KEPC UPDATE: Kansas Legislature takes 4 day weekend

Afternoon Update: Kansas Legislature takes a four-day weekend
 
After passing a House version of school finance on a final vote this morning, the Kansas Legislature has adjourned for an unpaid four-day Memorial Day weekend.
 
The Kansas House passed House Bill 2410, the school finance rewrite, by a final vote of 84 to 39Here’s how the House members voted.
 
Many legislators supported the bill despite saying it is not adequately funded and that the Kansas Supreme Court may say so, resulting in a special session this summer.
 
The House did not take up a tax bill voted out of a conference committee by House/Senate negotiators.
 
The Senate version of school finance was voted out of a Senate committee this week.  It is House Bill 2187.  The language of the bill and a description of what’s in it was not available at the time of this writing.

KEPC UPDATE: House & senate advance school finance, income tax bill delayed

In this issue …
  • House advances school finance bill 81 to 40
  • Senate Committee passes its version of school finance
  • Income tax bill delayed; maybe Thursday debate
 
House advances school finance bill 81 to 40
 
The Kansas House of Representatives advanced a long-awaited school finance bill Wednesday after several hours of debate. 
 
By a vote of 81 to 40, House Bill 2410 was sent to a final vote, expected shortly after 10 a.m. Thursday morning.
 
The bill increases K-12 spending by $180 million next year and $100 million the year after.  The bill also puts more money into at-risk students in an attempt to satisfy the Kansas Supreme Court, which said that area needed more attention.
 
Several amendments were offered.  The most important was by Representative Ed Trimmer (D-Winfield) to add $200 million in extra money each year for three years.  Trimmer said he worried the bill did not contain enough funding to satisfy the Court.  The Trimmer Amendment failed 47 to 75.  Opponents said they feared they could not pass a big enough tax increase to pay for it.
 
 
Another amendment proposed by Representative William Sutton (R-Gardner) was one likely to be strongly opposed by economic developers across the state.  It would have allowed any taxing entity to have veto power over property tax abatements.  Democrats and Republicans opposed it, saying it would have a negative impact on economic development.  It failed on a voice vote.
 
 
Senate Committee passes its version of school finance
 
Meanwhile, most of the activity in the Kansas Senate also centered on school finance, but at the committee level.  The Senate Select Committee on Education Finance passed out its version of school finance.  It’s called the School Equity & Enhancement Act.
 
That measure was previously in Senate Bill 251, but it has been placed in House Bill 2187 for parliamentary procedure purposes.
 
The bill will NOT be debated Thursday.  It is not listed on the agenda for General Orders that has been published.
 
 
Income tax bill delayed; maybe Thursday debate
 
The income tax bill that was to be debated in the Kansas House of Representatives Wednesday was delayed and changed slightly.  It might be debated on Thursday.
 
The Tax Conference Committee met Wednesday morning and made some changes to what had been agreed to on Tuesday:
  • The one-year moratorium on STAR Bonds begins September 1.  There is no reference to bond issuance
  • A one percent drop in the sales tax on food has been added, to begin in 2020
  • When the sales tax starts being collected on the new services, there is no change on how the money is allocated to the highway fund.  The current formula continues
  • Instead of July 1, the sales tax on certain services begins October 1 to give businesses time to ramp up.  If services are provided through a pre-existing contract, the sales tax does not take effect until the contract expires (for example landscaping/lawn services)
  • The previous version of the bill included a sales tax on veterinary services for companion animals (pet dogs, cats, etc., as opposed to animals in agriculture).  There were no hearings on this concept, so it is no longer in the bill
  • The sales tax is added to custom computer software
  • The alcohol enforcement tax would start July 1, 2017
  • Tax credits for the Ad Astra economic development program added to the bill Tuesday have been cut in half
Most observers expect this conference committee report (Senate Bill 30) to be debated in the House sometime Thursday.  It is not given a high expectation of passage.  The bill still raises about $488 million in FY 2018 and $460 million in FY 2019.

KEPC UPDATE: School finance debate schedule, tax bill debate Wednesday

In this issue …
 
House schedules school finance debate
Another income tax bill debate Wednesday morning
 
 
House schedules school finance debate
 
Democrats and some Moderate Republicans have argued all legislative session that a new school finance formula should be debated BEFORE the legislature works on a tax increase bill.  That is one big reason a proposed income tax bill failed in the Kansas House of Representatives Tuesday night.
 
It now appears a school finance debate will happen in the Kansas House Wednesday.
 
House Majority Leader Don Hineman (R-Dighton) announced Tuesday that the House version of school finance, HB 2410, will be on general orders for debate Wednesday.  That debate will probably take place Wednesday afternoon after one.
 
 
The bill provides an additional $226.8 million in state general fund spending for schools in FY 2018 and an additional $370 million in FY 2019.  It’s unclear if that will be enough to satisfy the Kansas Supreme Court.
 
The House debate is expected to take several hours.  The bill will be subject to amendments that can change it before a final vote takes place.
 
Meanwhile, the Senate Select Committee on Education Finance continues to work on its bill and will continue on Wednesday.
 
Another income tax bill debate Wednesday morning
 
House and Senate tax negotiators have approved yet another income tax/revenue bill to try to balance the state budget.  The measure is expected to be debated Wednesday morning in the House of Representatives. The House goes in at nine in the morning.
 
The latest plan has been inserted into a conference committee report on Senate Bill 30.  That’s the same bill that was defeated Monday night, but it now has different contents.
 
It’s a combination of income tax, removal of sales tax exemptions, increases in liquor taxes and some items that do not raise money, but spend money.
 
Here’s what I understand is in the bill:
  • There would be two income tax brackets with rates of 3 percent and 5 percent
  • The “glide path to zero” trigger mechanism is eliminated
  • Business pass through income would be taxed
  • Medical deductions would be at 100 percent beginning in 2018
  • Several sales tax exemptions on services would be removed to raise money including:
    • Towing
    • Detective services
    • Security and patrol services
    • Security systems
    • Non-residential cleaning service
    • Pet care
    • Self storage
    • Personal care (tattoo, tanning, and piercing, etc.)
    • Expanded lawn services (landscaping, etc.)
    • Companion animal veterinary services
  • The Liquor enforcement tax would be increased by two cents
 
In addition, the extension of STAR Bonds would be included with the one-year moratorium proposed in HB 2184, except that projects with bonds authorized and issued by October 1 would be able to proceed.
 
The Ad Astra economic development program proposed in HB 2168 would be enacted with only half the proposed tax credits issued ($10 million per year for five years)
 
The aviation tax credit bill (HB 2036) would be included in the package.  That would cost the state an estimated $7.7 million the first year.
 
The bill would raise an estimated $488 million in FY 2018 and $460 million in FY 2019.  Many lawmakers will likely argue that is not enough.  Prospects for this bill are slim without support from Democrats unless 63 Republican votes can be found.

KEPC UPDATE: Income tax bill fails, education discussion continues

In this issue …
  • Income tax bill fails in House Monday night
  • Senate education discussion continues
 
Income tax bill fails in House Monday night
 
A conference committee report on an income tax increase failed to pass the Kansas House of Representatives Monday night by a vote of 53 to 68.  The measure, Senate Bill 30, was returned to the tax conference committee for more work and the Legislature will return at 10 a.m. Tuesday morning.
 
Democrats were split on the bill.
 
This bill was very similar to what the tax conference committee agreed to on May 2 for Senate Bill 30. 
Here’s what was in this version of the bill.
  • The business pass-through income exemption is repealed retroactive to January 1
  • The March to Zero trigger mechanism is repealed
  • Medical deductions are at 100 percent, beginning in 2018
  • The low income threshold is reduced from $12,500 to $5,000 for married filers and from $5,000 to $2,500 for single filers
  • The rates increase to 3.1 percent, 5.25 percent, and 5.7 percent.  These are retroactive for business pass through income to January 1, 2017.  A half-rate would be applied to individuals
  • The three brackets are below $30,000 married/ $15,000 single; Between $30,000 and $60,000 married/$15,000 and $30,000 single; and above $60,000 married/$30,000 single
  • The bill raised an estimated $591 million in FY 2018 and $626 million in FY 2019
 
The bill also includes a one year “pause” for using STAR Bonds, followed by a five year renewal of the program.  No new districts could be started until July 1, 2018.  STAR Bonds projects already in the works would be allowed to continue.
 
The conference committee had considered adding a three cent per gallon motor fuels tax increase but left it out because it was an appropriation and that would cause a technical problem with the bill.
 
The Senate negotiators also rejected a House proposal to include House Bill 2168, the Ad Astra Rural Jobs Program.
 
In the end, there were two basic camps for those who voted no.  They either oppose a tax increase or didn’t think the bill raised enough money.
 
In his closing remarks, House Taxation Committee Chair Steven Johnson (R-Assaria) said, “What is next?  I’m not entirely sure.”
 
Meanwhile on Monday morning, the Kansas House introduced HB 2428, a bill that repeals several sales tax exemptions.  We presume this might be similar to the bill that passed the House last week that put the sales tax on some services.
 
 
A quick reading of the bill indicates that, beginning in 2020, computer software and bingo cards will be subject to sales tax.  Based on new language on page 43, it appears several sections of current law will go away after June 30, 2020.  We presume that means a lot of exemptions go away.
 
We will have to wait to see how the bill is interpreted.
 
Senate education discussion continues
 
The Senate Select Committee on School Finance spent most its meeting Monday asking questions about SB 251 of legislative staff lawyers who write laws; and staff from the Department of Education.  The plan is to meet again Tuesday to begin working on amendments.
 
The scheduled meetings are from 9 a.m. to 10 a.m.; from first recess until noon; and from 1:30 p.m. until 3 p.m.

KEPC UPDATE: Tax bill Monday & USD state aid spreadsheet available

In this issue …
  • Tax bill expected to surface Monday
  • Spreadsheet now available showing school district aid in Senate bill
 
Tax bill expected to surface Monday
 
Monday is the 5th anniversary of the signing of the 2012 income tax cut bill by Governor Sam Brownback.  Monday also could be a key day in repealing that legislation.
 
We are hearing that phone lines were burning up over the weekend among legislators and others with talk of the resurfacing of a bill to eliminate the cuts and try to salvage the state budget. That legislation is expected to rematerialize in a House/Senate conference committee on taxes sometime Monday.
 
It is essentially what the tax conference committee agreed to on May 2 for Senate Bill 30.  In case you don’t remember, you are not alone.  So much has happened that it’s hard to keep track of the various proposals.
 
Here’s that agreement:
  • The business pass-through income exemption is repealed retroactive to January 1
  • The March to Zero trigger mechanism is repealed
  • Medical deductions are at 100 percent, beginning in 2018
  • The low income threshold is reduced from $12,500 to $5,000 for married filers and from $5,000 to $2,500 for single filers
  • The 2017 rates are contained in three brackets: 2.85 percent, 4.9 percent, and 5.1 percent
  • The 2018 rates increase to 3.0 percent, 5.25 percent, and 5.6 percent
  • The bill raises an estimated $514 million in FY 2018 and $548 million in FY 2019
 
An important point to remember is that there is strong bi-partisan belief that eliminating the business pass-through income exemption will raise considerably more money than the official estimate.
 
What happened to this plan? 
 
The House planned to run the bill but pulled back when it became apparent that it would not succeed without Democrat votes.  Some House Democrats are now said to be weighing whether to support the bill, thinking this may be the best chance for significant revenue as the veto session enters its fourth week and nears its 100th day.
 
It is possible that a three cent per gallon motor fuels tax increase for roads might be added to this package to attract more votes.
 
House leaders are saying privately that if this bill fails, the next proposal to surface will be a two tier plan that could pass with Republican-only support and would not be enough.  It would be augmented with other taxes.
 
The other revenue piece we are hearing is about the utility surcharge proposed in the Senate as part of a plan to raise money for school finance.  Instead of a surcharge, discussion is moving to a sales tax, which is more progressive.
 
Under the original idea, a $2.25 “school fee” would be added to residential utility bills and $10 on commercial bills.  Discussion has moved to a sales tax, which would mean consumers would pay based on their utility use.
 
Spreadsheet now available showing school district aid in Senate bill
 
The Senate Select Committee on Education Finance is scheduled to begin working its school finance bill Monday afternoon and Tuesday.  This follows four hours of testimony on Friday.  The bill is SB 251.
 
A new spreadsheet on what the bill does to local school districts indicates fewer than 40 districts will have a general fund loss.
 
On Friday, local governments and economic development officials showed up to oppose the bill’s language that prevents local government from abating property taxes for the statewide 20 mill levy for schools as well as the capital outlay levy.  Several said it would hurt economic development.
 
Computer runs are now available on the State Department of Education web page that show what SB 251 does for local school districts.
 
 
It’s under Senate Bill 251 as introduced – May 19, 2017 CORRECTED
 
The four documents describe the major policy provisions, overall estimated state aid, an explanation of the spreadsheet (SF17-210 – Column explanation) and the actual spreadsheet showing school districts (SF17-210 – State Foundation Aid). 
 
That last document is the one with the information most people want to know.

KEPC UPDATE: School finance hearings, tax agreement delayed, new tax plan, not working for the weekend, budget crisis video

In this issue …
  • Senate school finance bill has hearings
  • Tax agreement delayed again
  • Is there another tax plan in the works?
  • Work the weekend?  Probably not.
  • The Kansas Budget Crisis explained in a video
 
Senate school finance bill has hearings
 
Hearings are continuing today (Friday) on the newly introduced Senate version of a school finance bill.
 
Senate Bill 251 had hearings Thursday.  It’s very similar to the House school finance bill that came out of committee but has not been debated yet.
 
The first year “base foundation aid” is the same as the House bill ($4,006), but a formula is applied to determine the second year base, which looks to be $4,080 per student.
 
The third year base comes from a proposed formula that uses a three year rolling average of a version of the consumer price index called the CPI-U.
 
The House version has a mandate for applied behavior analysis therapy for children with autism.  The Senate version does not.
 
The Senate version also does not include a local enhancement for schools with the least at-risk students.
 
Both House and Senate versions have all-day Kindergarten, mentor teacher program funding, and professional development funding.
 
A very controversial element of the Senate bill is a utility fee, designed to raise about $150 million to pay for increased education spending.  It would be a monthly “school fee” of $2.25 on residential utility bills and $10 on commercial users.  Utilities would send the money collected to the State Treasurer.
 
Irrigators who are water right owners would pay an annual $120 fee instead of a monthly payment.
 
Collection of these fees would begin September 1, 2017.
 
 
As I write this, the Friday hearings in the Senate Select Committee on Education Finance are continuing.  It is possible the bill could be worked in committee today.
 
Tax agreement delayed again
 
The conference committee of House and Senate negotiators on an income tax bill met again Thursday but broke up without an agreement.
 
Discussion centered on a House proposal to return Kansas to the income tax structure of 2012, before the bill that slashed income taxes and eliminated business pass through income taxation.  The proposal to return to 2012 taxes would raise an estimated $1.4 billion over two years.
 
Senate Assessment & Taxation Committee Chair Caryn Tyson (R-Parker) said the Senate negotiators are willing to sign an agreement if it would run in the House first.
 
House Tax Committee Chair Steven Johnson (R-Assaria) wanted the House and Senate to run the concept in bills at the same time. 
 
Neither side would give, so the committee broke up.  No meetings are scheduled at this time.
 
Is there another tax plan in the works?
 
Meanwhile, behind-the-scenes activity suggests another income tax/other revenue sources bill may be in the works.
 
It involves combining House Bill 2380 on removing sales tax exemptions with an income tax increase and elimination of the business pass through income exemption.
 
You will recall that House Bill 2380 passed the House on Monday, so it is eligible to be inserted into a conference committee report.  It adds the sales tax on services to:
  • Motor vehicle towing
  • Mini-warehouse and self storage
  • Collection agencies
  • Investigation services
  • Security guards and patrol
  • Security systems (excluding locksmiths)
  • Certain non-residential cleaning
  • Certain pet care (excluding veterinarians)
 
It also reduced the sales tax on food by a penny in 2020.
 
Behind the scenes talk is to not reduce the sales tax on food at this time.
 
It is possible the sales tax on services exemption list could be revised to bring in $165 million.  A three cent per gallon motor fuels tax increase is also part of the discussion.
 
My best guess is that’s the next plan to emerge from a conference committee if eliminating the 2012 income tax cuts is abandoned.
 
Work the weekend?  Probably not.
 
With no tax conference committee announced yet for Friday and hearings continuing on the Senate school finance plan, it appears likely the Kansas Legislature will not work this weekend, contrary to Senate leadership announcements earlier. 
 
Without conference committee action on major issues, it makes little sense for most lawmakers to mill about waiting for something to happen.
 
The Kansas House of Representatives was scheduled to meet at 10 a.m. Friday with two bills on the agenda for debate, a consumer protection measure and a bill to regulate amusement rides.
 
The Senate has no bills on the agenda for debate (general orders).
 
The Kansas Budget Crisis explained in a video
 
A video released on Wednesday is getting a lot of attention around the Statehouse and the state.
 
It explains the “Kansas Budget Crisis” in 8 minutes and 44 seconds.  The organization that put it together is Loud Light.  I don’t know much about them.
 
I have been following the budget crisis as a lobbyist since it began and can tell you this is an excellent, easy to follow explanation.  It is very accurate.
 
If there are any errors, I can’t spot them.
 

KEPC UPDATE: Senate & house school finance, dems propose alt school finance, sales tax, income tax, Kansas Speaks survey, WSU economist

In this issue …
  • Senate school finance bill introduced – includes utility charge
  • House school finance bill computer runs available
  • Democrats propose alternate school finance plan
  • Senate Tax holds hearing on House sales tax on some services
  • The latest buzz on an income tax bill
  • Kansas Speaks survey is out
  • Wichita State economist: is a state-led recession coming?
 
 
Senate school finance bill introduced – includes utility charge
 
Senate Majority Leader Jim Denning (R-Overland Park) introduced a new school finance proposal in the Kansas Senate through the Senate Ways & Means Committee.  Hearings on the bill are expected to be held Thursday and Friday in the Senate Select Committee on Education Finance.
 
Denning says he wants to pass the bill out of committee by Friday or Saturday.  He indicated debate on the bill Saturday could be a possibility in the full Senate.
 
Denning says his bill is about 90 percent the same as the House school finance proposal that came out of the House K-12 Education Budget Committee on Monday.
 
Denning’s bill has not yet been read in on the Senate floor and assigned a bill number.  That will have to happen Thursday morning.
 
Some reports late Wednesday quote Denning as saying the bill includes a utility surcharge that will raise about $150 million to pay for increased education spending.  Denning also reportedly says his bill depends on collection of an additional $42 million in sales tax to the state as STAR Bonds are paid off for the Wyandotte County Legends development.
 
House school finance bill computer runs available
 
The House school finance bill (Substitute for HB 2410) was voted out of committee Monday.  The agenda for Thursday for the full House shows no bills will be debated.
 
Want to know what happens to your school district with the House Bill?  You have to look at three different spread sheets.
 
Computer runs by school district are now available. 
 
 
The runs are under: Substitute for House Bill 2410 – May 15, 2017
 
You will want to look at SF17-200 – Column explanation.
 
This will explain to you what you are looking at when you look at SF17-200 State Foundation Aid (this is the spreadsheet by school district).  The final column on the right shows you want happens between this year and next by school district.
 
But that’s not the entire picture.
 
SF17-185 – LEBColumn explanation tells you how to read the next spreadsheet, which has to do with the Local Excellence Budget, which really means the cost of living money that school districts can raise through the property tax. 
 
SF17-185 Local Excellence Budget (spreadsheet) – The last column on the right shows how much each school district can raise.
 
But we’re not done yet:
 
SF17-202 – Local Foundation Budget (spreadsheet) – The Local Foundation Budget is the new name for what used to be called the Local Option Budget (LOB).  The final column on the right shows how much each school district would be permitted to raise in an LFB (or LOB if you prefer) compared to the current school year.
 
 
Democrats propose an alternative school finance plan
 
On Wednesday afternoon, the two leaders of the Democratic Party in the Kansas House and Kansas Senate proposed their own school finance plan.  Senator Anthony Hensley (D-Topeka) and Representative Jim Ward (D-Wichita) proposed spending more than the per-pupil funding in place in 2008-2009.
 
That was the all time high in Kansas.
 
Hensley and Ward proposed putting an extra $400 million in schools during the 2nd year of the bill, school year 2018-2019.
 
Senate Tax holds hearing on House sales tax on some services
 
The Senate Assessment and Taxation Committee held hearings Wednesday on House Bill 2380, the bill that puts sales tax on some services that passed the House.
 
You will recall that bill adds the sales tax to the following services:
  • Motor vehicle towing
  • Mini-warehouse and self storage
  • Collection agencies
  • Investigation services
  • Security guards and patrol
  • Security systems (excluding locksmiths)
  • Certain non-residential cleaning
  • Certain pet care (excluding veterinarians)
 
It also reduced the sales tax on food by a penny in 2020.
 
Almost all of those testifying were opponents. Collection agencies showed up in force, providing the most testimony. The Self Storage Association opposed the bill.
 
The Kansas Motor Carriers has a Towing and Recovery Division that opposed the bill.
 
The Wichita Independent Business Association opposed the measure in written testimony, saying it will particularly hurt small businesses.
 
One supporter who testified at the end of the hearing was Representative Kristey Williams (R-Augusta), one of the authors of the amendment that added services and the food sales tax reduction.  Williams said she and others have been working with the Revenue Department to figure out how to implement the legislation. 
 
She also said they have a revised list of $165 million in exemptions.  Some are based on NAICS codes, while others are based on the type of services.  NAICS codes mean the North American Industry Classification System, the standard used by federal statistical agencies.
 
Some knowledgeable observers believe this concept might be included in a final revenue/income tax bill.  It has already passed the House of Representatives, so it can be inserted into a tax conference committee report.
 
The latest buzz on an income tax bill
 
Once again Wednesday, the House/Senate conference committee on taxes did not meet.  Monday, House Taxation Committee Chairman Steven Johnson (R-Assaria) had proposed returning to the 2012 pre-income tax cut rates.  The Senate is not expected to accept that offer and is said to be working on an offer of its own.
 
We believe that will be two-tiered income tax rates, along with repeal of the business pass-through income tax exemption.
 
The House may be willing to accept that offer if the rates are high enough to fund the budget and pay for the first two years of the House version of school finance.  I’m told that would provide $50 million per year to highways.
 
One problem is that some of the rates being floated might not be enough to make final KPERS payments by the state the second year of the two-year budget.  However, almost everyone believes the business pass-through income repeal estimate is very low, and actual numbers could allow for the KPERS payments.
 
Of course, this is a simple majority scenario of 21 Senate votes and 63 House votes to pass, with the assumption that the Governor would sign the bill.  It would likely not garner any Democrat votes.
 
Kansas Speaks survey is out
 
The well-respected Kansas Speaks Survey for Spring 2017 is now out.  The survey is conducted twice a year by the Docking Institute of Public Affairs at Fort Hays State University.
 
The very broad survey covers quality of life in Kansas; taxes and the economy; government and politicians; and public policy issues.
 
Conducted from February 23 to April 11 of this year, a total of 1,362 Kansas residents were contacted by phone with 537 completing the survey.  The margin of error was four percent.
 
Here are two of the bullet points in the summary that caught our attention.  These are direct quotes:
  • When asked their preference for addressing the budget deficit, just over two-fifths wanted to cut spending exclusively, while another one-fourth wanted to increase taxes exclusively.  Just over one-third favored a combination of tax increases and lower spending.  Republicans and those with lower education levels were more likely to favor spending cuts, while Democrats and those with higher education levels were more likely to favor increasing taxes.
  • Respondents who said they were in favor of “increasing taxes” or “both” were asked which taxes they would increase. Over half (56%) favored increasing income tax, 39% favored increasing sales tax, and 19% favored increasing property tax.  Republicans and females were more likely to favor increasing sales tax, while Democrats and males were more likely to favor increasing income tax.
 
Wichita State economist: is a state-led recession coming?
 
The Director of the Wichita State University Center for Economic Development and Business Research says the Kansas economy may have reached its peak, adding, “There are now multiple signs of an economy that is losing steam.”
 
Economist Jeremy Hill made the comment as his revised Kansas Employment Forecast was released by the Center.
 
Hill predicts 2017 nonfarm employment in Kansas will increase by only 0.5 percent, or about 7,049 jobs.  Most new jobs are predicted to come from the service sector, with production and trade, transportation and utilities sectors following.
 
The government sector is projected to remain constant, growing by 0.1 percent.
 
The report says the Topeka, Kansas City, and Wichita metropolitan areas are all expected to grow at rates faster than the state average in 2017, with a combined average growth rate of 1.4 percent.  Excluding those three metro areas, the rest of the state is forecast to experience an employment decline of about one percent.
 
Hill notes the Kansas slowdown contrasts with the U.S. economy, which is growing.
 
Hill said, “Although the forecast calls for employment growth at half of the rate over the past five years, increased caution should be added as a state-led recession is potentially around the corner.”

KEPC UPDATE: Slow day at statehouse, chicken or egg, Wednesday schedule, KEPC in the news

In this issue …
  • Slow day at the Statehouse
  • Which comes first, the chicken or the egg…school finance or income tax?
  • Wednesday’s  schedule
  • KEPC in the news
 
Slow day at the Statehouse
 
The Kansas House and Senate went home before 2:30 pm Tuesday, leaving the statehouse virtually deserted with the exception of a conference committee on a public employee retirement bill.
 
There was no conference committee meeting called on taxes.  Most legislators were off trying to find ways to occupy themselves while waiting for House and Senate leaders to figure out what comes next.
 
The senate debated HB 2278, a bill that deals with whether guns will be allowed in public hospitals, state run mental facilities, and on college campuses. The debate stopped when the senate voted to send the bill back to committee.
 
The senate also passed a bill that allows cities or counties to establish one or more “common consumption areas” and prescribe times during which alcoholic liquor may be consumed in the areas.  The bill, Substitute for House Bill 2277, passed by a vote of 35 to 5.  It was amended in the senate so it will go to a conference committee to iron out differences.
 
Meanwhile, a conference committee working issues related to KPERS employees who wish to work for a KPERS employer after they retire has reached an agreement. The legislature has been touching up changes to the law made in previous sessions.
 
This is the 92nd day of the 2017 Legislative session.
 
Which comes first, the chicken or the egg…school finance or income tax?
 
One of the top GOP House members involved with the income tax legislation told me Speaker of the House Ron Ryckman (R-Olathe) is trying to decide what to run first in the house, school finance or an income tax bill. 
 
A school finance bill (House Substitute for House bill 2410) passed out of the K-12 Education Budget Committee Monday without recommendation.  It’s about ready to put on the agenda for debate.
 
As of this writing, new computer runs on what the bill does to individual school districts were not available from the Kansas State Department of Education.
 
Democrats and many Moderate Republicans have been saying Education should be debated first, so lawmakers know how much money they need to raise.  Those of a more conservative nature prefer to do income tax legislation first.
 
The other problem on income taxes is the Governor.  Ryckman and conservatives would rather pass a bill that the governor will sign.  That would only require 21 Senate votes and 63 House votes, a simple majority instead of a 2/3 majority needed to override a veto.  The veto-proof majority has been very difficult to achieve.
 
Governor Brownback is said to be hard to pin down on what he would sign (slippery as a pocketful of pudding).
 
House leadership is looking at two income tax brackets with rate increases and removing the business pass through income tax exemption.  Although Brownback opposes ending the business exemption, tax negotiators say a bill will not pass the legislature without removing it.
 
All of this would mean that the House does not expect the Senate to accept House Tax Chairman Steven Johnson’s (R-Assaria) proposal to just return to the 2012 tax rates (before the tax cut bill passed).
 
Wednesday’s schedule
 
We’re pretty sure Speaker Ryckman has not yet made his mind up on what issue to run first (see story above) as of this writing because the House Calendar for Wednesday is out.  No bills are listed for debate and amendment on General Orders. 
 
About the only substantive work the House can do is on conference committee reports.
 
The Senate Calendar for Wednesday also includes no bills for debate on General Orders.
 
There is a hearing scheduled on HB 2380 in the Senate Assessment & Taxation Committee.  That’s the bill that passed the House Monday that puts the sales tax on some services like towing, private investigators and security, and pet services.
 
KEPC in the news
 
The Kansas Economic Progress Council was mentioned in a national news media story published on Saturday by Business Insider, a prominent online news website.  The story is about the Kansas budget disaster that sprang from the 2012 income tax legislation.
 
It discussed how Kansas should be a lesson for the Trump Administration, which wants to cut taxes.
 
Business Insider is a German-owned company based in New York that also operates international editions in several countries.
 
 
 
A note on this newsletter: 
 
Because action during the veto session can move rapidly, I will be doing more frequent updates on what’s happening the day it happens (IF something happens).  That will mean my end of the week report may not be as lengthy as usual.  It might even be delayed until the next week.

KEPC UPDATE: School finance, income tax, sales tax

In this issue …
  • School finance passes committee…finally
  • Income tax proposal: just go back to 2012
  • Sales tax on some services passes House
 
 
School finance passes committee…finally
 
There was some progress Monday, the 91st day of the Kansas Legislature, as the House K-12 Education Budget Committee passed a school finance bill after months of study and deliberation.
 
The committee passed Substitute for House Bill 2410 without recommendation. The vote was 10 to 6 after very difficult discussions.
 
Estimated state aid by school district is yet to be determined for certain. The Kansas State Department of Education brought runs to the committee showing what happens to school districts in the version of the bill before it was amendment today. Here’s a link to computer runs that show how the bill stood before today’s meeting began.
 
All of this will change and we will let you know as soon as new runs are available.  However, take these runs with a grain of salt because the committee took actions to lower the proposed new money after the first year.
  • The base funding level remains the same as previously proposed: $4,006 for school year 17-18.
  • That includes an additional $179 million in state general fund aid.
  • Base aid for school year 18-19 would be $4,152.  The bill originally had an additional $150 million for this year but an amendment reduced that to $100 million.
  • After the 18-19 school year (for the next three years) the base would increase by the consumer price index.  This is a change from the $150 million additional each year for three years proposed in the previous version of the bill.
The committee voted the bill out “without recommendation,” which probably means nobody really likes it, but there was a strong desire to move something forward.
 
The House agenda for Tuesday (known as General Orders), does not show the bill is scheduled for debate. The amendments to the bill that were passed Monday will have to be written and inserted and new runs on what the bill does to individual school districts will also be prepared.
 
Income tax proposal: just go back to 2012
 
In a proposal that shocked the Senate Assessment and Taxation Chair, House Taxation Chairman Steven Johnson (R-Assaria) proposed simply repealing the 2012 income tax plan. In other words, go back to rates, etc. from 2012.  The sales tax increases that have since been enacted would not be affected.
 
The proposal would raise an estimated $640 million in 2018 and $772 million in 2019. That is far beyond anything that has been previously proposed.
 
What’s really strong about the proposal is that it’s easy to explain and easy to defend. Instead of talking lots of numbers, it’s just, “We’re going back to what we did before the income tax cuts.”
 
When a legislator gets criticized for raising taxes, the simple response is, “We just went back to where we came from before all this trouble started.”
 
Where were we in 2012:
 
Married, filing jointly
The three bracket structure for married individual income taxes was:
  • For taxable income under $30,000, 3.5%
  • For those making over $30,000 but under $60,000, $1,050 plus 6.25% of the excess over $30,000
  • For those making over $60,000, $2,925, plus 6.45% of the excess over $60,000
The 2012 bill went to two brackets and lowered the rates:
  • For taxable income under $20,000, 3.0%
  • For those making over $30,000, $900 plus 4.9% of the excess over $30,000
(We understand that the old rates would be phased in)
 
Non-wage business income was subject to individual income tax.  That included income reported by LLC’s, Subchapter-S Corporations, and sole proprietorships.
 
Tax credits were allow for individual taxpayers for the following:
  • food sales tax rebates
  • abandoned well plugging
  • adoption expenses
  • agritourism
  • alternative fuel equipment expenditures
  • assistive technology
  • child and dependent care expenses
  • child day care expenses
  • disabled access expenditures
  • environmental compliance expenditures
  • individual development account contributions
  • law enforcement training center contributions
  • small employer health benefit plan contributions
  • swine facility improvement expenditures
  • port authority contributions
  • telecommunications property tax payments
  • venture capital contributions
  • certain temporary assistance to family contributors
The above credits may not all be in the bill.  Initial reports indicated only some.
 
The standard deduction for single head-of-household filers was $4,500, and for married taxpayers filing jointly it was $6,000.  The income tax cut bill increased those to $9,000.
 
The tax law included a subtraction modification for certain long-term care insurance expenditures; and  the ability of individuals to utilize the income tax deduction for expensing enacted in 2011.
 
There was a two-year new pool severance tax exemption.  The income tax bill repealed it.
 
Renters were eligible to participate in the Homestead Property Tax Refund program.
 
There were some other tax benefits allowed after the 2012 income tax bill that were later changed.  For example, mortgage interest and property taxes paid were 100 percent deductible, but were later changed to 50 percent deductable.
 
Further discussion on the proposal is expected by the conference committee.
 
Sales tax on some services passes House
 
The House passed a bill Monday that puts sales tax on some services, House Bill 2380.
 
The original bill authorized a Marion County sales tax.
 
An amendment on the floor by Representative Kristey Williams (R-Augusta) applied the sales tax to:
  • Motor vehicle towing
  • Mini-warehouse and self storage
  • Collection agencies
  • Investigation services
  • Security guards and patrol
  • Security systems (excluding locksmiths)
  • Certain non-residential cleaning
  • Certain pet care (excluding veterinarians)
Williams also include gym memberships, including the YMCA and private exercise businesses, but that was removed by a later amendment.
 
The amendment also included a decrease in the sales tax on food on July 1, 2020, from 6.5 percent to 5.5 percent.  The rate reduction would apply to bottled water, but not to alcoholic beverages, tobacco, candy, dietary supplements, soft drinks, or food sold through vending machines.
 
The bill raises an estimated $52.2 million in FY 2018.  $43.8 million would go to the state general fund.  About $8.4 million would go the highway fund.
 
Beginning in FY 2121, the sales tax reduction would be a negative to the state general fund of less than a million dollars.
 
The bill passed 78 to 42 and was sent to the Kansas Senate.  Here’s how members of the house voted.
 
A note on this newsletter: 
 
Because action during the veto session can move rapidly, I will be doing more frequent updates on what’s happening the day it happens (IF something happens).  That will mean my end of the week report may not be as lengthy as usual.  It might even be delayed until the next week.
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KEPC UPDATE: Income tax hike, school surcharge, tax cut trigger, 20 mils for schools, tax lid, gas tax, school finance, service sales tax

In this issue …

  • Gone for Mothers Day but then straight through
  • Income tax hike fails in Senate
  • House Chairman introduces new income tax bill with school surcharge
  • Oklahoma repeals tax cut trigger mechanism
  • 20 mills for schools moves without tax abatement change
  • Property tax lid change advances
  • Committee will work on gas tax increase
  • School finance update
  • Sales tax on services still being talked up
  • BILL TRACKING

 

Gone for Mothers Day but then straight through

Senate Majority Leader Jim Denning (R-Overland Park) told Senators Thursday afternoon they would be coming back at 8 a.m. Friday morning, but there will be no floor work.  He also announced they will not be working on Saturday and Sunday (over the Mothers Day weekend).

However, Denning said that beginning Monday the Senate will work 7 days a week until the session is over.

We have not heard the plans of the House of Representatives.

 

Income tax hike fails in Senate

By now you’ve heard that an income tax bill failed to receive a majority of votes in the Kansas Senate this week.

The vote was 18 to 22 on House Bill 2067.  The bill raised enough to cover most of the needs of the budget with the exception of K-12 education.

Those voting for the bill (including two Democrats) generally believed it was okay to come up with education money in a separate second bill once school finance is decided.

Those opposing the bill did so for different reasons.  Conservatives said it was too much.  The majority of Democrats want to do school finance first.

 

House Chairman introduces new income tax bill with school surcharge

The day after the income tax defeat, House Taxation Committee Chairman Steven Johnson (R-Assaria) came up with another income tax bill that he introduced in committee.  This one aims toward raising all of the money necessary for the budget, including education as many legislators demand.

Johnson said the bill would be very similar to House Bill 2178, the bill the legislature passed but Governor Brownback vetoed.  The one difference will be an education “surcharge” to be placed on top of the base rates.  Lawmakers could plug in a surcharge rate established on what was needed to satisfy the Kansas Supreme Court that funding was constitutional.

The motion to introduce in House Taxation Committee was only conceptual and no bill or bill number is yet available.

 

Oklahoma repeals tax cut trigger mechanism

The Oklahoma Senate has passed and sent to the Governor a bill that repeals that state’s trigger mechanism to lower income tax rates.  By a vote of 32 to 9 on Monday, the bill was sent to Governor Mary Fallin, who is expected to sign it.

The trigger mechanism was added to the law in 2014.  When collections increase by $100 million, the individual rate would drop from 5 percent to 4.85 percent.  The Sooner State is facing an $878 million budget deficit next year.

 

20 mills for schools moves without tax abatement change

Senate Bill 146, which extends the 20 mill statewide property tax levy for schools, passed out of the House Taxation Committee Thursday afternoon with a key change taken out.

The bill had previously passed the Senate.

In the Senate version, beginning in school year 2017-2018, any new property tax exemptions granted by the State Board of Tax Appeals for property financed by industrial revenue bonds or for economic development purposes (pursuant to the Kansas Constitution) for which the public hearing was not held prior to May 1, 2017, would no longer apply to the statewide 20 mill school finance levy.

Previously exempted property would continue to be eligible for exemption from the levy.

Opponents of that provision said that would harm economic development.  Those testifying in opposition to that provision included Erik Sartorius of the League of Kansas Municipalities; Trent Armbrust of the Kansas Economic Development Alliance; Ashley Sherard of the Lenexa Chamber of Commerce; and Jason Watkins of the Wichita Regional Chamber.

Watkins said he’s not sure all Senators understood the ramifications of the amendment when it was added in Senate floor debate.

 

Property tax lid change advances

A bill that exempts certain employee benefits from the local property tax lid passed out of the House Taxation Committee Thursday.  The measure is HB 2424.

In addition to exemptions in the law currently for law enforcement, fire protection or emergency medical services, these items are added by the bill: increases in employer contributions for

  • social security
  • workers compensation
  • unemployment insurance
  • health-care costs
  • employee benefit plans and employee retirement and pension programs

 

Committee will work on gas tax increase

At its next meeting on Monday, the busy House Taxation Committee will work on House Bill 2412, which raises the motor fuels tax by five cents a gallon.

The bill would raise an estimated $84.6 million in Fiscal Year 2018, which begins July 1, 2017.

But it’s not just gas at the pump that would change.

E-85, diesel, LP gas, compressed natural gas, and liquefied natural gas would also see tax incrases.

Certain motor fuel permits used by industry would also be increased.

 

School finance update

The House K-12 Education Budget Committee continues to work on substantive changes to school finance.  Much of the work is based on the former school finance formula which was replaced by a two-year block grant program, now declared unconstitutional by the Kansas Supreme Court.

Lately, the committee has been discussing accountability and at-risk student performance and how that should be addressed in a new formula.  Local property taxes and how they should be used are also part of the mix.

No bill has yet passed out of any legislative committee.

The Senate appears to be waiting on the House before taking any action.

 

Sales tax on services still being talked up

As the House Taxation Committee continues to tackle a variety of issues, removing certain sales tax exemptions on services are surfacing in connection with House Bill 2384.

Always a thorny subject, a side group of committee members are trying to put together a list to consider.

The lawmakers are Representative Kristi Williams (R-Augusta); Representative Dan Hawkins (R-Wichita); and Representative Jack Thimesch (R-Spivey).

In a handout delivered to the House Tax Committee, they listed $285 million that could be raised by taxing certain services.

Here’s part of the list:

  • Barber shops
  • Beauty salons
  • Manicure/pedicure personal services
  • Gym memberships
  • Dating services
  • Towing
  • Parking Garage/Parking
  • Limousine and cab rental
  • Detective services
  • Security services
  • Non-residential cleaning services
  • Pet daycare
  • Mini storage/self storage
  • Custom computer software
  • Collection agencies
  • Expanded lawn services
  • State owned cabins
  • Residential and agriculture utilities
  • Coin operated laundries

There’s also an extensive list of personal services.  Here are just a few:

  • Steam and Turkish baths
  • Hair removal
  • Ear piercing
  • Hair replacement
  • Hair weaving
  • Massage
  • Saunas
  • Sun tanning
  • Tattoo services
  • Astrology services
  • Baby shoe bronzing
  • Bail bond services
  • Concierge services
  • Escort services
  • Fortune telling services
  • House sitting services
  • Life coach services
  • Locker rental
  • Palm reading
  • Party planning
  • Personal fitness trainers
  • Psychic services
  • Shoeshine parlors and services
  • Singing telegram services
  • Wedding chapel services (excluding churches)
  • Wedding planning

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.

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.