KEPC WEEKLY UPDATE: Adjourned, budget waits for revenue, gloomy fiscal update, unemployment insurance, tax bill rundown

In this issue …

  • Legislature adjourned until April 29 veto session
  • Budget agreement waits for revenue picture
  • Lawmakers hear gloomy fiscal update
  • Unemployment Insurance bill moves forward
  • More tax bills introduced

 

Legislature adjourned until April 29 veto session

The Kansas Legislature held its first adjournment Thursday evening and will return April 29 for what’s expected to be a lengthy veto session.

This newsletter contains just a few of the highlights from this week. A more detailed summary will be available in the next week or so, once we figure out where all the pieces of the puzzle.

 

Budget agreement waits for revenue picture

House and Senate negotiators have reached an agreement on a budget for the next two fiscal years, but will wait to vote until the veto session. Complicating the picture is that the Kansas House of Representatives has never debated the budget. A spending plan was passed out of the Appropriations Committee but never brought up for consideration. That’s because it was not expected to pass.

Instead, the Senate used a parliamentary procedure which means that House members will only have the opportunity to have an up or down vote on the budget. They will not be able to offer amendments.

Both the House Appropriations version of the budget and the budget that passed the Senate will require additional revenue. Both are underfunded.

The delay until the end of the month gives lawmakers a chance to get better information on how much they will need to raise revenue, cut spending, or a combination of the two.

April is a big month because it’s when the majority of state income tax is collected. .

Lawmakers will also be waiting for information April 20 from the consensus revenue estimating group, the official soothsayers whose educated guess on future revenues must be used as a basis for the budget.

 

Lawmakers hear gloomy fiscal update

If the discussion in the House Taxation Committee this week is any indication, the outlook for a recovering economy and more revenue collections is not good. Many who attended the session described the mood as gloomy and depressing.

Chris Courtwright, Principal Economist in the Legislative Research Department, noted that March revenues were $11 million short of estimates. He also noted:

  • The corporate income taxes showed signs of weakness in December and have not bounced back much. They are down $17 million. Officials are unsure of why corporate collections are sliding. They are now $26 million below the total estimate.
  • Sales taxes are down about $13 million for January/February. They slid another $6 million in March and are currently $19 million down from the estimate that was made in November. If income taxes are eliminated, the state will have a strong dependence on sales taxes, so this news is not encouraging.
  • The severance tax is down $2.1 million through January for a total of over $9 million down from the November estimate. The slide is expected to continue because the price per barrel of oil has plummeted. The estimate was based on $80 per barrel oil. It’s currently $40 per barrel.
  • The individual income tax is up $7 million for March, but only $12.7 million up from the November estimate of the fiscal year to date. Courtwright said that could indicate good news, or not.

J.G. Scott, Chief Fiscal Analyst for Legislative Research, also presented information to the Tax Committee:

  • The current fiscal year (ending June 30) budget shortfall is $48.3 million. That will change again when the consensus revenue estimating group meets.
  • That number does not include all of the revenue enhancements proposed by Governor Brownback (income, liquor, tobacco taxes, or amnesty proposal)
  • It does include the proposed KPERS agreement for $1 billion in bonding, the surtax on KanCare managed care organizations, and the savings from the school block grant legislation.
  • For the FY 2016 budget, lawmakers need $400 million in reductions or enhancements to have a cushion in the bank. For the FY 2017 budget, the will need $250 million for a zero ending balance with no cushion.
  • With the taking of money originally earmarked for transportation, $290 million in preservation projects for 2015 are being moved to future years.

 

Unemployment Insurance bill moves forward

Despite a possible conflict with the federal government, the Unemployment Insurance Bill (SB 154) is close to passing the legislature. On Thursday, the House gave approval to a conference committee report by a vote of 85 to 36. The Senate will take the bill up when it returns for the veto session.

SB 154 would revise provisions of the Employment Security Law, commonly referred to as Unemployment Insurance (UI), pertaining to the calculation of maximum weekly benefits, the assessment of employer contributions, and the administration of the UI System.

A letter from the administrator of the federal Office of Unemployment Insurance said part of the bill would jeopardize the state’s access to federal grants used to run the unemployment system as well as some unemployment offices. Kansas Department of Labor officials disagree.

Senate Bill 154 eliminates a requirement that hiring of unemployment staff in the Labor Department be based on a competitive exam. The federal official says that’s the part of the bill in question.

 

More tax bills introduced

As legislators contemplate the possibility of raising taxes to fill the budget hole, new tax proposals were introduced this week, adding to the large buffet of choices that will be available for consideration during the veto session.

Here’s a sampling:

  • HB 2419 – Taxing moneys, notes and other evidence of indebtedness.
  • HB 2420 – Property exempted from taxation after July 1, 2015 will not be exempt from school property tax.
  • HB 2423 – The statewide mill levy for schools is increased from 20 to 30 mills for the next two school years.
  • HB 2424 – Providing for a state-wide school mill levy of 5 mills on exempt property.
  • HB 2425 – This bill lowers some income taxes and raises other.   Beginning in tax year 2015 and thereafter, the lower rate is decreased from 2.7% to 2.5% (those earning under $30,000). The top bracket (over $30,000) increases from the current 4.6% to 4.8%. That’s very likely a revenue increase for the state.

Also introduced but apparently not drafted yet is legislation that eliminates some economic development incentives and uses the savings to buy down the corporate income tax.

 

Find your legislator

Want to contact your legislator by letter, phone call, or e-mail to let them know what you think of any issue?

Here’s a quick and easy way to do it.  Just go to: http://openkansas.org/

Enter your full address, click on Search.  The page will not appear to have changed, but it has. Scroll down to find all of your elected officials.  Click on who you want to contact.

This site will give you contact information on your legislators, including office and home phone and e-mail.

KEPC WEEKLY UPDATE: Budget, tax, block grant, Abrams school formula, labor bill, UI bill, employment growth, lagging in federal funds?

In this issue …

  • Senate passes budget, House doesn’t try
  • More obligatory tax hearings
  • Governor signs school block grant bill
  • Hearings held on Abrams school formula
  • Senate trips over labor bill
  • UI bill gets strong House support
  • Kansas employment growth vastly different by region
  • Does Kansas lag in federal funds?

 

Senate passes budget, House doesn’t try

The Kansas Senate passed a budget bill this week that will require tax increases.  The vote was 26 to 13.  The Kansas House leadership decided early in the week not to even bring its budget up for debate,

With the state’s current tax structure the Senate budget is about $141 million short of being funded.  Something’s got to give because Kansas operates on a cash basis law and cannot spend what the state doesn’t have.  That means either tax increases or budget cuts or something else.

The House of Representatives had been tentatively scheduled to debate its spending plan on Tuesday, but media reports indicate turmoil over the weekend among Republicans caused the cancellation.  That turmoil probably revolved around conservative lawmakers who refuse to vote for anything that requires a tax increase.

Because the House decided not to run a budget bill, the Senate inserted the Senate budget into House Bill 2135 in a parliamentary maneuver.  That would bring the Senate’s version of the budget to the House for a straight up or down vote.  House members would not have the opportunity to offer amendments.

It’s likely that the House will vote Monday to send the bill to a conference committee where three senators and three representatives will negotiate over it.

The Kansas Legislature has adjourned until Monday.  Some conference committees have meetings scheduled.  Next week is the final week of the session prior to the First Adjournment.  Lawmakers will try to pass a budget before they leave the Statehouse.  They will then break until the veto session, which begins April 29th.

 

More obligatory tax hearings

Meanwhile, more hearings were held this week on tax legislation designed to raise the needed revenue to fund the budget.

The plan of tax committee leadership is to hold hearings (so they can say they did) before decided what taxes to raise during the veto session.  At that time, information on March and April tax collections will be available, as well as the best guess of the consensus revenue estimating group.

The Senate Assessment and Taxation Committee held a hearing on SB 233, the Governor’s cigarette and alcohol tax increases.  The proposal is widely viewed as unlikely to receive any legislative support.

The committee also heard testimony on SB 234, Governor Brownback’s other revenue raising proposal.  It includes some changes to the 2012 and 2013 income tax cuts, including near-freezing of rates and eliminating more of the itemized deductions sooner.

 

Governor signs school block grant bill

As the legislature was winding things up for the week late Wednesday afternoon, Governor Brownback signed the controversial school block grant bill in a private ceremony.  The bill deletes the 23-year-old school finance formula from the law and puts a two-year system of block grants into place while a new formula is developed.

News media were not informed and were not invited to the signing.

As of this writing, the panel of three judges hearing the school finance lawsuit has not taken action to stop the block grant legislation from going into effect, as was hinted last week.

 

Hearings held on Abrams school formula

The Senate Education Committee held two days of hearings on Senator Steve Abram’s (R-Arkansas City) pilot school finance proposal.   Testimony was mixed, with some school officials in favor of the legislation.  It would start with six school districts and expand over two years.

The plan includes six categories of state aid to K-12 public education:

  • Enrollment state aid
  • Poverty state aid
  • Sparsity state aid
  • Success incentive state aid
  • State equalization aid
  • KPERS employer contribution

Two large items of concern seem to be a lack of funding for students from non-English speaking families, as contained in the present formula, and the difficulty in tracking graduated students to gather information on the success state aid category.

 

Senate trips over labor bill

A bill to eliminate the Public Employees Relations Board and disallow payroll deductions for union dues got tripped up in the Kansas Senate, apparently over not allowing state workers and school district employees to deduct charitable contributions from their paychecks.  In particular, the United Ways in Kansas has been on the warpath, saying the provision will hurt the fundraising efforts of the charitable organizations.

The bill has been set aside for now.

Also tripped up in the Senate this week was Senate Substitute for HB 2326, concerning professional negotiations.  It was killed on a 13 to 27 vote.

It would have revised the Professional Negotiations Act concerning negotiable items, and provisions related to fact-finding when there is an impasse.

 

UI bill gets strong House support

Senate Bill 154, which revises the state’s Employment Security Law (Unemployment Insurance) passed the House this week 99 to 26 and is now in a conference committee to iron out differences between the two chambers.

The bill changes the calculation of maximum weekly benefits for the unemployed, as well as the unemployment taxes paid by employers.

The proposal moves from an “arrayed” system to a “fixed” system, based on an employer’s experience rating that reflects their usage of the unemployment system.  Many businesses have complained they have had no claims or few, yet pay big UI taxes.

 

Kansas employment growth vastly different by region

The latest Kansas Department of Labor report on nonfarm job growth shows jobs grew only 1.5% in the yearlong period from February of 2014 to February of 2015.

The differences in Kansas by region are striking.

The healthiest job growth was in the Manhattan Metropolitan Statistical Area (MSA) with a whopping 3.7%.  That was driven largely by growth in government jobs and the service sector .  The Manhattan MSA is made up of Pottawatomie and Riley Counties.

The Kansas City Area did well with 3.0% growth with strong showings by construction and financial activities.  That’s Johnson, Leavenworth, Linn, Miami, and Wyandotte Counties.

At the bottom end of the scale and most troubling was a very weak 0.4% growth in the Wichita MSA, made up of Butler, Harvey, Kingman, Sedgwick, and Sumner Counties.  The poor showing can be attributed to a dismal 1.7% decline in manufacturing, the economic lifeblood of the region.  There was also a 4.3% reduction in government jobs for the region.

Another way to look at the South Central Kansas employment situation is that the job rate growth at the state level was almost four times as fast as the Wichita MSA.

You can see the growth statewide and by region here. 

 

Does Kansas lag in federal funds?

Kansas gets 24.9% of its overall revenue from federal funds (less than most states) and 50% from taxes (more than most states).

The national average for states is 30% from federal funds.  That’s money used for programs like health, education, and transportation.

The information comes from Stateline, a publication of the Pew Charitable Trusts. Stateline based a chart on the latest 50-state data from the U.S. Census bureau for the fiscal year ending June 30, 2013.  The data accounts for all money used to pay for government services statewide.

Here’s a link to the Stateline information.

 

Find your legislator

Want to contact your legislator by letter, phone call, or e-mail to let them know what you think of any issue?

Here’s a quick and easy way to do it.  CLICK HERE and then enter your full address, click on Search.  The page will not appear to have changed, but it has. Scroll down to find all of your elected officials.  Click on who you want to contact.

This site will give you contact information on your legislators, including office and home phone and e-mail.

KEPC WEEKLY UPDATE: Budget debates, tax hearings, employment lags, renewable energy, school finance & formula

In this issue …

  • Budget debates next week
  • Tax hearings continue
  • 2014 Kansas employment growth lags the region
  • KanCare expansion hearings draw big crowds
  • Renewable energy – three hearings
  • The school finance vote
  • New school formula plan available Friday

 

Budget debates next week

The Kansas Legislature is expected to take up the House and Senate budget bills next week. A lot will be packed into debate on the floors of both chambers as lawmakers will only be meeting through Wednesday. In fact, there’s some discussion of trying to get done Tuesday evening.

Wednesday, March 25, is the deadline for bills to pass the second House. In other words, most bills (unless exempted) must be out of the House and Senate in some form or they are dead for the session (but they do carry over into next year).

The lawmakers will return Monday, March 30 through April 3, which is the date set for First Adjournment, the break prior to returning in late April for the veto session.

The House budget is in HB 2370. It totals $6.4 billion, but expected state revenues do not cover that amount without some revenue increases. The initial estimate puts the House budget at about $133.6 million short.

The House budget includes $3 million to hire an outside consultant to look for efficiencies in programs.

The House Appropriations Committee also added $3.7 million and $60 million in bonding authority to renovate and expand Seaton Hall at Kansas State University, which contains the College of Architecture, Planning and Design. That program is considered one of the top of its kind in the country. Ironically, it is located in a building in dire need of renovation.

The budget passed by the Senate Ways & Means Committee is in House Bill 2135.

It is also underfunded and requires some sort of revenue infusion or further cuts.

The chairs of both the House and Senate Tax Committees have said they will wait to see the budgets, April revenues, and the April consensus revenue report before working any tax bills in committee.

 

Tax hearings continue

Meanwhile, hearings in the tax committees continue on a variety of ideas to balance the budget.

On Tuesday, the House Taxation Committee heard testimony on HB 2399, which increases sales and compensating use tax rates to 6.3% (from the current 6.15%) beginning July 1. All new revenue would go to the state general fund rather than the current distributions. The state highway fund would receive the same number of dollars as currently. Any excess due to the increase goes to the state general fund.

The increase would sunset on July 1, 2018, returning the sales tax to the current 6.15%.

The Senate Assessment and Taxation Committee held a hearing Thursday on a bill to add the sales tax to residential and agricultural utilities. It’s Senate Bill 261.

To no one’s surprise, there was no one to testify in support of the bill. Chairman Les Donovan (R-Wichita) admitted he had requested the bill be introduced to take a look at exemptions.

Virtually every utility and consumer group opposed the bill.

Despite busy days on the floor of the Senate debating bills, the Tax Committee has some hearings scheduled next week.

Senate Bill 233 is the Governor’s bill to increase tobacco and cigarette taxes. That hearing is Tuesday.

Senate Bill 234 is the Governor’s bill on changes to the income tax law, including providing a tax amnesty, creating a budget stabilization fund, changing the method of buying down the income tax, and speeding up itemized deductions. It’s a tax increase bill bound to be controversial. That hearing is Wednesday.

On Thursday, the House Taxation Committee held a hearing on HB 2409, the bill that eliminates the $20,000 property tax exemption from the statewide school levy for residential property. There were no supporters and one written opponent. Eliminating the exemption would raise $45.2 million.

One final tax note: Representative Don Hineman (R-Dighton) has introduced legislation in the House Taxation Committee that attacks the deficit problem by increasing income tax rates, the original cause of the state’s budget problems. No printed version of his bill was available as of this writing.

 

2014 Kansas job growth lags the region

Figures released Tuesday by the U.S. Bureau of Labor Statistics (BLS) indicate Kansas job growth for 2014 was only 1.25%, the second lowest in the region for that year.

The numbers were contained in the news release entitled, “Regional and State Employment and Unemployment Summary.

Although Kansas unemployment was a low 4.2% in January, the job growth figures were lackluster compared to the rest of the country, but particularly the 7-state region normally used for comparison purposes by the Brownback Administration.

Kansas employment in January of 2014 was 1,382,000. In January of 2015, it was 1,399,300 (preliminary) for a total increase of 17,300.

That’s about 1.25%.

Here’s how that stacks up with the rest of the states in the region for the same period in rank order.

  • Colorado – 2.93% growth
  • Arkansas – 2.27% growth
  • Iowa – 1.61% growth
  • Missouri – 1.59% growth
  • Oklahoma – 1.50% growth
  • Kansas – 1.25% growth
  • Nebraska – 1.23% growth

 

KanCare expansion hearings draw big crowds

The House Health and Human Services Committee held two days of hearings on KanCare (Medicaid) expansion this week, drawing very large crowds of what appeared to be mostly supporters. In fact, Chairman Dan Hawkins (R-Wichita) noted a “huge” volume of written testimony in support of the bill.

The measure takes advantage of provisions of the Affordable Care Act (Obamacare), which would pay for much of the expansion.

Tom Bell of the Kansas Hospital Association, the organization that organized the supporters, led off the testimony and also made concluding remarks.

Bell said the plans pay for themselves in the long run and that the issue will not go away. Bell said, “Mr. Chairman, I’d ask you to think about the hospital in Western Kansas that is trying to hire a rural doctor. He’s considering Kansas and Eastern Colorado. Kansas recently increased their uncovered population by 2% while Colorado decreased theirs by 6%.”

A common theme has been that expanding KanCare will help keep rural hospitals open.

Other testimony from supporters:

Newton Medical Center CEO Steve Kelly (Chair of the Governor’s task force on the creation of KanCare) said the state will save money in the long run through prevention and better management. He noted Medicaid expansion covers working people and helps them become independent of government programs. Kelly said legislators need to set aside the stigma attached to the Affordable Care Act. The issue, he said, was not about agreeing with the act.

Governor Brownback’s former Secretary of KDHE, Dr. Robert Moser, testified in support. He emphasized that the expansion would benefit hard working people who make too much to qualify for assistance but too little to afford health care.

Opponents concentrated on the price tag, saying that health insurance for thousands of additional Kansans through the Affordable Care Act and KanCare expansion is irresponsible.

They included Jeff Glendening, State Director for Americans for Prosperity.

 

Renewable energy – three hearings

Both the Senate and House Taxation Committees held hearings this week on bills that sunset the lifetime exemption of property taxes on renewable energy utilities at ten years. Previously the exemption was unlimited. The 10-year-limit is retroactive.

Senate Committee Chairman Les Donovan (R-Wichita) spoke on SB 257, saying he asked for the legislation. Donovan said no other state has a lifetime exemption, and he’s not aware of any businesses that have a lifetime property tax exemption.

Opponents said the change sends a negative message to wind producers, who have the ability to site future projects in Oklahoma and Texas. They also said changing the exemption amounts to a breaking of a contract with the developers of the projects.

Donovan seemed open to changing the bill to remove the retroactivity.

A companion bill (HB 2396) was heard in the House Taxation Committee Thursday.

Kimberly Svaty of the Wind Coalition said her group especially opposes the way the bill is drafted. Seven projects that have signed purchase power agreements are in various stages of construction. The bill would impact those projects.

The exemption was passed in 1999 and the first wind farm was in operation by 2001, according to Karin Brownlee, representing NextEra Energy.

Meanwhile, a bill which sunsets the Renewable Energy Standards Act on July 1, 2016 had a hearing in the House Energy and Environment Committee. The act requires major utilities to increase their use of renewable energy to 15% by 2016 and 20% by 2020. This would eliminate those requirements.

Last year, there were several attempts to pass a similar measure, but all failed in the Kansas House.

Final action on the bill was scheduled in committee for Wednesday, but that was cancelled. Some believe that’s an indication there’s not enough support for the bill. The bill is House bill 2373.

 

The school finance vote

By now, you know that the legislature has passed the bill that eliminates the current school finance formula and puts a two year block grant program into place.   It’s on its way to the Governor, who is expected to sign it.

Here’s how the House and Senate voted on House Substitute for Senate Bill 7.

The Senate vote was Monday and on roll call, the vote was:

Yea – (25):

Abrams, Arpke, Baumgardner, Bruce, Denning, Donovan, Fitzgerald, Holmes, King, Knox, LaTurner, Lynn, Masterson, Melcher, Olson, Ostmeyer, Petersen, Pilcher-Cook, Powell, Pyle, Smith, Tyson, Wagle, Wilborn, Wolf,

Nay – (14):

Bowers, Faust-Goudeau, Francisco, Haley, Hawk, Hensley, Holland, Kelly, Kerschen, Longbine, Love, McGinn, Pettey, Schmidt,

Absent and Not Voting – (1):

O’Donnell,

The House vote was last Friday and on roll call, the vote was:

Yea – (64):

Anthimides, Barker, Barton, Boldra, Bradford, Bruchman, Brunk, Campbell, Carpenter, Carpenter, Claeys, Corbet, Couture-Lovelady, Davis, DeGraaf, Dove, Esau, Estes, Garber, Goico, Grosserode, Hawkins, Hedke, Highland, Hildabrand, Hoffman, Houser, Huebert, Hutchins, Hutton, Jones, Jones, Kahrs, Kelley, Kiegerl, Kleeb, Lunn, Macheers, Mason, Mast, McPherson, Merrick, O’Brien, Osterman, Pauls, Powell, Proehl, Read, Rhoades, Rubin, Ryckman, Ryckman Sr., Scapa, Schwab, Schwartz, Seiwert, Smith, Suellentrop, Sutton, Thimesch, Todd, Vickrey, Whitmer, Williams,

Nay – (57):

Alcala, Alford, Becker, Billinger, Bollier, Burroughs, Carlin, Carmichael, Clark, Clayton, Concannon, Curtis, Dierks, Doll, Edmonds, Ewy, Finch, Finney, Francis, Frownfelter, Gallagher, Gonzalez, Hemsley, Henderson, Henry, Hibbard, Highberger, Hill, Hineman, Houston, Jennings, Johnson, Kelly, Kuether, Lane, Lusk, Lusker, Moxley, Ousley, Patton, Phillips, Rooker, Ruiz, Sawyer, Schroeder, Sloan, Swanson, Thompson, Tietze, Trimmer, Victors, Ward, Waymaster, Whipple, Wilson, Winn, Wolfe Moore,

Absent and Not Voting – (3):

Ballard, Bridges, Peck,

 

New school formula plan available Friday

Wasting no time coming up with a new school finance formula after the block grants expire in two years, Senate Education Committee Chair Steve Abrams (R-Arkansas City) has introduced a bill, which is expected to be printed by sometime Friday.

Abrams plans to meet with education lobbyists and others at nine this morning to talk about his proposal.

 

Find your legislator

Want to contact your legislator by letter, phone call, or e-mail to let them know what you think of any issue?

Here’s a quick and easy way to do it.  Just go to: http://openkansas.org/

Enter your full address, click on Search.  The page will not appear to have changed, but it has. Scroll down to find all of your elected officials.  Click on who you want to contact.

This site will give you contact information on your legislators, including office and home phone and e-mail.

KEPC WEEKLY UPDATE: Block grants, effects of SB 7, passive income, rural/urban opportunity zones, STAR bonds

In this issue …

  • Block grant for schools given tentative approval
  • What happens to your school district with SB 7?
  • Hearing held on passive income change
  • More tax hearings next week
  • Rural opportunity zones
  • Urban opportunity zones
  • STAR bonds

 

Block grant for schools given tentative approval

After four hours of debate Thursday, the Kansas House of Representatives approved the proposed K-12 block grant bill and scrapped the 23-year-old school finance formula. The vote came less than a week after the legislation was available for review by the state’s school districts.

The vote was a narrow 64 to 58 approval. A majority is 63 votes. It is possible that the measure could gain or lose votes by the time final action takes place on Friday morning.

The House goes in at 8 a.m. Friday morning. The bill is House Substitute for Senate Bill 7. If it passes, it will go to the Kansas Senate, where it could be passed on a simple up or down vote. That’s not likely to happen until next week.

The legislation is key to dealing with the state budget by restricting the amount of money spent on K-12 for the next few years. Holding that spending flat helps protect the Governor’s 2012 and 2013 income tax cuts. Without it, legislators may have to face the difficult task of raising taxes to fill the budget gap.

The funding for individual school districts in the bill includes retirement funding (KPERS), which makes the money for all local school districts look like increases.

During the debate, House Education Chair Amanda Grosserode (R-Lenexa) was the main presenter of the bill

Here’s what it does:

  • Repeals the current school finance formula.
  • Reinstates the 1.5% allotment (cut) to the base budget per pupil that Governor Brownback cut for the current school year.
  • Replaces the current formula with block grants for the 15/16 and 16/17 school years.
  • Creates a new formula for capital outlay and bonded interest state aid.
  • Honors the current commitments for bonded interest state aid.
  • All funds except bonded interest, special education, and KPERS can be transferred.
  • The bill sunsets June 30, 2017, which forces a future legislature to take some sort of action.

Grosserode argued the current formula leads to uncertainty in the budget process. She said the bill spends more than the Governor’s budget and fully funds the KPERS increase that schools were going to have to fund with existing funds.

Representative Ed Trimmer (D-Winfield) said the bill does not get money to the schools where it is needed. He gave the example that Kansas City would get $235,466 more, while Winfield would lose $256,000. Trimmer said the only local control is in deciding which programs to cut.

There is a strong consensus among education groups that the bill was rushed through the process so that there is not enough time for educators to react. An often cited fact is that most school boards in Kansas have not met since the bill became available.

If it passes, SB 7 does not solve the state’s budget problems and revenue increases are likely still on the legislative agenda. The Tax Committees of the House and Senate are hearing a variety of ideas to find revenue, but holding off on action until May.

That action would be during the veto session after March and April revenues are available and the consensus revenue estimating group has had a chance to meet and adjust their predictions.

 

What happens to your school district with SB 7?

 

Operating Funds Summary  - 2015 block grants SB 7_Page_1We have a chart that shows just that but it’s not from the State Department of Education. It was developed by a former school district financial person who was able to put the numbers together for each district in a way that has not been provided by the state.

We believe it gives a better picture of what school districts face because KPERS payments are subtracted along with virtual aid. It also shows the original budget state aid for each school district, as passed last summer (before the Governor’s allotments and the rescission bill).

Column 1 is the 2014-15 enrollment.

Column 2 is the original state aid budget.

Column 3 is the state aid budget for the rest of this year with Senate Bill 7

Column 4 is the state aid loss or gain for the rest of this year with Senate Bill 7.

Column 5 is the 2015-16 state block grant.

Column 6 is the loss or gain for 2015-16 compared to this year.

Column 7 is the 2016-17 state block grant.

Column 8 is the 2017-17 state aid loss compared to the original 2014-15 state budget.

Don’t let the above explanation scare you. The chart is really easier to understand once you look at it.

Here’s the link to the chart.

 

Hearing held on passive income change

After the House debate on school finance, the House Taxation Committee met Thursday afternoon to consider HB 2392, which modifies the 2012 income tax law to allow passive income taxation.

The committee heard the state could pick up an estimated $65 million by adjusting this part of the break for business income. Passive income is rental income or income from a business in which a person does not actively participate.

There were no proponents of the bill during the hearing.

It was opposed by the Kansas Chamber of Commerce. Eric Stafford of the Chamber argued the state should be looking at being more efficient before raising taxes.

Dan Murray, Kansas State Director of the National Federation of Independent Business, also opposed the bill, saying it injects uncertainty into business.

Gary Allerheiligen of the Kansas Society of CPAs was a neutral testifier. He said oil well royalty income is passive, as well as oil and gas income. Allerheiligen said it would likely also impact non-residents with interest in a Kansas business.

A similar hearing was held earlier Thursday in the Senate Assessment and Taxation Committee on a bill that is essentially identical. It’s Senate Bill 260.

 

More tax hearings next week

  • On Monday, the Senate committee hears SB 257, which puts a ten-year limit on property tax exemption for renewable resources technologies.
  • On Tuesday, the committee considers SB 270, which deals with tax credits for low income student scholarships enacted as part of last year’s school finance legislation. The bill appears to make the money available to a private school, not just an individual student attending a private school.
  • Thursday’s scheduled hearing is on SB 261, which imposes the sales tax on gas, electricity, heat and other fuel sources for residential premises and agricultural use.

Meanwhile the House Taxation Committee has this activity scheduled:

  • Monday will see an informational hearing on sales tax exemptions.
  • Tuesday is HB 2399, which increases the sales tax rate to 6.3% from the current 6.15%. However, the rate returns to 6.15% on July 1, 2018.
  • On Wednesday, the committee will hear HB 2400, which repeals the local ad valorem tax reduction fund. Lawmakers have not put any money in the fund for several years. It was designed to provide property tax relief by sending state revenue to local governments.
  • There’s another tax increase bill on Wednesday, HB 2401. It imposes an excise tax on ethanol production and electricity generated by renewable resources.
  • Thursday sees a hearing on HB 2396, which imposes a ten-year limit on property tax exemptions for renewable energy resources or technologies.

 

Rural opportunity zones

A couple of bills on rural opportunity zones (ROZ) were heard in the House Taxation Committee this week.

HB 2298 removes the sunset for the program. It’s set to expire after tax year 2016. There are currently 77 participating counties in the program

The Commerce Department testified the program has been a compelling reason for some people to move to and stay in Kansas. There are 330 individuals who will receive income tax waivers. The estimated economic impact is more than $44 million.

The committee also held a hearing on HB 2367, which would include Miami County as a rural opportunity zone.

 

Urban opportunity zones

We are getting our first look at the Governor’s proposal to create “urban opportunity zones” this week. It’s in House Bill 2406, just introduced on Wednesday.

The bill only impacts these zip codes within cities:

  • 66101 (Kansas City, Kansas)
  • 66102 (Kansas City, Kansas)
  • 66104 (Kansas City, Kansas)
  • 67210 (Wichita)
  • 66603 (Topeka)

These are supposedly urban core areas. It provides tax credits for investment, but the legislation is not clear because the language is imbedded in the rural opportunity zone statutes.

The Wichita zip code (67210) has a lot of people scratching their heads. It’s Southeast Wichita, including the Planeview area and parts of Oaklawn, but not all of it.

No one would argue that Oaklawn and Planeview need the help, but McConnell Air Force Base and Spirit Aerosystems are also in that zip code, along with a considerable rural area. Not included are areas of Northeast Wichita that most in that city would consider prime candidates for such legislation.

 

STAR bonds hearing held

A hearing was held Thursday afternoon on HB 2402

The bill says metro areas which are defined as “blighted areas” by statute have to qualify for STAR bonds with a minimum $25 million capital investment and $25 million in project gross annual sales.

Another new section says 0.05% of the revenues collected are to be sent to a Department of Revenue “STAR Bond administration fund.”

Meanwhile, there’s considerable angst about the use of STAR bonds to purchase Topeka’s Heartland Park to save it.

Heartland Park contains a dirt track, drag strip and road course. The National Hot Rod Association holds drag races at Heartland Park May 22 to 24 this year. It’s an event that brings many competitors and race fans to Topeka. In the past (and probably this year) and legislators are often kicked out of their hotel rooms and end up searching for lodging if the legislature is still in session.

A Legislative Post Audit cited several areas of concern and recommended some changes to the STAR Bonds law. The Post Audit staff is being requested to draft a bill to be introduced. One of the items for consideration would require economic impact studies to be done by outsiders.

 

Find your legislator

Want to contact your legislator by letter, phone call, or e-mail to let them know what you think of any issue?

Here’s a quick and easy way to do it.  Just go to: http://openkansas.org/

Enter your full address, click on Search.  The page will not appear to have changed, but it has. Scroll down to find all of your elected officials.  Click on who you want to contact.

This site will give you contact information on your legislators, including office and home phone and e-mail.

KEPC WEEKLY NEWS: Block grant, transpo day, farm tax, tax bill opposed, tax hearings, Medicaid expansion, KanCare, STAR bonds

In this issue …

  • Block grant plan…finally
  • Transportation Day is Thursday
  • More heat on farmland property tax
  • Governor’s tax bill opposed by Kansas Chamber
  • Senate committee will hold tax increase hearings
  • Brownback says he could sign Medicaid expansion
  • KanCare expansion hearing scheduled
  • STAR bond changes could be coming

 

Block grant plan…finally

Thursday was seven weeks to the day after Governor Sam Brownback said he wanted the legislature to work on replacing the school finance formula over the next two years and put a “block grant” system to schools in place in the interim. Instead of giving the legislature details of such a block grant system, he tossed them the task of coming up with a bill.

The bill was finally introduced in the House (HB 2403) and Senate (SB 273) on Thursday. The title of the bill: classroom learning assuring student success act.

Get it? The CLASS act.

Education groups are still trying to understand what it does, but we know some of it from a crowded news conference held by the major authors: Appropriations Chairman Ron Ryckman, Jr. (R-Olathe) and Ways and Means Chairman Ty Masterson (R-Andover).

Here are the highlights as we understand them at this point:

  • The program is still in process
  • Funding is increased by $300 million over the next two years. However, Legislative Research says two-thirds comes from KPERS spending increases
  • The bill is said to eliminate almost all restrictions on how the block grant money will be spent. Exceptions would be bond and interest; special education; and some administrative retirement funds.
  • The block grants make no provisions for growing or falling enrollment.
  • School districts could apply for money from an “extraordinary need fund” for unanticipated costs. They would have to take their case to the State Finance Council.

As of this writing, education groups were waiting for the important school finance runs that show what each district would receive under the plan. Once we have access to them, we will attempt to e-mail the information to you. We are hearing they will be available sometime Friday.

Hearings were scheduled for the plans even before the bill or the school finance runs were available.

Senator Masterson said the Senate Ways and Means Committee will tentatively hold hearings Tuesday from 9 to 12 in the morning. The House Appropriations Committee will start hearings Monday morning at 9 and may continue later in the day.

 

Transportation Day is Thursday

Economic Lifelines and the Kansas Contractors Association are partnering to host a Transportation Day at the Capitol next Thursday, March 12. The event is to show legislators there’s strong support for transportation and opposition to continued raids on transportation revenues designated for the T-WORKS program.

Organizations and individuals interested in participating are welcome.

The event begins at 10 a.m. at the Kansas Contractors Association Offices at 800 SW Jackson in Topeka on the first floor. That’s the corner of 8th and Jackson, just Northeast of the Statehouse. A free lunch will be provided at the Capitol, along with orange shirts!

If you or your group want to participate, you can contact either the Kansas Contractors Association at 785-266-4152, or Economic Lifelines at 785-233-1903.

Since FY 2011, here’s what’s been taken from the transportation program:

  • 2011: $257 million
  • 2012: $307 million
  • 2013: $110 million
  • 2014: $264 million
  • 2015: $421 million
  • 2016: $376 million (proposed)
  • 2017: $378 million (proposed)

Although the Administration has said previously that low bids and other efficiencies have allowed the transfers without an effect on the program, KDOT Secretary Mike King now admits there will be an impact.

Secretary King says there will be delays in 2015 and 2016 projects, but they will be completed. Some preservation work is to be put off to out years, but the amount and where is unknown and unclear.

There’s some discussion of removing the 18% cap on bonding allowed by K-DOT and raising it to 25%. This amounts to borrowing more to pay for the program, making it more expensive in the long term.

In House Appropriations discussions on the KDOT budget, it was revealed that only $150 million in sales tax would be left each year in the highway fund after the recommended transfers take place. Many legislators want to divert the entire 4/10 cent sales tax to the state general fund permanently, then decide what to appropriate to the highway fund in each budget.

 

More heat on farmland property tax

We are told the controversial bill that changes use value appraisal of agricultural property in a way that increases taxes on farmers will have a hearing Tuesday in the Senate Assessment and Taxation Committee. Senate Bill 178 is getting intense opposition from farm groups.

We noticed lobbyists from agricultural organizations doing research in the State Library this week pouring over old newspaper stories about agricultural land valuations.

Meanwhile, an informational hearing was held on the issue in the House Agriculture and Natural Resources Committee. Staff from the Kansas Revenue Department’s Division of Property Valuation appeared to brief the committee.

They went through calculations on how agricultural land values are determined, including values for different kinds of Ag land: cultivated crop land (dry and irrigated) and grasslands (native and tame).

Other fun facts:

  • In 2014, agricultural land produced $229 million in property taxes in Kansas
  • Agricultural land represents only 5.3% of the total property tax base in Kansas
  • 49 million acres are on the tax rolls
  • The average tax per acre is $4.67
  • The average appraised value per acre is $117
  • In 2014, agricultural land produced $34 million in property taxes for K-12 schools
  • Senate Bill 178 would result in an additional $160.8 million in property taxes for K-12 schools
  • 44 other states use a valuation system similar to Kansas

 

Governor’s tax bill opposed by Kansas Chamber

In an ironic twist of fate, income tax changes proposed by Governor Sam Brownback were supported by the Kansas Association of School Boards, but opposed by traditional Brownback allies: the Kansas Chamber of Commerce and Americans For Prosperity.

The testimony came during a hearing in the House Taxation Committee on House Bill 2307. That’s the Governor’s tax proposals without his tobacco and alcohol tax increases, which are in a separate bill.

The bill provides a tax amnesty, creates a budget stabilization fund, changes how future income tax cuts are implemented, and speeds up the reduction of certain itemized deductions. The bill would result in revenue increases (or tax increases if you prefer) of $103.2 million in FY 2016 and $108.5 million in FY 2017.

Mark Tallman of the Kansas Association of School Boards testified that KASB supports state tax policies that provide increasing education funding necessary for increasing education outcomes. Tallman made the case that educational outcomes are as vital to economic growth as tax policy, if not more. He was grilled pretty intensely by conservative Republicans on the Tax Committee.

Former Speaker of the House Mike O’Neal, now President of the Kansas Chamber of Commerce, testified against the Governor’s bill. O’Neal said for lower taxes to be fully effective in growing and stimulating the economy, they must be accompanied by reductions in government spending. He said the Kansas Chamber opposes any attempt to roll back the 2012 and 2013 tax cut legislation.

A representative of Americans For Prosperity also opposed the legislation.

Tax Committee Chairman Marvin Kleeb (R-Overland Park) said the committee would not take up any other revenue enhancement legislation until May. He said any decisions about tax reform will have to wait until the April consensus revenue updates.

But then, there is this: House Bill 2392, which modifies passive income, has a hearing in House Taxation next Thursday. It’s twin to Senate Bill 260 (see next story).

 

Senate committee will hold tax increase hearings

Meanwhile, on the other side of the Statehouse rotunda, the Senate Assessment and Taxation Committee will be holding some hearings on revenue enhancing (tax increase) bills next week.

Senate Bill 258 is a property tax increase on homeowners and other residential property owners. Current law exempts the first $20,000 of appraised valuation on residential property from the statewide school levy. The bill removes that exemption.

Senate Bill 260 reverses some of the income tax cuts for business by taxing certain income from rental activity or business activities in which the owner does not materially participate. That could include property income or rent income.

 

Brownback says he could sign Medicaid expansion

You may have heard about Governor Sam Brownback’s trip to Missouri, where he addressed Missouri legislators and conservative groups, touting his Kansas income tax cuts. Brownback was the guest of conservative Missouri billionaire Rex Sinquefield’s think tank. Sinquefield has been trying unsuccessfully to eliminate Missouri income taxes.

Little noticed was a statement Brownback made on Medicaid expansion (called KanCare in Kansas). Medicaid expansion is part of the Affordable Care Act (Obamacare) that has been rejected so far in Kansas.

According to a story in the Missouri Times, a Poplar Bluff weekly newspaper:

“Brownback said he was neither for nor against expansion, but that his main concern was improving the system if more citizens would be added to the rolls.”

“But he did clarify that if he was presented with a legislative proposal to expand Medicaid that met his own personal financial concerns, he would likely sign the bill into law.”

 

KanCare expansion hearing scheduled

Meanwhile, back in Kansas, it appears a hearing on Medicaid expansion will be held on House Bill 2319 in the House Health and Human Services Committee. The bill is the Kansas Hospital Association’s proposal for KanCare expansion.

It was given a boost after Representative Jim Ward (D-Wichita) offered a KanCare expansion amendment on a bill being debated in the Kansas House. Ward agreed to withdraw his amendment when Speaker of the House Ray Merrick (R-Stilwell) promised to allow a hearing on the issue.

We are told the hearings will be held on March 18 for proponents and March 19 for opponents and neutrals. The KHA is coordinating the proponent testimony but is asking supporters to attend the hearing to show their support.

 

STAR bond changes could be coming

A bill that makes changes to the STAR Bonds program (HB 2402) has been introduced but does not appear to be assigned to a committee at this writing.

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 bill says metro areas which are defined as “blighted areas” by statute have to qualify for STAR bonds with a minimum $25 million capital investment and $25 million in project gross annual sales.

Another new section says 0.05% of the revenues collected are to be sent to a Department of Revenue “STAR Bond administration fund.”

KEPC WEEKLY UPDATE: Halfway – no school finance, revenue buffet, ag tax, unemployment, ROZ, arts districts

In this issue …

  • Legislature is at the halfway point; still no school finance plan
  • More tax bills added to the revenue buffet
  • Ag land property tax issue heats up
  • Unemployment Insurance bill passes the Senate
  • Is ROZ in trouble?
  • Arts districts tax credit hearing is next week

 

Legislature is at the halfway point; still no school finance plan

The Kansas Legislature is now at the halfway point of the session, known as the “turnaround.” This week was the deadline for getting most bills out of their house of origin. However, several bills in the House of Representatives have been “blessed,” a process that keeps them alive when the Speaker of the House sends them to a committee that is exempt from the deadline rules.

Legislators are taking a very long weekend and will return to the Statehouse on Wednesday.

A bewildering phenomenon of the session is that over six weeks have now passed since Governor Brownback said he wanted to suspend the current school finance formula and replace it in the interim with block grants for school districts; yet there is still no bill, or even an outline of how that will work.

It’s unclear if districts will be held harmless or receive less money. It appears that new obligations will be placed on districts to fund locally what has been funded by the state previously. It also looks like certain categories of aid will disappear.

The amount of money Governor Brownback wants to spend is clear, but the impact on local school spending and how the money will be distributed is not.

 

More tax bills added to the revenue buffet

So many new tax increase bills have been introduced in the past few weeks, it’s hard to keep track. Most are not scheduled for a hearing, but appear to be on the back burner for later, in case they are needed.

In House Taxation Committee Wednesday, bills were introduced on:

  • A 10-year limit on property tax exemptions for renewable energy resources or technologies
  • A tax on aviation fuel
  • Tax rates on businesses with or without employees
  • STAR bonds and urban development

Also this week, we saw a bill in the House (HB 2392) that is the twin to a Senate Bill (SB 260) that taxes passive income. As I wrote earlier in the week, the bills seem to reverse some of the income tax cuts for business by taxing certain income from rental activity or business activities in which the owner does not materially participate. It could include property income or rent income.

There is a hearing in House Taxation next week on HB 2307, which includes many of the Governor’s proposed tax changes. The bill includes a tax amnesty program, accelerated reduction of income tax deductions, setting up a budget stabilization fund, and changing the mechanism for cutting income tax rates in the future.

That bill also includes the sort-of “freeze” on income tax rate reductions.

 

Ag land property tax issue heats up

Although hearings are not scheduled on it, the bill that increases property taxes on agricultural land (SB 178) continues to be a hot topic of discussion. Farm groups are fighting the change, saying it will devastate the industry and rural communities.

The current system uses an eight-year average to determine value for tax purposes, as well as net income. House Bill 178 changes that to a five-year average, based solely on cash rental rates.

According to an Associated Press story on the legislation:

“The Kansas Department of Revenue estimates the state would collect an additional $173 million in property taxes, while counties, school districts and local communities would take in an additional $717 million, a total annual increase on agricultural land of $890 million. Increases would vary county to county and by the type of land, and owners would see an average statewide property tax increase of 569 percent on each irrigated acre.”

The issue is being pushed by State Senator Jeff Melcher (R-Leawood) who reportedly promoted it at a special meeting of the Johnson County Legislative Delegation over the weekend. The issue has the potential to split rural and urban Republicans in the legislature and we have heard rumblings that some Republican senators exchanged words over the issue on the Senate floor.

The House Agriculture and Natural Resources Committee has scheduled an informational presentation for Wednesday afternoon on use value appraisal of agricultural land by staff from the Kansas Department of Revenue. No doubt that’s a reaction to the push for the Senate bill.

The bill is seen by many as a way to make up for revenue lost by the income tax cuts.

 

Unemployment insurance bill passes the Senate

Changes to the state’s unemployment insurance (UI) tax have passed the Kansas Senate and are headed for the House of Representatives.

The proposal moves from an “arrayed” system to a “fixed” system, based on an employer’s experience rating that reflects their usage of the unemployment system. Many businesses have complained they have had no claims or few, yet pay big UI taxes.

The bill came out of the Senate Commerce Committee, which added language suggested by the Kansas Department of Labor, which supports the change, but was concerned about the rates and how they affected the solvency of the unemployment insurance fund.

You can read the supplemental note on the bill, which is kind of layman’s explanation, here.

 

Is ROZ in trouble?

The effectiveness of the Rural Opportunity Zone (ROZ) program in Kansas is being questioned by some lawmakers concerned about its cost. The program is scheduled to sunset without legislation passing that extends it.

77 Kansas Counties have been designated Rural Opportunity Zones. People who move to a participating county from out of state can have their Kansas income tax waived for up to five years. They also qualify for a student loan forgiveness program.

At least three urban Republican legislators on the Senate Commerce Committee are questioning the usefulness of the program.

Here’s a link to a Topeka Capital-Journal story on the Commerce Department meeting.

 

Arts districts tax credit hearing is next week

A hearing is scheduled in the House Federal and State Affairs Committee next Thursday for a bill that establishes arts and cultural districts. It’s House Bill 2368.

Any city can establish one or more of these districts for the purpose of supporting the arts and cultural venues. The city can grant a property tax credit against the real property taxes on any building or improvements to facilities located in the district, so long as they qualify for use by a qualifying residing artist or an arts and cultural enterprise.

The bill says the tax credit cannot be granted for more than ten years and has to be prorated to reflect the portion of the building that qualifies. I guess that means if there’s an art gallery upstairs, but other businesses in a building, it’s the part of that the art gallery occupies that gets the tax credit.

The tax credit can’t exceed:

  • 80% of the property tax for the first five years
  • 70% for the sixth year
  • 60% for the seventh year
  • 50% for the eighth year
  • 40% for the ninth year
  • 30% for the tenth year

KEPC WEEKLY UPDATE: Deadline, rankings fall, transpo reversal reversed, tobacco and liquor, passive income, tax bills, two can play that game, ROZ, unemplyment insurance, KS OSHA?

In this issue …

  • Deadline approaches
  • Kansas’ Tax Foundation ranking falls, despite income tax cuts
  • Transportation reversal is reversed
  • Tobacco and Liquor tax hearings held
  • Will Kansas tax “passive” income
  • Other tax bills introduced
  • In the “two can play that game” department…
  • Extending rural opportunity zones (ROZ)
  • Unemployment insurance discussion continues
  • Establish a Kansas OSHA?

JOIN KEPC TODAY – Tell your friends…tell your colleagues. KEPC is the inside track to issues that matter at the statehouse and to Kansas businesses statewide.

 

Deadline approaches

Friday, February 27, is the House of Origin deadline in the Kansas Legislature. That means most House bills must have passed the House and most Senate bills must have passed the Senate. Without action, they are likely dead for the session.

The exception (and it’s a big one) is for exempt committees. Those are Federal and State Affairs, Tax, and House Appropriations and Senate Ways and Means.

With the deadline close, most of next week will be spent on the floors of the House and Senate debating bills. Those that don’t make the cut can be “blessed,” a parliamentary procedure where they are sent to an exempt committee to keep them alive.

Kansas’ Tax Foundation ranking falls, despite income tax cuts

Kansas ranking in the Tax Foundation 2015 report on State Business Tax Climate has fallen. The Tax Foundation is a Washington, D.C. – based think tank founded in 1937 that collects data and publishes research studies on tax policies at the federal and state levels.

It is considered a conservative organization.

Despite the individual income tax cuts that went into effect in 2013, Kansas dropped three rankings overall, from 19th to 22.

Other states in the region and their rankings:

  • Missouri 17
  • Colorado 20
  • Nebraska 29
  • Oklahoma 32

Here are some of the other rankings in the report.

One is best and 50th is worst.

Unemployment insurance rate – Kansas ranks 9th best in the country. This seems ironic since the legislature is considering substantial changes to the UI system.

Individual income tax rate – Kansas ranks 18th in the country.

Property tax rate – Kansas ranks 28th in the country. New Jersey is considered the worst. However, we would note that studies by the Lincoln Land Institute have shown Kansas has very high rural commercial property tax rates.

Sales tax – Kansas ranks 30th in sales tax. Remember this is business tax climate. Sales tax on business is often overlooked when lawmakers consider the impact on business. This is not a good ranking and the state made the temporary sales tax increase permanent in 2013.

Corporate tax rate – Kansas ranks 38th in the country in corporate tax rate, something that was generally neglected in the 2012 and 2013 income tax reductions. That legislation eventually gets to reducing corporate taxes in the far future, if ever.

 

Transportation reversal is reversed

We reported last week that a legislative subcommittee voted to reverse Governor Sam Brownback’s proposed cuts to transportation in his 2016/2017 budget.

The House Appropriations Subcommittee on Transportation/Public Safety deleted the transfer of $140 million in each of the next two years from the highway fund to other purposes.

After our report, the subcommittee met briefly and quickly reversed its decision. The Governor’s cuts have now been included in the 2016/2017 budget by the full House Appropriations Committee.

There was considerable discussion of the cuts in Appropriations.

Rep. Don Hill (R-Emporia) talked about how the T-WORKS program had the flexibility in the past to help fund NASCAR development and the Edgerton intermodal facility.  He worried about continuing that sort of flexibility with the new cuts from the program.

“I understand that we’re broke,” Hill said, but he is troubled about “travelling down that path.”  He said Kansas was “borrowing to fund the ongoing expenses of government.”

Rep. Jerry Henry (D-Atchison) asked how close the state is coming to taking not just sales tax revenues, but also gas tax revenue.  Subcommittee Chairman J.R. Claeys (R-Salina) said there was still $150 million left before sales tax money is depleted and motor vehicle fuels tax remains.  It was pointed out there is a prohibition from taking gas tax for the general fund.

Committee Chairman Ron Ryckman (R-Olathe) pointed out that under the transportation cuts, “some of the preservation has been put off to the out years.”

 

Tobacco and Liquor tax hearings held

The House Taxation Committee held two days of hearings this week on HB 2306, the Governor’s bill that raises alcohol and tobacco taxes. Even before the hearings began, Speaker of the House Ray Merrick announced that he opposes the tax hike proposals by Governor Sam Brownback.

Opponents at the hearing included longtime lobbyist Tuck Duncan, who represents the Kansas Wine and Spirits Wholesalers Association. Duncan made the point that if liquor taxes go up, Kansans in border areas will cross the state line to buy not only their liquor, but their cigarettes and gas in other states.

Jason Watkins of the Kansas Beer Wholesalers was very direct in criticizing the Governor for the proposal, saying he has not seen a proposal like this from the Administration, which proclaims to be pro-jobs. Watkins said the tax increase will add $1.30 to the cost of a case of beer. He also said the bill would cost 1,319 jobs in Kansas.

The Kansas Policy Institute also testified in opposition. Steve Anderson, former Brownback budget director, testified against his former employer’s bill, saying the state should not raise taxes but cut spending.

The room was packed the second day as anti-tobacco advocates supported the bill as a deterrent, especially for potential young smokers; and tobacco industry and various retailers discussed how it would hurt business.

Americans for Prosperity testified against both the cigarette and alcohol tax increases, saying such a policy based on single product taxes picks winners in neighboring states and losers at home.

 

Will Kansas tax “passive” income?

We haven’t seen the bill yet, but Senate Tax Chairman Les Donovan introduced a bill at Tuesday’s committee meeting that removes the income tax exemption from “passive income.”

Remember that the 2012 income tax cuts eliminated business taxes on “pass-through income.”

What is “pass-through income?”

Mark Robyn of The Tax Foundation wrote about it in a criticism when Kansas enacted the 2012 cuts.

He said “a pass-through business is distinct from a small business. In fact, it is primarily large businesses that account for a large fraction of the assets, revenues, and profits of pass-through entities…”

Robyn added that, “Tax policy that targets pass-through entities is thus not necessarily effective at targeting ‘small business.’”

This week, Secretary of State Kris Kobach announced an increase in business filings in Kansas for 2014, claiming it was a positive economic indicator.

However, the Robyn article a few years ago seemed to address what may be happening in Kansas:

“While favoring the pass-through structure over C corporations may lead to an increase in people employed by pass-through entities, not all these jobs are new.”

Robyn added,”…the new tax-exempt status provides a large incentive for new and existing businesses to organize as pass-throughs rather than C corporations. ‘New” pass-through entity jobs may just be reclassified C corporation jobs.”

 

Other tax bills introduced

Some bills introduced in the Senate Tax Committee on Thursday:

Senator Steve Abrams (R-Arkansas City) asked for a sales tax bill that eliminates a number of exemptions in current law. No bill is printed yet. It’s just conceptual. The exemptions have not been clearly identified yet, but Abrams says he’s looking for a way to draw a “clear line” on tax exemption treatment. Business to business exemptions would remain as well as churches. He said he is seeking to develop a clear policy that avoids case-by-case decisions on each exemption requested.

Senator Les Donovan (R-Wichita), the committee’s chairman, asked for four conceptual bills Thursday:

  • Eliminating the sales tax exemption on farm machinery and equipment
  • Eliminating the exemption from property tax for the first $20,000 of residential value
  • Eliminating the property tax exemption for renewable energies
  • Eliminating the sales tax exemption on residential utilities and agricultural utilities

 

In the “two can play that game” department…

Last week, we told you that Johnson County Senator Jeff Melcher (R-Leawood) is promoting Senate Bill 178, which changes use value appraisal of farmland in a way that would raise property taxes on agricultural property. Melcher seems to be bringing the subject up at every opportunity in committee meetings, saying farmers don’t pay enough.

Agricultural organizations are mobilizing to strongly oppose the bill.

Representative Don Hineman (R-Dighton), himself a farmer, asked the House Tax Committee Thursday for a bill concerning intangibles tax. Hineman is strongly opposed to Melcher’s bill.

This is just an educated guess, but a bill that raises the intangibles tax could be a form of retaliation against Melcher’s by proposing a tax on his constituents in Johnson County.

An intangibles tax is an annual tax assessed mostly by state governments on the current market value of certain assets, including securities. It’s sort of a property tax on investments.

The theory is that some people invest their money in property and have to pay property taxes. Others invest their money in “intangible property” such a stocks and bonds, and they should pay something as well.

In Kansas, it’s a little different. It’s a local tax collected by the state and levied on gross earnings received from intangible property such as savings accounts, stocks, bonds, accounts receivable, and mortgages. It’s up to the local government to determine if they want to levy it.

Counties, cities, and mostly townships impose it. It appears that in most places, the tax rate is 2.25%.

No entity in Johnson County levies an intangibles tax.  Does Hineman’s bill alter that?

If Melcher is arguing that farmers don’t pay enough property tax on their land, Hineman could conceivably argue that Melcher’s constituents don’t pay any property taxes at all on their intangible property.

I want to read that bill.

 

Extending rural opportunity zones (ROZ)

The ROZ program (Rural Opportunity Zones) will expire after Fiscal Year 2016, but a couple of bills are being considered that would extend the program. Both remove the 2016 sunset.

Under current law, the Rural Opportunity Zones Program offers individuals who relocate from outside the state to a county that has been designated as a Rural Opportunity Zone the opportunity to participate in a student loan forgiveness program and receive a 100.0 percent state income tax credit.

A hearing was held this week on the Senate version of the bill, SB 187, which extends ROZ for six more years. The House version is HB 2298.

In the Senate hearing, Representative Jim Kelly (R-Coffeyville) testified in support saying the program has been helpful in his county.

Larry Baer of the League of Kansas Municipalities said the program has helped cities fill vacant positions and attract new blood to positions like city manager and law enforcement.

There was discussion about adding Miami County to the list of ROZ counties.

 

Unemployment insurance discussion continues

Changes to the state’s unemployment insurance (UI) tax continue to be discussed this week.

Last week the Senate Commerce Committee began consideration. This week the House Commerce, Labor, and Economic Development Committee considered HB 2261 with some of the same testimony as the Senate heard last week.

As we reported at that time, the new proposal moves from an “arrayed” system to a “fixed” system.

It is said to be based on an employer’s experience rating that reflects their usage of the unemployment system. Many businesses have complained they have had no claims or few, yet pay big UI taxes.

However, there seem to be many questions about the change.

Justin McFarland, Director of Labor Market Information Services and Deputy General Counsel at the Kansas Department of Labor testified. He told the committee he supports the bill in concept and supports moving from an arrayed to a fixed system.

However, he was concerned that the structure of the change was not workable, saying you cannot have over 70% of the participants in the lowest cost rate group. Lawmakers appear to want to take their time with this legislation out of an abundance of caution.

On Thursday, Senate Commerce Committee Chair Julie Lynn (R-Olathe), said she plans to wind up hearings on the Senate version (SB 154) on Friday morning (today).

 

Establish a Kansas OSHA?

Should Kansas establish its own OSHA (Occupational Safety and Health Administration) to replace the federal program?

House Bill 2299 requires the Kansas Department of Labor to write and submit a state plan to the federal government by September 1, 2015. The idea would be to reach a cooperative agreement with the federal government for the state to take over OSHA’s current duties in Kansas.

The legislature would ultimately have to approve the agreement before it could take effect. That’s likely a three year process.

In testimony Wednesday, the House Commerce, Labor, and Economic Development Committee heard that 26 other states have a state level OSHA. Roughly half of the funding comes from the federal government and half from fines levied on businesses that are violators.

KEPC WEEKLY UPDATE: Breaking News! Subcmte reverses hwy cuts, rescission, income tax, liquor/tobacco, KPERS, farm property taxes, KanCare, E-verify, Unemployment

In this issue …

  • Subcommittee reverses highway cuts
  • Rescission bill signed
  • Governor’s income tax changes introduced
  • Liquor/tobacco tax increases introduced
  • KPERS bonding out of committee
  • Bill would increase farmers’ property taxes
  • KanCare expansion bill is printed
  • E-verify bill introduced
  • Unemployment Insurance re-do discussed

 

Subcommittee reverses highway cuts

A legislative subcommittee has voted to reverse Governor Sam Brownback’s proposed cuts to transportation in his 2016/2017 budget.

Thursday, the House Appropriations Subcommittee on Transportation/Public Safety deleted the transfer of $140 million in each of the next two years from the highway fund to other purposes. The motion to make the changes came from Representative Russ Jennings (R-Lakin). His amendment was passed on a voice vote.

The recommendation now goes to the full House Appropriations Committee, where its fate is uncertain.

The Kansas Department of Transportation disclosed this week in the subcommittee that it needs an adjustment to the current law 18% bonding cap for FY 2016 and 2017. KDOT is seeking a proviso in the mega appropriations bill for the 2016/2017 two year budget to allow that to happen.

The bonding cap change is necessary for KDOT to bond $250 million in Fiscal Year 2016.

It appears that the amendment deleting the highway fund transfer, that bonding cap change will not be necessary.

Subcommittee members Rep. J.R. Claeys (R-Salina) and Rep. Melissa Rooker (R-Fairway) reportedly expressed concern earlier in the week that the state would be using KDOT bonding authority to circumvent the state cash basis law.

The Topeka Capital-Journal quotes Jennings as saying, “It’s time we bring this to some level of curtailment. This would be the equivalent, to me, of running my credit up to the limit and then calling the bank and saying, ‘Oh, yes, by the way, there are a few more things I’d like to buy. Can I have some more credit? I think I’m going to be able to pay for it.’”

Meanwhile, there are reports that the transportation cuts are driving one Kansas construction company to move many operations out-of-state.

Wichita’s Sherwood Construction is moving several employees to Oklahoma and Colorado. The company built a new repair facility in Tulsa and has moved into a Tulsa office, while continuing to maintain a presence in Kansas.

Company founder Howard Sherwood told the Wichita Business Journal the company’s chief financial officer, technology personnel and estimators have moved to Oklahoma. “As the Kansas (highway) program quieted down, our emphasis has been more in Oklahoma where there is a more robust highway program,” Sherwood told the Business Journal.

 

Rescission bill signed

Governor Sam Brownback signed the rescission bill (H. Sub for SB 4) Tuesday, which deals with much of the budget shortfall for Fiscal Year 2015. A deficit of about $800,000 remains, but the intention is to clean that up with some actions in the big two-year mega-budget bill for Fiscal Years 2016 and 2017.

The bill was necessary because the consensus revenue estimates of November identified a $278.7 million shortfall for the fiscal year ending June 30. Additionally, January revenues were down $47.1 million.

Without action, Kansas would not have been able to pay its bills in February.

Because Kansas operates on a cash basis, and cannot run a deficit, the Governor issued an allotment plan totaling $280 million. It reduced expenditures by $66.4 million. It also included recommendations to transfer funds and adjust non-state general fund expenditures an additional $219.9 million.

The biggest piece was a transfer of $158 million from the state highway fund.

You can read a detailed summary of the rescission bill and where it gets the money from the legislature’s web site.

 

Governor’s income tax changes introduced

The Governor’s suggested changes to the income tax law have been introduced in the Kansas House (HB 2307). The bill adjusts current income tax rates, provides a tax amnesty, creates a budget stabilization fund, speeds up the reduction of tax exemptions, and sets up how future income tax rates will be determined.

The bill eliminates the requirement of a 7.5% ending balance, which has been routinely ignored in recent years.

When revenues grow over 2% of the previous year, the amount between 2% and 3% goes into a budget stabilization fund.

The language setting up an elaborate system for reducing future income tax rates is totally eliminated and a new system substituted:

  • Revenue growth over 3% goes into a tax reduction fund before August 15th, following the end of the fiscal year.
  • At the beginning of the next regular legislative session, the amount in the fund is reported to the governor and legislature.
  • The governor may recommend what income tax rate cuts go into effect for the next tax year, based on what’s in the tax reduction fund, subject to legislative approval.
  • If the governor doesn’t make a recommendation, the legislature can establish the tax rates.
  • If the individual income tax has dropped to 0%, the governor may recommend reductions in taxes on corporations, banks, and savings and loans. But the rate changes can only be established by an act of the legislature.

Here’s a link to the entire 16 page bill.

 

Liquor/tobacco tax increases introduced

The governor’s bill increasing taxes on cigarettes, tobacco products and alcoholic beverages is House Bill 2306.

It was introduced on Wednesday. Word late Thursday was that hearings on liquor and tobacco taxes would be held sometime next week.

Tax legislation and the 2016-2017 budgets will have substantial activity in the next week and a half. Next week is filled with subcommittee hearings on agency budgets and House Appropriations and Senate Ways and Means Committee meetings to work parts of the budget.

Lawmakers may need to know what tax adjustments will have a chance of passage before they can work the budget.

 

KPERS bonding out of committee

The legislation Governor Brownback requested to issue more bonds for KPERS is barely passed out of the House Committee on Pensions and Benefits.

The bill authorizes the issuance of $1.5 billion of pension obligation bonds to finance a portion of the unfunded actuarial liability of the Kansas Public Employees Retirement System. Critics have called the idea “borrowing to circumvent the cash basis law.” That’s much the same criticism heard over KDOT bonding.

The measure is House bill 2095. The vote was tied when committee Chairman Steven Johnson (R-Assaria) cast the tie breaker. The vote was 7 to 6. That may indicate the legislation could have problems when it comes to the floor of the House of Representatives.

 

Bill would increase farmers’ property taxes

As we have been predicting for several months, the 2012 and 2013 income tax cuts and the resulting revenue reductions are causing lawmakers to visit use value appraisal of agricultural property in an effort to find more money for public education.

Senate Bill 178 was introduced in the Senate Ways and Means Committee Tuesday and referred to the Senate Assessment and Taxation Committee on Wednesday. It was proposed by Johnson County Senator Jeff Melcher (R-Leawood).

Agriculture organizations hotly oppose the bill because it will increase property taxes on farmers, which is its intent. Some early estimates indicate ag land taxes could skyrocket.

As the result of the agriculture crisis of the 1980s, the Kansas Constitution was changed to require agricultural land to be valued for taxation based on its income or productivity. This is commonly called “use value” appraisal. The change was implemented in 1989, when farm values around urban areas skyrocketed because valuations were based on their development value.

Land values are now calculated based on the inherent capabilities of the land and agricultural income. They do not represent fair market value, nor is fair market value used in the calculation of the values.

The system uses an eight-year average to determine value, as well as net income. House Bill 178 changes that to a five-year average, based solely on cash rental rates.

This is already heating up.

At a meeting of the Senate Commerce Committee this week, economist Dr. Art Hall of K-U was giving lawmakers a briefing on the various economies of the state (manufacturing, service, etc). Toward the end of the meeting, the conversation evolved into an in-depth discussion of use value appraisal of farmland, with many urban Senators (including Melcher and others from urban areas) expressing strong support for changing the way agricultural property taxes work.

The Senate Tax Chairman, Les Donovan (R-Wichita) is said to be not interested in pursuing the bill. There is strong speculation such legislation would split conservative Republicans.

A similar measure is expected to be pursued in the Kansas House.

 

KanCare expansion bill is printed

A 19-page bill expanding Medicaid in Kansas, now known as the KanCare II expansion act, was introduced this week after several days of discussion about the issue in the House Vision 2020 Committee.

The measure is House Bill 2270. It’s unclear if it will get out of committee or see the light of day on the House floor, but the vast majority of the medical community is hopeful.

 

E-verify bill introduced

House bill 2294 requires the state or any local government that does more than $5,000 in business with any entity to require a sworn affidavit that it is registered and a good faith participant in the federal e-verify program.

E-verify requirements have long been opposed by a large coalition that has been watching immigration issues in Kansas for about four years. The coalition includes businesses, business organizations, agricultural organizations and local government and their organizations. The Kansas Economic Progress Council is part of the coalition as well.

E-verify is an internet based system that compares information from an employee’s Form I-9, Employment Eligibility Verification, to data from the U.S. Department of Homeland Security and Social Security Administration records to confirm employment eligibility.

Even with an error rate less than 1%, many workers get caught in a bureaucratic limbo trying to prove their right to work.

The cost to small businesses is estimated at over $2.6 billion per year nationwide to run the program.

E-verify is said to be prone to errors among young workers, women who change their name, Hispanics with multiple surnames, naturalized citizens, and legal immigrants. Many believe the affect of e-verify is to cause employers to avoid these groups when hiring.

 

Unemployment Insurance re-do discussed

Most Kansans don’t realize that unemployment insurance (UI) taxes paid by Kansas businesses total more than the individual income tax collected on businesses in 2012 (the year before the income tax cuts went into effect).

Legislators are hearing a proposal that would make major changes to the system, where employers pay a tax, which ultimately goes to pay unemployment benefits for laid-off workers.

Several reforms took place in Kansas over the past several years as the system went “bankrupt” due to the Great Recession. Federal dollars were loaned to Kansas (as well as many other states) to pay unemployment benefits and a system to pay back the feds was put into place.

The new proposal moves from an “arrayed” system to a “fixed” system. It is said to be based on an employer’s experience rating that reflects their usage of the unemployment system. Many businesses have complained they have had no claims or few, yet pay big UI taxes.

Natalie Bright, representing the Kansas State Council of the Society for Human Resource Management (SHRM) told the Senate Commerce Committee this week, “In essence, employers who have never had a benefit drawn on their account continued to see significant rate increases. In addition, an amount assessed against an employer would often vary greatly year to year.”

Bright was testifying in favor of SB 154. She said a working group came up with the bill, “which replaces the current arrayed methodology (where experiences are spread across all employers), to a fixed rating system (where tax is based on employer’s individual experience).”

The committee heard that 44 other states have a fixed system.

The issue is somewhat complicated and the committee will take time to make sure they understand it before taking action. The hearing on the measure will continue Monday.

KEPC WEEKLY UPDATE: Education, recission, block grant, LOB, ag property tax, labor stats

In this issue …

  • Governor cuts education
  • Rescission bill passes
  • Block grant bill introduced, but not available
  • Hearing held on LOB bill
  • Agricultural property taxes examined
  • Labor stats still not good

 

Governor cuts education

Just as the Kansas Senate was preparing to debate the rescission bill Thursday to bring Kansas to a balanced budget, Governor Sam Brownback announced more of his own cuts.

This time, they included K-12 and higher education.

The new round of cuts on top of the previous reductions were needed when new numbers from legislative staff indicated the state would still be about $800,000 in the hole for the current fiscal year.  That’s with transfers/cuts already included the rescission bill.

The cuts announced Thursday by the Governor go into effect March 7.  Regents universities will see a 2 percent cut and K-12 education is reduced 1.5 percent.  That saves the state $44.5 million.

School districts were scrambling Thursday afternoon to understand what the cuts mean to them.

We have the numbers.

Here’s a listing of the impact on each school district in Kansas from the Kansas State Department of Education web site. Click on the link to “Effects on General Fund Budgets of Governor’s Allotment (SF15-050) – Computer Printout.”

You can read the official notification and news release from the Governor here.

Here’s more breakdown on the cuts:

  • K-12 Education – $28.3 million
  • Kansas Board of Regents – $4.5 million
  • University of Kansas – $2.7 million
  • Kansas State University – $2.1 million
  • Wichita State University – $1.48 million
  • Kansas State University ESARP (Extension and Research) – $949 thousand
  • Pittsburg State University – $709 thousand
  • Fort Hays State University – $679 thousand
  • Emporia State University – $632 thousand
  • KSU Veterinary Medical Center – $292 thousand

What’s significant about Thursday’s announcement is that the Governor has tried to avoid direct cuts to education as much as possible in the past.

In his budget and his allotments, he tried to steer clear of direct cuts to education, preferring to discuss school funding formulas and other methods of saving money that impact education.

 

Rescission bill passes

Meanwhile, the first major legislation of 2015 has passed the House and Senate and is on the way to Governor Brownback for his signature.  It’s Senate Bill 4, the rescission bill that does most of the work to cut spending and keep the state’s checking account in the black.

The bill transfers/cuts $253 million dollars out of the current Fiscal Year 2015 budget.

The biggest hit goes to KDOT’s state highway fund, which gets tapped for over $158 million.

Other changes in the bill:

  • $55 million – transferred from the Medical Programs Fee Fund of KDHE
  • $14.5 million additional transfer from the KPERS Key Fund (tobacco settlement money)
  • $5,219,827 – transferred from two vehicle funds at the Revenue Department
  • $7.1 million – saved from a reduced transfer to the Job Creation Program Fund of the Impact program
  • $4,200,000 – transferred from the Department of Aging (includes $1.2 million from the Problem Gambling and Addictions Grant Fund)
  • $3 million – transferred from the KDHE Underground Storage Tank Redevelopment Fund
  • $3 million – transferred from the Workers Compensation 2nd Injury Fund
  • $1,400,000 – transferred from the Department of Wildlife, Parks and Tourism (road and bridge funds)
  • $1,123,083 – transferred from the Economic Development Initiatives Fund
  • $1,000,000 – transferred from the Medicaid Fraud Prosecution Revolving Fund in the Attorney General’s budget
  • $500,000 – transferred from the Children’s Initiatives Fund

Because the state is in danger of not being able to pay its bills in mid-February without the legislation, the bill did not move through the standard committee process in the Senate.

Instead, the Senate simply accepted the work of the House in order to get it to the Governor quickly.  The Senate vote was 24 to 13.  It had passed the House Wednesday, 88-34.

 

Block grant bill introduced, but not available

The Governor’s long-awaited “block grant” bill, which would suspend the current school finance formula and replace it with an interim system of direct grants to school districts, has been introduced.  However, it is not available in written form, either paper or electronically.

It will probably not be available until sometime next week.

 

Hearing held on LOB bill

The controversial Senate Bill 71, which cuts K-12 budgets an estimated $39.1 million by changing the Local Option Budget authority, was heard this week in the Senate Ways and Means Committee.

No final action was taken, although it had been scheduled.

It’s unclear if the bill will be voted out of the committee.

Current law provides state aid to school district with a Local Option Budget according to a formula based on the assessed valuation per pupil.The bill changes that formula so that many districts do not receive as much state aid for their LOB.

The least wealthy districts in terms of assessed valuation per pupil would receive the biggest cuts.

 

Agricultural property taxes examined

The Senate Ways and Means Committee reviewed use value appraisal of farmland this week in what appears to be a move toward finding more money for K-12 education by increasing property taxes on agriculture.

Legislation was introduced last year, but came late in the session and did not advance.

Zoe Gehr of the Revenue Department’s Property Valuation Division gave senators the overview.

Agricultural land use valuation was passed in 1985 at a time of great turbulence for Kansas farmers.  It was enacted to insulate agricultural land from market influences outside the control of farmers.  For example, land on the outskirts of an urban area had higher valuations and higher taxes because it had development potential.  Many farmers in such situations could not afford to continue farming.

The new and complicated system allowed an eight year average to determine the valuation assigned to the property.  That helped reduce volatility.  The valuation is also based on the quality of the land, since that significantly influenced its economic value.

Senator Jeff Melcher (R-Leawood) has been questioning the system because the effective property tax rate on ag land is much lower than regular commercial property.

Gehr explained it is a use value calculation designed to protect farmers from volatility, not fair market value.  Melcher stated the law was written to create a falsely low valuation to protect agriculture from having to pay the fair value that every other citizen would have to pay.

Gehr said without the insulation of use value appraisal of farmland, land that abuts or is surrounded by commercial and residential development would likely be driven out of production.  Gehr also told the lawmakers that many states copy Kansas or parts of the Kansas formula.

 

Labor stats still not good

The latest labor statistics show Kansas still behind in employment growth.  Here are the non-farm employment growth figures for 2014:

  • 2.6% job growth – Colorado
  • 2.2% job growth – Oklahoma
  • 1.6% job growth – Missouri
  • 0.9 % job growth –Kansas
  • 0.8% job growth – Nebraska

KEPC WEEKLY UPDATE: Revenue, school payments, transpo cuts, school finance, ed funds, eco devo, Medicaid expansion, horn tooting

In this issue …

  • January revenue numbers out today
  • Without budget cuts, state can’t make payment to schools
  • Contractors, Economic Lifelines oppose highway cuts
  • Still no school finance framework
  • LOB bill would cut education funds this year
  • Audit says economic development programs are successful
  • Health care industry presses Medicaid expansion
  • Tooting our own horn

 

January revenue numbers out today

Kansas revenue collections for January are scheduled to be released today. Will they be up or down? The information could be crucial to budget discussions

January 15th was the deadline for the final estimated tax payments for 2014, which could be an important indicator about the state’s future budget outlook.

In what may or may not be related, the Senate Ways and Means Committee abruptly cancelled its meeting Thursday. One of the major items on the agenda was to take possible action on Senate Bill 81, the bill that “adjusts” current fiscal year spending.

Although it may mean nothing, such a cancellation suggests to many Statehouse observers that something is in the wind.

Without budget cuts, state can’t make payment to schools

The seriousness of the state’s budget problems hit home this week as Kansas lawmakers on budget committees were told that they need to hurry their work on the changes to the current year state budget.

Budget Director Shawn Sullivan said February payments to school districts will be affected if the rescission bill is not passed by February 17th. “In mid-February, cash flow gets tight,” Sullivan said.

This year’s budget (Fiscal Year 2015) is about $278 million dollars under water.

The House Appropriations Committee is working with House Bill 2133. The Senate Ways and Means Committee is working with a duplicate version, Senate Bill 81. The bills were sent to lawmakers by the Brownback Administration.

They are a combination of the Governor’s rescissions and supplemental appropriations to make the current year budget work.

The committees hope to have their bills out of committee and to the House and Senate floors by Tuesday.

The legislation picks up an additional $253 million from transfers to the general fund from their original purpose.

Here are some of the largest transfers in the legislation:

  • $158,479,087 – transferred from the KDOT State Highway Fund
  • $55 million – transferred from the Medical Programs Fee Fund of KDHE
  • $14.5 million additional transfer from the KPERS Key Fund (tobacco settlement money)
  • $5,219,827 – transferred from two vehicle funds at the Revenue Department
  • $7.1 million – saved from a reduced transfer to the Job Creation Program Fund of the Impact program
  • $4,200,000 – transferred from the Department of Aging (includes $1.2 million from the Problem Gambling and Addictions Grant Fund)
  • $3 million – transferred from the KDHE Underground Storage Tank Redevelopment Fund
  • $3 million – transferred from the Workers Compensation 2nd Injury Fund (NOTE: On Thursday in the House Appropriations Committee, Rep. Mark Hutton successfully offered an amendment in the House version of the bill to remove it. It is still in the Senate bill as of this writing).
  • $1,400,000 – transferred from the Department of Wildlife, Parks and Tourism (road and bridge funds)
  • $1,123,083 – transferred from the Economic Development Initiatives Fund
  • $1,000,000 – transferred from the Medicaid Fraud Prosecution Revolving Fund in the Attorney General’s budget
  • $500,000 – transferred from the Children’s Initiatives Fund

As I heard one legislator who serves in a leadership position admit this week, “We’re running out of money.”

Individual Republican House members say they are already being pulled into meetings with leadership urging them to vote for the rescission bill they have not seen.

 

Contractors, Economic Lifelines oppose highway cuts

The $158 million transfer from the state highway fund proposed is about $50 million more than Governor Brownback originally planned to offer. The additional money was reportedly added to help the state make payments to school districts on time in February.

The Kansas Contractors Association and Economic Lifelines, the state transportation coalition, both objected in written testimony submitted to the budget committees.

Kansas Contractors Association Executive Vice President Bob Totten said in his testimony that roads in Kansas could end up looking more like Missouri if the program is cut.

Totten said, “That s not good news for Kansas as many studies show that deferring maintenance is a poor infrastructure business decision from an engineering and cost/benefit perspective, and deferred costs will increase due to inflation. Contractors, suppliers and businesses will be directly impacted, many will be forced to lay off employees, and others may close..”

He added, “We believe that in addition to filling the budget holes in the coming years, projects in 2018, 2019, 2020 are at risk.”

Many contractors were at the Statehouse this week making their case known to individual legislators. As a group, they watch what’s happening with KDOT projects very closely. Their take is that a lot of routine maintenance will be delayed in order to be able to say the major projects promised will still be completed. They are also reiterating that jobs will be lost and some of them will go out of business.

As yet, there is no information on what specific projects will be delayed for FY 2015 and FY 2016 or what maintenance will be put off. Such a listing would likely lose votes for the rescission bills. In the House Appropriations Committee Thursday, more specific information was requested about the impact on projects.

Economic Lifelines Co-Chairman Johnnie Koger said in his testimony, “If we continue down this path of diverting T-WORKS funds to meet general fund shortfalls, there will be significant detrimental impacts, including lower job creation and higher costs to maintain the road network vital to our farms and businesses.”

In urging opposition to the transportation cuts, Koger said, “Cuts to transportation work at cross purposes with economic development opportunities for all Kansas businesses and ultimately affect safety on our highways.”

 

Still no school finance framework

There is still no word on how the Governor plans to distribute school finance money into “block grants” to school districts, while the school finance formula is suspended and a new formula developed. Legislators were told by Budget Director Shawn Sullivan that the Governor’s Office is still working on the distribution legislation.

As we told you last week, the Kansas State Department of Education states the proposal would result in $127 million less being spent directly on K-12 education in schools between FY 2015 and FY 2016.

 

LOB bill would cut education funds this year

A bill that changes Local Option Budget authority of school districts (Senate Bill 71) is being opposed by the education community.

The measure would cut this year’s K-12 budgets by an estimated $39.1 million. That’s approximately eight percent of state aid and 3.7 percent of adopted Local Option Budgets, according to the Kansas Association of School Boards.

The least wealthy districts in terms of assessed valuation per pupil would receive the biggest cuts.

Want to know how much your school district loses under this bill?

Here’s link to the State Department of Education web site listing. Click on the link and find your county and school district. The loss of funds will be in column 6. The file may take awhile to load.

The bill was introduced by the Senate Ways and Means Committee this week. A scheduled hearing in the committee was postponed on Thursday.

The committee chairman, Senator Ty Masterson (R-Andover), had scheduled possible final action on the bill for Tuesday.

 

Audit says economic development programs are successful

While waiting for budget decisions, several committees of the legislature have been reviewing a Legislative Post Audit of the state’s major economic development programs.

The verdict of the audit is that the programs have been successful.

The audit says the programs, “…appeared to yield positive returns on investment in terms of tax revenue generated for state and local governments.”

Other findings:

  • All programs appeared to generate a positive return on investment, which means that tax revenue programs generated exceeded the incentives they contributed.
  • The programs also appeared to generate more tax revenue in Kansas than an across-the-board tax cut equal to the incentive.
  • Of the 42 projects evaluated, the number of jobs created or retained had a more significant effect on return on investment than a project’s capital investments.
  • The likelihood a project occurred as a direct result of state and local incentives had a significant influence on rate-of-return.
  • A few projects involved companies that either closed or left the state, but the return to Kansas was still positive.

Here’s a link to the summary of the audit.

 

Health care industry presses Medicaid expansion

The pressure is growing on resistant Kansas legislators to consider Medicaid expansion under the Affordable Care Act, even though anything to do with Obamacare is considered a political lightning rod in Kansas.

This is happening as more Republican governors find a way to accept expansion.

Governor Mike Pence of Indiana announced Tuesday an expansion that uses federal funds to remake Medicaid in the state has been approved by the federal government. Enrollment in Indiana’s expanded Medicaid starts immediately and coverage begins February 1.

Much of the discussion in Topeka is in the House Vision 2020 Committee, chaired by Representative Tom Sloan (R-Lawrence). Sloan has scheduled meetings where health care industry leaders in Kansas have made their case for expansion, which is purposely being called KanCare expansion.

This week, the President and CEO of Via Christi Health, Jeff Korsmo, talked about the advantages. Korsmo said KanCare expansion would increase federal spending in Kansas by $2.2 billion from 2016 to 2020. He said Via Christi had to figure out a way to pay for $40.9 million in charity care in 2014.

Tom Bell, President and CEO of the Kansas Hospital Association said the group has statistics that illustrate the program pays for itself over time. He said 60 percent of those who would be covered are working.

 

Tooting our own horn

Since no one else will do it, we wanted to remind you that we have been right about a lot of things recently.

On January 14, the day before the Governor’s state of the state message and two days before he released his budget proposal, we made these predictions in the KEPC Newsletter:

“… the Statehouse grapevine is concluding that increased cigarette and liquor taxes will be in the mix.”

“Other speculation centers on speeding up the elimination of certain income tax deductions.”

“There has been some behind the scenes discussion in the Senate about changing the way the 2012 and 2013 income tax legislation works.  Instead of gradually reducing the rates until 2019, then diverting the excess of 2% into more income tax cuts, the rates would freeze at current levels.”

We accurately predicted a rainy day fund, or budget stabilization fund as the Administration calls it, would be part of the proposal. Our percentages were off a bit, but the mechanism was accurate when we predicted that revenues over a certain amount would go into a rainy day fund, then toward income tax reductions.

Since 2013, we have been predicting that the state general fund budget for Fiscal Year 2016 would be in significant trouble, with revenues much less than expenditures. We saw this coming due to the 2012 and 2013 Kansas income tax cuts. It turned out to be much worse than we imagined.

At the same time, we were wrong about the Fiscal Year 2015 budget, which we thought would have an ending balance at zero or slightly above. We knew there would be trouble, but were surprised when the consensus revenue estimating group pegged the problem at $280 million below a zero ending balance in the state’s checking account.

We don’t have a crystal ball. We just looked at the projected future budgets and compared them with projected future revenues. All this information was available from the legislature’s own staff.

At the same time, we could see from job growth information that’s available to anyone that Kansas was and continues to lag behind the region in recovery from the Recession.

Now if we could just predict the score of the Super Bowl.