KEPC UPDATE: Tax cuts, ROZ, STAR Bonds & HPIP, school finance, cuts restored, transpo task force, bill tracker

In this issue …

  • Tax cut that failed contained ROZ and expensing expansion
  • STAR bonds and HPIP changes fail along with Ad Astra
  • Governor signs school finance measure
  • Budget restores some previous cuts
  • Lawmakers create transportation task force


Tax cut that failed contained ROZ and expensing expansion

The big tax cut measure worked for hours by a legislative conference committee failed by the thinnest of margins on the final day of the legislative session.  It barely passed the Senate and failed in the House on a 59 to 59 tie.

One estimate of the bill’s cost put it at $78 million for Fiscal Year 2019.

Along with changes that would provide that tax cut, the failed legislation also contained two economic development measures.

An expansion of the Rural Opportunity Zone Act would have extended the program to Cowley and Seward Counties.

The ROZ program provides for incentives to attract out-of state residents who move from other states.  They include tax credits equal to income taxes paid essentially wiping out any income tax liability.  The program also includes a component to help finance higher education but lawmakers purposely eliminated that from the expansion in this bill.

The bill would have extended the expensing program, currently only available to corporations, to all businesses.  The expensing program would have given those businesses the option of deducting expenses over a brief period of time, providing an economic benefit.

Both of those programs failed along with the tax cut bill.

The tax cut bill would have enacted certain benefits for Kansas businesses.

  • Global Intangible Low-Taxed Income (GILTI) – Under the new federal law, there could be an incentive for companies to shift profits abroad without generating any U.S. tax. GILTI is a provision that hopes to discourage this by imposing tax on foreign sourced intangible income.
  • Deferred foreign income – Federal law aims to encourage “repatriation” back into the U.S. of profits and assets held overseas by multinational corporations and their shareholders. Under the old law there were large tax incentives to keep corporate assets abroad to avoid paying U.S. taxes.  Bringing those assets back to Kansas would provide tax revenue to the state.  The legislation is designed to prevent that windfall.
  • Increasing standard deduction – The third piece of the legislation increases the standard deduction for individual taxpayers.

There are several other moving parts to the legislation that are difficult to understand.  There’s also the problem of not having a good handle on how much the bill cost the state in lost revenue.


STAR bonds and HPIP changes fail along with Ad Astra

The same tax conference committee that worked the federal mitigation bill is also considering some economic development legislation.  It’s unclear if they will all be put into one bill or somehow split up.

A late session bill that would have reduced benefits for STAR Bonds projects, as well as extended benefits past 16 years for companies receiving High-Performance Incentive Program credits, passed the House, but failed to receive a vote in the Senate. A year moratorium on new STAR Bonds projects expires on June 30, 2018.

Ad Astra Rural Jobs Act –passed the House 97 to 22 last year but not the Senate  It creates the Ad Astra Rural Jobs Act, which authorizes nonrefundable income tax credits for taxpayers who contribute to an approved investment company to fund a rural business concern in a rural area.  The bill was sent to the Senate Commerce Committee where it was never taken up.

HPIP- the High Performance Incentive Program provides tax incentives to employers that pay above-average wages and have a strong commitment to skills development for their workers. It creates a substantial tax credit for investments in Kansas as well as a related sales tax exemption.

Because so many companies have not yet claimed hundreds of millions of dollars in tax credits yet, the legislation would limit how much can be claimed, while extending the time the credits can be used.

STAR bonds – A proposal puts limits on STAR bonds (Sales Tax Revenue Bonds) beginning January 1 of 2019.  Local governments would have to dedicate 2 percent of their local sales tax to STAR bonds projects to put some “skin in the game.”  However, many cities don’t have a sales tax (like Wichita) and their legislators were opposed.  For example, Sedgwick County has a one-cent countywide sales tax, but the City of Wichita has no city sales tax.  We are told that Governor Colyer opposes STAR bond changes and is privately saying he might veto any bill that contains STAR bond limitations.

Incentives review – There was interest by the Senate in having some sort of review board to look at all the economic development incentives offered in Kansas and make recommendations for changes to the legislature.


Governor signs school finance measure

This week, Governor Colyer signed the controversial school finance bill that puts additional funds into K-12.  It’s now up to the Kansas Supreme Court to decide if it’s enough and if the bill fixes constitutional problems with school funding.  If it does not, the Court could force a special legislative session.


Budget restores some previous cuts

In one of its final acts, the legislature put the finishing touches on the budget.  It leaves a comfortable ending balance of $447 million for the rest of this year and $375 million for Fiscal Year 2019.

The bill restores many of the cuts from previous years.

Here are some of the highlights:

  • Adds $5 million for the National Institute for Aviation Research at Wichita State
  • Adds $1.7 million for Wichita State’s National Center for Aviation Training
  • Adds $15 million to restore 64 percent of the four percent reduction to the Board of Regents
  • Gives state employees a pay raise
  • Funds 23 highway projects that were delayed
  • KPERS payments for FY 2019 and 2020 are fully funded. In a previous budge they were delayed
  • After weeks of haggling, House and Senate negotiators agreed on membership for a transportation task force. Here’s a link to a description of the task  force and its membership.