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: Short veto, tax policy, school finance, KEPC media, Goossen’s Blog, Odds and ends

In this issue …

  • Short veto session?
  • Tax policy undecided until veto session
  • Details of school finance
  • KEPC in the media for calling attention to report
  • Duane’s Budget Blog
  • Some odds and ends

 

Short veto session?

The Kansas Legislature is adjourned until April 30, when the annual veto session begins.  Originally, the veto (or clean-up) session was only three or four days, but in the last decade or so has stretched into a continuation of the regular session, sometimes for a few weeks or the best part of a month.

That may not happen this year.  Passage Sunday of the school finance bill takes care of the major issue of the session, brought on by the March 7 Kansas Supreme Court decision.  Also, because the 2013 Legislature passed a two-year budget, there’s just some tweaking to do on the FY 2015 spending plan.

A short veto session may help some who don’t want the legislature to do any more.

 

Tax policy undecided until veto session

Lawmakers left Topeka without resolving many of the controversial tax bills that are still alive.  A House-Senate Taxation conference committee met, but has not yet agreed on action concerning a variety of issues.

  • Elimination of mortgage registration fee – SB 298 phases out the mortgage registration fee.  It has passed the Senate but not the House.
  • The fixtures/machinery and equipment bill has passed both the House and Senate.  House Bill 2456 includes the compromise language supported by the Kansas Association of Counties, the Kansas Chamber of Commerce, and other organizations involved in the controversy.  It also includes language that specifically defines what is machinery and equipment in cement plants.  That portion of the bill is controversial.  It’s feared that many industries may follow the cement industry lead and ask for specific legislation defining fixtures and machinery and equipment in their plants.  Another controversial amendment on the Senate version exempts health club property from property tax (the Wichita Genesis Health Club amendment).
  • Senate Bill 231 reorganizes the Court of Tax Appeals, as does House Bill 2417.  House Bill 2417 now includes expansion of Rural Opportunity Zones to four more counties.

A sheet available at the first Tax Conference Committee meeting listed 30 bills that are possible candidates for inclusion in a deal.  Only six of the bills have passed both the House and Senate.

Ten of the bills passed the Senate and are now somewhere in the House.  Fourteen of the bills passed the House and now reside somewhere in the Senate.

NOTE:  Bills that have passed at least one chamber or the other are eligible to be inserted into a conference committee report.  In recent years, that has resulted in massive legislation containing many issues being considered in the final days of the legislative session.

 

Details of school finance

Governor Sam Brownback is expected to sign HB 2506, the school finance bill that passed the Kansas Legislature late Sunday.

Here are the details of the major parts of the bill.  Most of what I’ve written is taken from the explanation provided by the staff of the legislature.  Some of it is highly technical, but not as much as the actual legislation.  I believe I’ve covered all of the high points. I hope it isn’t too wonkish.

For links to estimates of what happens with funding to individual school districts, go the links at the end of this story.

 

Funding

The bill appropriates an additional $109 million for local option budget equalization and transfers $25 million from the state general fund to the Capital Outlay Fund.  Those actions provide the funds necessary to satisfy the Kansas Supreme Court’s order to fix equity problems with school finance.

The bill changes some of the school finance weightings in an effort to save money, which was then put into the above equalization.

 

Policy Statement

The bill would state the purpose and intention of the Legislature is to provide a K-12 funding system that provides students with the seven “Rose” capacities.  These capacities, originally set out in Rose v. Council for Better Education, a Kentucky court case, were held by the Kansas Supreme Court to be the standards against which to evaluate the adequacy of the K-12 funding system.

Elsewhere in the bill, the Rose Standards are outlined:

● Sufficient oral and written communication skills to enable students to function in a complex and rapidly changing civilization;

● Sufficient knowledge of economic, social, and political systems to enable the student to make informed choices;

● Sufficient understanding of governmental processes to enable the student to understand the issues that affect his or her community, state, and nation;

● Sufficient self-knowledge and knowledge of his or her mental and physical wellness;

● Sufficient grounding in the arts to enable each student to appreciate his or her cultural and historical heritage;

● Sufficient training or preparation for advanced training in either academic or vocational fields so as to enable each child to choose and pursue life work intelligently; and

● Sufficient levels of academic or vocational skills to enable public school students to compete favorably with their counterparts in surrounding states, in academics or in the job market.

 

Change in Definition of At-Risk Pupil

The bill would exclude from the definition of at-risk pupil: any pupil enrolled less than full time in grades one through 12; or any student over 19 years of age. However, these provisions would not apply for any student who has an individualized education program (IEP).

 

Elimination of the Non-proficient Pupil Weighting

The bill would eliminate the weighting for pupils not eligible for the federal free lunch program but who scored below proficiency or failed to meet the standards established by the state board on either the mathematics or reading state assessments in the preceding school year.

 

Phase-Out of the School Facilities Weighting

The bill would limit use of the school facilities weighting to only those districts that have adopted a local option budget (LOB) of at least 25 percent of the amount of state financial aid for which and the contractual bond obligations incurred by the district were approved by voters on or before July 1, 2014.

 

Change in transportation funding

Although it doesn’t appear to be in this legislation, there will be a change in how transportation costs are calculated.  Legislative staff described a “math error” which has been in place for many years that will be corrected.  It results in less transportation funds for all Kansas school districts.

 

LOB Authority Expansion; Election Requirement

The bill would do the following:

● Amend the statutory Base State Aid Per Pupil (BSAPP) used in calculating the local option budget from $4,433 to $4,540 for school year 2014-2015 only. (The current base state aid of $4,433 for LOB calculation purposes would be extended until June 30, 2017.)

● Exclude virtual school state aid from the amount of state financial aid used in calculating the local option budget.

● For school year 2014-2015, any school district which has adopted a local option budget in excess of 30 percent on or before June 30, 2014, may adopt a second resolution in an amount not to exceed 2 percent. This resolution would expire on June 30, 2015, at which time a mail ballot election would be required to exceed an LOB of 30 percent.

● Authorize USD 207, Ft. Leavenworth, to adopt an LOB in excess of 30 percent with a resolution, subject to protest petition.

 

K-12 Student Performance and Efficiency Commission

The bill would establish the K-12 Student Performance and Efficiency Commission, charged with studying and making recommendations to the Legislature regarding opportunities to make more efficient use of taxpayer money.

The bill would set forth the composition of the Commission, which would have nine voting and five nonvoting, ex officio members. Procedural, staffing, reimbursement, and vacancy provisions are included in the bill. The Commission’s authority would expire on January 12, 2015.

The Commission would be required to submit a report to the Legislature before January 9, 2015, with any findings and recommendations including those for any legislation. The bill further would require that identical bills be introduced in the two chambers during the 2015 Legislative Session.

 

Alternative Teacher Licensure

The bill would require a specific group of prospective teachers be exempted from the requirement to complete a teacher preparation program prior to licensure if the licensure applicant satisfies one of the following conditions:

● The applicant holds a valid teaching license from another jurisdiction and has obtained the required scores on the test series required by the State Board of Education (Board) for licensure.

● The applicant has obtained an industry-recognized technical profession certificate, has at least five years of work experience in that profession, and has secured a commitment to be hired to teach a related course from a local school district board.

● The applicant has obtained at least a bachelor’s degree in science, technology, engineering, mathematics, finance or accounting; has at least five years of work experience in the subject matter area; and has secured a commitment to be hired to teach a related course from a local school district board.

Such licensure applicant would be authorized to teach only in the subject(s) specified on the face of the license.

 

Public Innovative District Ceiling Increase

The bill would increase the maximum percentage of Kansas school districts that may operate as Public Innovative Districts from 10 percent to 20 percent.

 

Change in Statutory Base State Aid Per Pupil and Formula Definitions

The bill would change the statutory BSAPP from $4,492 to an amount appropriated by the Legislature in a fiscal year for a designated school year. The amount will be required to be at least $3,838.

 

Requirement to Study Virtual Schools and Programs

The bill would require the Legislative Division of Post Audit to conduct a performance audit of virtual schools and programs as well as their funding.

 

Due Process Rights of Teachers

The bill would amend the law concerning due process procedures for the termination of a teacher contract. Those rights would be eliminated for K-12 teachers.

Due process would continue for teachers at a technical college, the Institute of Technology at Washburn University, or at a community college.  It would also continue for administrators at those institutions.

The bill also would amend provisions of the law concerning the mentor teacher program to revise the definitions of “probationary teacher” to mean a certificated teacher who has completed less than three consecutive school years of employment in the school district.

 

Tax Credit for Low Income Students Scholarship Program Act

The bill would create the Tax Credit for Low Income Students Scholarship Program Act (Act), which would provide eligible students with scholarships to pay all or a portion of tuition to attend a qualified school in Kansas.

An “eligible student” would be a child who:

● Qualifies as an at-risk pupil (eligible for free lunch under the National School Lunch Act); and

● Attends a school that would qualify as either a Title I Focus School or a Title I Priority School; or

● Received an educational scholarship under this program and has not graduated from high school or reached 21 years of age.

Eligible students would be required to:

● Reside in Kansas while receiving a scholarship; and

● Be enrolled in a public school in the year prior to receiving the scholarship or be eligible to be enrolled in a public school, if under the age of six.

The scholarship would be financed via a tax credit against corporate income and premium (insurance companies) or privilege (financial institutions) tax liability beginning with tax year 2014 in an amount equal to 70 percent of the amount contributed for scholarships. The credit would be claimed and deducted from the taxpayer’s tax liability during the tax year in which the contribution was made. However, if the credit would exceed the donor’s tax liability for a particular year, the excess amount could be carried over in future years until the total credit was used.

The total amounts of credits allowed in each tax year would not exceed $10.0 million.

The bill would create a scholarship granting organization (SGO) to administer the Act.

The SGO would be required to disburse not less than 90 percent of the contributions received within a 36-month time period in educational scholarships not to exceed $8,000 per eligible student.

An SGO would be prohibited from providing an eligible student with a scholarship funded by a student’s relative or accepting a contribution directed toward a specific student.

The bill would provide eligible students with an opportunity to attend qualified schools chosen by their parents. “Qualified school” would be defined as any nonpublic school providing education to elementary and secondary students. The school would be required to notify the State Board of its intention to participate in the scholarship program.

The provisions of the Tax Credit for Low Income Students Scholarship Program Act would be effective upon publication in the Kansas Register (That could happen pretty quickly.  The program would likely be in place for the beginning of the 2014-1015 school year.)

Want more information about funding for individual school districts?  The Kansas State Department of Education has provided specific information on the bill.  Go to the following page to find two links:

 

http://www.ksde.org/Agency/FiscalandAdministrativeServices/SchoolFinance/WhatsNew.aspx

  • The first link on the page (Final School Finance Bill – April 7, 2014) takes you to an explanation of the computer run.
  • The second link (SF14-145) takes you to the actual computer run for every school district in the state.

 

KEPC in the media for calling attention to report

The Kansas Economic Progress Council has received considerable media attention for our news release last week calling attention to a report by the Governor’s Council of Economic Advisors dated March 2014.  The report showed the Brownback Administration’s own benchmarks seem to indicate the 2012 and 2013 income tax cuts are not working.

The March 2014 report, “Indicators of the Kansas Economy, A Review of Economic Trends and the Kansas Economy,” shows Kansas lagging behind other states in the region in:

  • Employment growth
  • Population growth
  • gross domestic product growth
  • personal income growth
  •  private industry wage level growth
  • private establishment growth (business)

The report is the result of a system of measurements put together over two years ago to monitor key economic indicators in the state.  At the time, the Governor was quoted as saying, “These economic metrics will allow us to determine the state’s relative economic position as it relates to the six-state region and the nation, and to monitor in a timely manner if our policies and initiatives are having the desired economic effect.”

Many of the major news media in the state picked up on our release, including the Topeka Capital-Journal (front page, above the fold), the Wichita Eagle, the Kansas City Star, and many others that ran an Associated Press version of the story.  Additionally, there have been several editorials and editorial columns that featured the information.

Stan Ahlerich, Executive Director of the Governor’s Council of Economic Advisors, responded in an op-ed that we know ran in the Wichita Eagle and may have run elsewhere.  The title was, “Kansas is on the right road to economic recovery.”

Ahlerich began by saying, “The Governor’s Council of Economic Advisors’ quarterly Indicators of the Kansas Economy report recently has been the subject of careless scrutiny. Some have taken the short-term numbers in this report out of context and misconstrued them, painting a picture of a lagging Kansas economy, when long-term trends reveal that our state’s economy is the healthiest it has been in the past decade.

He went on to say, “Short-term data can also obscure the fact that the Kansas economy is performing better than it has in years.”

Ahlerich concluded, “Kansas is on the right road. The data confirm we are enjoying the sustained, fundamentally sound economic growth that will ensure our state is a great place to live and work.”

Don’t know what to think?  You can read the entire report on the Department of Commerce web site.

You will see that whether it is a one year period, five year period or ten year period, Kansas growth lags behind the six state region in:

  • per capita income
  • total nonfarm employment
  • private sector employment
  • private industry wage levels
  • number of private establishments

These benchmarks were selected by the Administration itself to determine, “if our policies and initiatives are having the desired economic effect.”

 

Duane’s Budget Blog

Former Kansas Budget Director Duane Goossen has an informative blog that sheds light on the state’s budget situation.  This week, he notes:

  • Although revenues for the first nine months of the fiscal year (2014) are higher than estimates by $141 million, they are still $243 million less than what was collected during the same period in FY 2013.  That’s because of the 2012 and 2013 income tax cuts.
  • Corporate income tax is up $30 million over the same period last year.  Goossen thinks the consensus revenue estimates will adjust projections for this tax upward.
  • Sales taxes are about what was estimated.
  • Individual income taxes are $89 million higher than expected.  $51 million of that, however, is from one-time payments that settled prior year tax disputes.

Goossen says the Revenue Department is about 70,000 returns behind last year’s processing pace.

“Given that most early filers have a refund coming, a slower-than-expected payout of refunds could explain the remaining “overage,” which means the current estimate for individual income tax may be more accurate than it appears.”

In other words, the slow payback of refunds by the state might be artificially inflating the balance in the state’s checking account.  Goossen says it may be May or June before we have a complete picture of what’s going on with income taxes in Kansas.

Goossen is now Vice President for Fiscal and Health Policy at the Kansas Health Institute.

 

Some odds and ends

Here are some bills of note from the final weeks of the regular legislative session:

-Senate Bill 311 has gone to the Governor for his signature.  It increases non-economic damage caps in lawsuits from $250,000 to $350,000 by the year 2022.  The bill also made changes to the rules about expert witness testimony, and repeals statutes allowing evidence of collateral source benefits to be admissible in personal injury or death legal actions.

The Kansas Medical Society and the Kansas Chamber of Commerce asked for the bill.

-HB 2553 would allow Kansas to join the Interstate Health Care Compact. The purpose of the Compact would be to secure the right of Compact Member States to regulate health care within their boundaries, and to secure federal funding for Member States that choose to invoke their authority under the funding provisions of the Compact.

According to the Kansas Health Institute (KHI) News Service:

“Kansas is the eighth state to endorse the compact, which must be approved by Congress. If that should happen, which is considered highly unlikely while Democrats control the U.S. Senate, the member states could receive federal Medicare and Medicaid dollars as block grants with no administrative strings attached, leaving them free to restructure the programs.”

-SB 309 amends a provision in the Kansas Insurance Code.

Over the years, the Legislature has allowed six associations to offer health insurance coverage to their members without being under the Insurance Commissioner’s Jurisdiction. That apparently allows more flexibility in the coverage available.

SB 309 expands the exemption to add any other qualified trade, merchant, retail or professional association or business league, and farmers’ cooperatives to the list of associations providing health insurance coverage exempted from the jurisdiction of the Kansas Insurance Commissioner.

The bill defines a “qualified trade, merchant, retail or professional association or business league” as any bona fide trade, merchant, retail or professional association or business league that has been in existence for at least five calendar years and is composed of five or more employers.

-HB 2576 has been signed by the Governor.  Itrevises employment security law pertaining to the contribution rates of employers.  It’s designed to fix the current rate structure, which many believe penalizes employers when they experience significant increases in payroll.

-HB 2430, the bill that makes changes to the Kansas PEAK Program (Providing Employment Across Kansas) is still in a conference committee and will likely see some activity during the veto session.

PEAK is intended to encourage economic development in Kansas by incenting companies to relocate, locate or expand business operations and jobs in Kansas. PEAK companies are allowed to retain up to 95% of the payroll withholding tax of PEAK-eligible employees.

KEPC UPDATE: School finance and tax conference

In this issue… Lawmakers focus on school finance Tax conference This report is coming to you a day early and is pretty brief because I usually write it Thursday evening.  However, the Legislature will be in session Thursday night, possibly into the early morning.  This is where things stand Thursday afternoon. The Kansas Legislature plans […]

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KEPC SPECIAL REPORT: Kansas own economic benchmarks are not being met

Growth_report-graphic

Supporters of the 2012 and 2013 Kansas income tax cuts are saying that the cuts are working to grow the Kansas economy. However, the Brownback Administration’s own benchmarks are indicating just the opposite in an obscure and little-noticed March 2014 report from the Governor’s Council of Economic Advisors. The March 2014 report, “Indicators of the […]

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KEPC UPDATE: Nat’l tax study warning, school finance, fixtures, energy, PEAK, odds and ends

In this issue … National study warns states to avoid tax cuts like Kansas School finance proposals floated Fixtures compromise passes House House kills repeal of energy standards PEAK bill advances Odds and ends  JOIN KEPC TODAY TO GET ALL THE LATEST FROM UNDER THE DOME!   National study warns states to avoid tax cuts […]

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KEPC UPDATE: School finance, AG: feeling lucky?, PEAK, tax appeals, emplyment security, ROZ, renewables, crunch time

School finance proposal introduced A.G. seems to be saying:  “Do you feel lucky?” on school finance Governor weighs in on school finance PEAK comes out of Senate Commerce Tax Appeals change passes House Employment security changes pass ROZ expansion bill expected to pass Senate Friday Renewable energy standards debated Crunch time in Topeka WANT TO […]

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KEPC UPDATE: School finance, property tax, PEAK, ROZ, rural housing, Board of Tax Appeals

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KEPC UPDATE: Court decision TOMORROW, short week, revenues grow, tech more important than tax rate?

In this issue … Supreme Court to announce Gannon decision Friday A short week after the break Revenues grow in February Is technology more important than tax rate?   Supreme Court to announce Gannon decision Friday Like a bolt out of the blue, the Kansas Supreme Court notified the news media at mid-day Thursday that […]

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KEPC UPDATE: Deadlines, creative math, PEAK, ROZ expansion, cement, polls, employment security

In this issue … Deadline today New business formations are not what they seem PEAK bill passes House Rural Opportunity Zone expansion passes Cement M&E bill passes House Poll shows public education support, opposition to tax cuts Employment security change passes House 123 to 0  JOIN KEPC TODAY AND GET THE LATEST FROM THE STATEHOUSE! […]

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KEPC UPDATE: Deadlines, core standards, property tax, open records, reporting, fixtures

In this issue … Statehouse buzzing as deadlines approach Arguing about Common Core standards Businesses form property tax group Property tax transparency bill moved Open records bill changes committees Reporting public funds for lobbying Fixing the fixtures problem  SUPPORT RESPONSIBLE TAX POLICY – JOIN KEPC TODAY. Statehouse buzzing as deadlines approach With the recent glut […]

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KEPC UPDATE: Post audit, economist report, appraisal, cement, municipal H2O, prop tax transparency, open records, and reporting

In this issue … Post Audit: uncertainty about income tax cuts Committee hears from WSU Economist Hill State would appraise “complex properties” Cement “equipment” bill moves Fee for municipal water use? Property tax transparency hearing held Open records bill is problem for economic developers, others Reporting public funds for lobbying Activity has picked up substantially […]

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