Tax Study Released Today

A new study on the ramifications of lowering the state income tax was released today at a statehouse news conference. Bernie Koch, executive director of KEPC, and study author Dr. John Wong presented findings at the statehouse today. The study finds that, for every 1 job created, 1.63 are lost due to study released today finds that a lowering of the income tax would result in a loss of 1.63 jobs due to a reduction in overall state spending. The study was commissioned by the Kansas Economic Progress Council.

The press release is available here, and the ful text of the study is available here.

Dr. Wong’s slide deck is available here.

KEPC NEWS: Budget in the red; Gov raids highways, kids, eco devo; Tax Cmte struggles; Supreme Court; KEPC vs. AFP

In this issue …

  • Kansas budget is in the red
  • Governor raids highways, kids, economic development
  • Tax Committee struggles with exemptions and credits
  • Supremes thrash block grants
  • KEPC in the news


Kansas budget is in the red

What we reported in the KEPC News last month is now official. Kansas’ budget is now unbalanced, unstable, insecure, and just plain shaky as the result of the state income tax cuts.

The Consensus Revenue Estimating Group issued its new, lowered expectations for incoming revenue Friday. It predicted a $159.1 million decrease for the current fiscal year (which began July 1) and a $194.5 million decrease for Fiscal Year 2017.

State Budget Director Shawn Sullivan admitted in a news conference that means the state is essentially broke.

If you want to get into the weeds on this, here’s the official document put out Friday by the Division of the Budget.

This is the short version of the estimates. A more detailed explanation will be released in the next week or so.

Here are some of the points made at a news conference announcing the reduced expectations:

  • Farm revenue is down about 40%, according to Raney Gilliland, Director of the Kansas Legislative Research Department
  • Gilliland said U.S. personal income growth has consistently outpaced Kansas since the first quarter of 2014
  • Employment has slowed in Kansas and the labor force is shrinking, especially those workers 55 to 64 years of age
  • Sales and compensating use taxes are not performing. They are revised downward $111.2 million
  • Corporate income tax collections are revised downward $35 million
  • Severance tax collections are revised downward $34.8 million
  • The individual income tax expectations are revised downward $11.8 million
  • Cigarette taxes are revised upward $11.1 million

The sales and use tax performance is particularly troublesome, since the long-range plan of the Administration and legislative leadership is to use sales and use tax growth to replace the income tax.


Governor raids highways, kids, economic development

In response to the new lower revenue estimates, the Brownback Administration has announced actions to try to balance the budget.   Budget Director Shawn Sullivan estimated the budget now spends $118 million more than what’s expected to arrive in the state treasury.

The Administration has come up with $123.8 million in “adjustments,” which would theoretically result in a sliver of an ending balance, about $5.6 million.

That’s not really a cushion. It’s more like a piece of rice paper, amounting to less than 0.1 of a percent of the state general fund.

Here are the actions taken by the Governor to make the numbers balance.

Under Special Allotment Authority given in HB 2135, passed by the legislature in June:

  • The Governor takes an additional $47.9 million from highways. At the news conference announcing the changes, the total now taken from the Kansas Department of Transportation was pegged at $435 million. The Administration says this will not affect projects. However, normal road maintenance was already being delayed prior to this crisis.
  • $9 million is taken from the Children’s Initiative Fund. Kansas Action for Children says this will have a long-term impact on funding for children’s programs.

Listed under the Governor’s regular allotment authority:

  • $25.1 million is saved from revised Medicaid estimates
  • $3 million comes from a reduction in the Health Care Access Improvement Program (HCAIP). This is an annual assessment on certain health care providers that’s supposed to be used to improve and expand health care in Kansas for low income persons
  • $2.2 million in savings from the Department of Children and Families Kansas Eligibility Enforcement System, designed to determine who is eligible for certain benefits
  • $15.7 million in savings from revised estimates for K-12 KPERS requirements
  • $1.4 million from unused higher education scholarships
  • $2.5 million from a “fee fund switch” involving the Kansas Department of Aging and Disability Services at Osawatomie State Hospital
  • $2.7 million from overestimation of bond debt service costs

The Governor is also proposing cuts that will require legislative action, known as a rescission bill. In addition to an additional $2.3 million hit on the State Highway Fund, he is asking the legislature to pull funds out of three economic development programs.

  • $3.5 million in transfers from the Job Creation Fund
  • $3.7 million in a “lapse” of the Kansas Partnership Fund
  • $5 million reduction of funding for the Kansas Bioscience Authority


Job Creation Fund

The Job Creation Fund is sometimes called the “closing fund,” for economic development projects. It was started in 2011 and is funded by up to two percent of all Kansas employee withholding taxes that are not necessary for debt service on existing bonds or program administration.

The fund’s annual report for FY 2013 says it funded 18 projects totaling $10.9 million. One high profile example was the Mars candy plant in Topeka, which received $1.1 million as an incentive to locate in Shawnee County. Mars considered 17 states and over 80 sites before settling on the package offered by Topeka and Kansas. The plant makes Snickers and M&M candies.

The company invested $270 million in the new plant and currently employs 200 people, with plans to eventually reach 500. The company recently announced a $100 million expansion that will create an additional 70 jobs.


Kansas Partnership Fund

The Kansas Partnership Fund is a program to provide low-interest state funds to cities and counties for infrastructure improvements that support basic enterprises. Partnership Fund loans are designed to assist cities and counties in their efforts to attract new businesses and expand existing businesses.


Kansas Bioscience Authority

The Kansas Bioscience Authority invests in agribusiness, animal health, human health, and life sciences technical innovations. It brings experts in the bioscience business sector and co-investors together to accelerate company growth and jobs.

State funding has been dramatically scaled back recently, to the point where seven of the 13 staff members were laid off in July. New investment activity has been halted and there are concerns the organization won’t survive.

The Bioscience Authority is often credited with helping convince the federal government to locate the National Bio and Agro-Defense (NBAF) Facility at Manhattan. That’s a $1.25 billion dollar facility now under construction.

In addition to hundreds of jobs, NBAF is projected to bring an additional 40 businesses and laboratories to Manhattan and to generate an economic return of $3.5 billion to Kansas in its first 20 years.

Here is a July story in the Kansas City Star that outlines the dilemma facing the Authority.


Tax Committee struggles with exemptions and credits

The Special Committee on Taxation is learning that everything old is new again. That’s because the legislature has reviewed sales tax exemptions and income tax credits many times in the past four decades, resulting in few changes.

Some legislators are hoping to remove exemptions and credits to raise more money for the state budget. Committee members heard that the top 13 sales tax exemptions account for 96% of the total, estimated to be worth $6.5 billion in 2016.

The Committee met Thursday and Friday of last week. News of the drop in revenue estimates (see above) pretty much knocked the committee’s work out of the news.


Supremes thrash block grants

The Kansas Supreme Court held oral arguments Friday on the equity portion of the Gannon school finance lawsuit. A lower court had ruled in June that the temporary block grant system for K-12 education approved by the legislature is unconstitutional.

Justices had harsh questions for the state’s attorneys who were attempting to defend the block grants, leading many knowledgeable observers to conclude that the lower court ruling will be upheld. In particular Justice Marla Lukert and Justice Dan Biles peppered the state with constitutionality questions.

Another line of fascinating questions was about what action to take if the block grants are held to be unconstitutional. That would oblige the State of Kansas to add about $54 million in funding to K-12 for the current fiscal year and add to the Governor and Legislature’s budget woes.

The question was taken under advisement. There’s no indication of when a decision may come.

Meanwhile, arguments on whether the state is putting enough money into K-12 will be heard before the Kansas Supreme Court next spring. That could result in a requirement that Kansas add an additional $500 million to public education.


KEPC in the news

On Wednesday of last week, I made a presentation to the KARL (Kansas Agricultural and Rural Leadership) Graduate Program in Garden City.

My presentation differed with one made by Alan Cobb, former Americans For Prosperity and Koch Industries executive, who is currently involved with the Donald Trump Presidential Campaign.

Here’s a story on our presentations that appeared in the Garden City Telegram.

It was posted on our KEPC Facebook page on Friday. It had reached over 6,000 people on Facebook by late Sunday afternoon.


KEPC UPDATE: Ks Budget red by mid-year, more trouble ahead, jobs numbers hidden, Kansas Speaks, Medicaid expansion, ed cmte, TABOR in Colorado

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Takeaways from the school finance decision By now, you’ve heard about the 87 page ruling on Kansas school finance by a three-judge panel on Friday.  The court ordered the state to pay about $50 million to local school districts by July 1. Many are still scratching their heads over what this means, particularly considering the […]

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KEPC UPDATE: Property tax problem, Kansas economy shaky

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KEPC UPDATE: Senate passes tax increase bill & budget, House returns on Monday

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KEPC UPDATE: House rejects tax bill, emergency budget, furloughs

In this issue… House overwhelmingly rejects tax bill Emergency budget waits in the Senate wings State prepares for weekend furloughs of state workers   House overwhelmingly rejects tax bill A compromise tax increase bill was overwhelmingly defeated in the Kansas House of Representatives Thursday by a vote of three to 108. A meeting of negotiators […]

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KEPC UPDATE: Legislature works through wknd, tax overview, tax debate Friday, running out of time, labor report, ed clean-up

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