to legislative committees this week.

 

State income tax increase and federal tax cuts combine to create uncertainty

The House Appropriations Committee and the Senate Ways and Means Committee began the session this week with an overview of the current budget, expected revenues, and economic conditions that could have an impact on what’s available for the state to spend.

Those two committees are the budget-writing committees of the Kansas Legislature.

Here are some of the interesting discussions from those meetings.

  • There is strong uncertainty about the timing of the 2017 income tax increase.

    The new law (SB 30) is officially expected to collect an additional $591 million by the end of Fiscal Year 2018. Because of the timing of the new law, plus the impact of the new federal income tax cuts, we won’t know whether $591 million is correct, or even close. Chris Courtwright of the Kansas Legislative Research Department told the House Appropriations Committee the state was “fairly blind” on what the new tax bill will collect. Here’s why.

    Special language provides that taxpayers will not be assessed any penalties or interest relative to underpayments associated with the restoration of tax to non-wage business income. That’s because restoration of that income tax was retroactive to the beginning of 2017 and the law did not pass until June of 2017. Legislators didn’t think it was fair to assess penalties and interest the first year because of the mid-year change.

    It’s estimated that $270 million of the additional estimated $591 million will be from non-wage business income. That’s about 45 percent.

    Because there’s no penalty and interest, business owners had a choice. They could pay estimated tax to lower their eventual burden when income taxes are due in April of 2018, or they could just wait and pay the entire amount when it’s due.

    But then President Donald Trump and Congress stepped in and passed federal income tax cuts on December 22, 2017. It’s believed that had an effect on payment behavior. Some of the new federal law, such as elimination of deductions for state and local taxes paid, probably caused some businesses to make estimated payments in 2017 to take advantage of the federal deduction before it disappeared.

    The Kansas Department of Revenue and others in state government believe that $60 million in 2017 estimated payments may be attributable to the behavior caused by the new federal tax law.  In addition, fewer taxpayers will be able to itemize deductions under the new federal law.

    When will we know whether the estimates are high or low and how much money the state will take in from the 2017 Kansas income tax changes? Legislative staff says it will probably be June 30, 2018, the last day of the Kansas Fiscal Year.

    Coincidentally, that’s the deadline the Kansas Supreme Court has given the Legislature to bring the state into compliance on K-12 school spending.  The inability to know exactly how much the state income tax increase will bring in makes lawmakers’ work very difficult.

  • The Kansas economy is not growing as fast as the national economy and might actually be slowing.

    When it met in November, the state’s consensus revenue estimating group downgraded Kansas economic growth and personal income growth. That’s due largely to a perceived downturn in agriculture and oil and gas production and prices.

    Kansas Gross State Product (GSP) for 2017 was reduced from 1.8 to 0.2 percent. The state’s economy is now expected to grow 1.5 percent in 2018 (compared to 2.5 percent for the United States).

    Personal income growth was reduced from 4.0 to 1.5 percent for 2017 and from 4.1 percent to 3.1 percent for 2018.

    Here’s a link to the full “long-form” consensus revenue estimate document.

  • Despite all the negative news, sales tax receipts were unexpectedly up at the end of the year.

    Total state receipts were up about $83 million since the November estimates. In an era where local and state sales tax is being eroded by Internet sales, sales taxes made a surprising recovery.

    The reason is a mystery.

    One possible explanation is that with the stock market climbing to record levels and the national economy improving, consumers confidence (and thus sales) are up.

 

Local property tax lid bill may be debated in House soon

Kansas Speaker of the House Ron Ryckman (R-Olathe) met recently with local government groups about continuing problems with the local property tax lid law.

Ryckman has reportedly agreed to bring up House Bill 2424 for debate.  That bill passed out of committee last May 12 and sits on General Orders, the agenda for debate in the House.

The bill would add an exemption to the property tax lid for cities and counties.  That exemption would be costs associated with employer contributions for social security, workers compensation, unemployment insurance, health-care costs, employee benefit plans, and employee retirement and pension programs.  Increased property taxes associated with those benefits would be excluded from the calculation used to determine the tax lid.

The tax lid law has been seen as a hindrance to local economic development efforts and denies local elected officials the flexibility to use property taxes to continue services and add new ones that local communities need and want.  The law also lacks coordination with budget timelines.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers. All of these bills are held over from 2017. As new bills of interest are introduced, I will add them to the list.

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.