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 UPDATE: Checks bounce in March, KanCare debaucle, biz tax hearing, ROZ, aircraft expansion hinted, STAR Bonds, regents update, new bill tracking service

In this issue …

  • “State checks will start bouncing in March”
  • Kansas “substantively out of compliance” on Medicaid
  • Bill repealing business tax exemption has hearing
  • Suave says ROZ is underutilized
  • Military aircraft expansion hinted
  • What about extending STAR Bonds?
  • Regents update lawmakers
  • A new service –tracking bills

 

“State checks will start bouncing in March”

State legislators wanting to carefully craft a solution to the state’s structural budget imbalance are faced with a timing dilemma.  They don’t want to rush the process too much, but “State checks will start bouncing in March,” according to one lawmaker who understands the situation.  An expert in the field tells me March or April.

Governor Brownback has proposed a plan to fill a $1.1 billion budget hole over the next three years with mostly temporary solutions that have received a cold reception from legislators.

Tax increases would help fill the hole, but any income tax changes would not result in substantial revenue until 2018.  That leaves a current year (FY 2017) budget hold of about $350 million to handle.

So far, the most palatable of the unpopular choices offered by Brownback is liquidating the long-term investment fund of the state.  That would bring in about $317 million.  Even veteran legislators seem to be struggling to understand how that option would work.  In addition, it would likely result in a further reduction in the state’s credit rating.

One legislator on the House Taxation Committee put the current year problem this way: It would take a 4.5 percent budget cut in the current budget to balance the FY 2017 budget.  However, because there are only 5 and a half months left in FY 2017, it would take about a ten percent cut in the remaining budget to balance it.

That’s one reason legislators are so upset with Brownback.  He had the authority to reduce the pain by cutting sooner, when the problem became obvious, but declined to do anything.

It appears that much of the work to fix the revenue side of the problem so far is occurring in the House Taxation Committee under Chairman Steven Johnson (R-Assaria), who has pulled together Republicans and Democrats seeking a solution.  That includes private meetings.  That kind of cooperation has not occurred in the past four years.

Meanwhile, our sources say the Senate is working quietly behind the scenes on a comprehensive tax plan.  It is said to include removing the LLC exemption, adding a third tax bracket for individual income tax, and a five cent per gallon motor fuels tax increase to replenish the highway fund.

Senate leaders don’t want several votes on tax increases that can be used against a legislator running for re-election.  They want one vote.

Here’s a more in depth critique of the Governor’s proposals from former Budget Director Duane Goossen, now with the Kansas Center for Economic Growth.

 

Kansas “substantively out of compliance” on Medicaid

The Statehouse was abuzz Thursday with news first published in the Topeka Capital-Journal that the federal government has rejected an extension of Kansas’ Medicaid (KanCare) waiver, stating in brutal language that the state is “substantively out of compliance” with U.S. law.

The newspaper obtained documents that say the Centers for Medicare and Medicaid Services found serious problems during on-site reviews.

According to the Capital-Journal story: “Limited coordination between state agencies poses a risk to the health and safety of some participants and Kansas didn’t provide sufficient oversight of the managed care organizations, the review found.”

In response, the Brownback Administration says it is preparing a corrective action plan.

You can read the story here.

 

Bill repealing business tax exemptions has hearing

Over 40 people submitted testimony on a bill to repeal the business tax exemption in the House Taxation Committee Thursday afternoon into the evening hours.  Because there were so many wishing to testify and the lateness of the hour, the Kansas Economic Progress Council and a few others have been delayed until Monday..

The bill is House Bill 2023, which ends the so-called LLC exemption for Kansas business income tax as of January 1 of this year.

 

Soave says ROZ is underutilized

Kansas Secretary of Commerce Antonio Soave, speaking to the Senate Commerce Committee this week, said Rural Opportunity Zone (ROZ) legislation is being underutilized by local governments.

Soave said local governments tell him, “there’s a lot of red tape” and requirements are “burdensome.”

The 2012 program designated 77 counties as Rural Opportunity Zones, providing a 100 percent state income tax waiver for up to five years for those who move to the zones for work from out of state.  The legislation also includes repayment of up to $3,000 a year in outstanding student loans.

The student loan repayment program is a state-county partnership that requires counties to join that part of the program for individuals to receive the student loan repayment incentive.

The Committee asked Soave to prepare a report on ROZ and bring it to the committee.

 

Military aircraft expansion hinted

You know you’re about to hear something interesting when a cabinet secretary tells a committee in a public meeting, “I shouldn’t be telling you this.”

At the above-mentioned Senate Commerce Committee meeting, Commerce Secretary Antonio Suave hinted at “important military scenarios” involving the aircraft industry in the Wichita area and possible job expansions.  Suave was responding to a question from a committee member about the health of the aircraft industry.

Suave did not say anything else, but at a later meeting of the South Central Kansas Legislative Delegation, speculation centered on Spirit AeroSystems (the former Boeing Commercial plant) and nearby empty buildings that were formerly part of Boeing Military Division.

 

What about extending STAR Bonds?

Some who follow economic development legislation (including KEPC) are scratching our collective heads about what’s going on with STAR Bonds.  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 used to attract projects like the NASCAR Track and to lure the American Royal from Missouri.  Several communities have projects on the drawing board.

It will sunset on July 1, 2017 without legislative action.  So far, there has been no bill introduced to extend the program.  Neither the Governor nor the Secretary of Commerce has asked lawmakers to extend it.  Some legislators have become aware of the situation and plan to begin working on legislation.

We are told the Governor was unaware there was a sunset in the law coming up.

 

Regents update lawmakers

The President and CEO of the Kansas Board of Regents told legislative committees this week Kansas has the highest rate of students in the country who started at two-year public institutions and then finished their degrees at a four-year institution.  Only five states had more than 20 percent completion rate.  Kansas was the highest with 25 percent.

Dr. Blake Flanders warned lawmakers that reduced state support for higher education was causing tuition increases.  Those increases are driving up student debt. Flanders said 63 percent of students graduate with student debt.  Of that 63 percent, the average debt is about $25,000.

 

A new service – tracking bills

There’s a lot of legislation introduced during the session in Kansas, too much to report on in depth in this weekly newsletter.  In this newsletter, we will try something new.  We will track bills we think are of interest to KEPC readers. We have a page dedicated to these bills and will add to them each week as new legislation is introduced. You will 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. We are in the process of creating a user-friendly web interface, but in the meantime you may click here to open a printable PDF version of the latest bill tracking information. Please don’t hesitate to contact us if you have any questions or need more information.

KEPC UPDATE: Biz tax exemption hearing, budget blahs, gut transpo, care provider tax, prop tax repeal

In this issue … Bill repealing business tax exemption will have hearing Lawmakers not enthused about Governor’s budget Governor’s budget continues to gut transportation A tax increase for health care providers Property tax lid repeal bill introduced   Bill repealing business tax exemption will have hearing A bill that appears to reverse the 2012 income […]

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KEPC UPDATE: Gov’s budget proposals are temporary solutions

Governor’s budget proposals are temporary solutions Kansas Budget Director Shawn Sullivan gave legislative committees details of Governor Sam Brownback’s budget proposals today. Most of the proposals to fill a $1.1 billion budget hole over the next three years are temporary solutions that move money around, delay payments, or essentially have the state borrowing from itself.  […]

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KEPC UPDATE: KsLeg2017 begins, new legislature, Trump effect, budget, school finance, eco devo, KEPC on the ground in Topeka

In this issue … Session begins Monday; big changes to calendar Assessing the new legislature Will there be a Trump affect? Last budget committee Waiting on school finance Economic developers meet with Commerce Secretary KEPC will be at the Capitol    Session begins Monday; big changes to calendar The calendar for the 2017 Kansas Legislature […]

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KEPC: Long memo contradicts admin on budget, awaiting chair announcement, Rise Up Kansas, Pompeo issues, KEPC on the radio

In this issue … Revenue estimates “long memo” contradicts Administration Waiting for the committee chairs to be named Rise Up Kansas plan ends “March to Zero” Election issue emerges after Pompeo CIA appointment Radio interview   Revenue estimates long memo contradicts Administration The so-called “long memo” that follows the release of new revenue estimates in […]

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OPINION: Legislature should be careful about fixing the mess.

Tuesday’s general election, combined with the August primary, has resulted in big changes that mean a more moderate anti-Brownback Kansas Legislature next year.  This new majority of moderate Republicans and Democrats will be anxious to undo the state’s financial mess. But the 2017 Legislature should proceed with caution. Part of the solution is to reverse the […]

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KEPC UPDATE: Path forward, KDOT prep for cuts, Kansas opinions

In this issue … Finding a path forward after the election KDOT said to be preparing for cuts What Kansans think as the election nears   Finding a path forward after the election After the sweeping changes in the makeup of the Kansas Legislature brought by the primary election (with that trend expected to continue […]

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KEPC UPDATE: Kansans favor change to tax law; Transpo debate & info, Economic Lifelines lists candidates, 8th largest cut

In this issue … Majority of Kansans favor change to income tax law Transportation debate breaks out About transportation Economic Lifelines lists pro-transportation candidates National report says Kansas education had 8th largest cut   Majority of Kansans favor change to income tax law A scientific statewide poll of Kansans indicates 68 percent want to eliminate […]

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KEPC UPDATE: Revenue estimate questions, budget under water, Gov abandons useful analysis, college grads leaving

In this issue … Revenue estimate recommendations raise questions September revenues mean state budget is under water Kansas abandons a useful measure of success Regents say college grads leaving state   Revenue estimate recommendations raise questions This week, Governor Brownback’s Consensus Revenue Estimating Working Group issued its final recommendations.  In recent years, official revenue estimates […]

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KEPC UPDATE: Primary change, 2017, $15m lost in Osawatomie, credit rating, March of Folly

In this issue … Why the primary election means a change What can change in 2017? Osawatomie Post Audit: $15 million lost so far Credit rating drops The March of Folly   Why the primary election means a change By now you’ve heard about Tuesday’s primary election in Kansas and the discussion about how moderates […]

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