KEPC UPDATE: Income tax hike, school surcharge, tax cut trigger, 20 mils for schools, tax lid, gas tax, school finance, service sales tax

In this issue …

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

 

Gone for Mothers Day but then straight through

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

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

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

 

Income tax hike fails in Senate

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

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

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

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

 

House Chairman introduces new income tax bill with school surcharge

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

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

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

 

Oklahoma repeals tax cut trigger mechanism

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

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

 

20 mills for schools moves without tax abatement change

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

The bill had previously passed the Senate.

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

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

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

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

 

Property tax lid change advances

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

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

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

 

Committee will work on gas tax increase

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

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

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

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

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

 

School finance update

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

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

No bill has yet passed out of any legislative committee.

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

 

Sales tax on services still being talked up

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

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

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

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

Here’s part of the list:

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

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

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

 

Bill tracking

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

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.

KEPC UPDATE: Working on the weekend, income tax, school finance, property tax abatements, STAR Bonds

In this issue …

  • Is the Kansas Legislature working this weekend?
  • Income tax: talk but no action yet    
  • School finance still in process
  • 20 mills renewed with change to property tax abatements
  • STAR Bonds action
  • Bill tracking

 

Is the Kansas Legislature working this weekend?

As the first week of the 2017 legislative veto session moves forward, there’s still a question of whether lawmakers will be working over the weekend, especially if there’s nothing for them to do.

This is the time of the year when only the major items and some few leftover bills are around.  The bulk of legislators find themselves with a lot of time on their hands, waiting for leadership and key committee leaders to reach agreement.

In particular, Senate Majority Leader Jim Denning (R-Overland Park) has been insisting that the Senate will work this weekend.  We shall see.

The area around the Statehouse will be largely blocked off for what’s termed a Christian rap concert as well as a car show.  We are told that on-street parking around much of the building will be unavailable.  Getting to the Statehouse parking garage will be difficult due to heavy construction activity on Topeka Boulevard and the fact that Van Buren Street to the North will be closed.

Also complicating the picture is talk that many key lawmakers have tickets for the Garth Brooks concerts this weekend at the Sprint Center in Kansas City.

 

Income tax: talk but no action yet

This has been a week of delay on legislation to raise income taxes.  First the Senate scheduled a debate on a conference committee agreement, and then backed off as Democrats and some Republicans indicated they couldn’t vote for it.

Then it was the House turn and the same thing happened.  Debate was postponed, especially when needed Democrat votes indicated they wanted K-12 education to be handled first, so they know how much money is needed to fund the budget and school finance.

As of this writing, the Senate Assessment and Taxation Committee is trying to put together a new plan.

They are using House Bill 2228 as a vehicle.

What they have put in the bill so far:

  • Repeal of the pass-through business exemption
  • Two income tax brackets: income under $12,600 would pay zero percent and over $12,600 would pay 4.4 percent. This is essentially a flat tax
  • The standard deductions would be the same as federal
  • There is no retroactivity. Everything (including business pass through repeal) begins in 2018
  • State Board of Regents retirees would have pensions taxed beginning in 2018
  • The food sales tax is reduced from 6.5% to 5.5% in 2018
  • The annual business filing fee is increased from $40 to $75 beginning in 2018
  • The income tax deduction for property taxes paid is fully restored in 2018
  • The mortgage interest deduction jumps from 50% to 75% in 2020 and a full 100% in2021

Final action on the bill is being held until sometime Friday.  The committee wants to see fiscal runs and language.

Earlier, Senate Majority Leader Jim Denning proposed a $3 charge on utility bills, which would raise substantial revenue but is opposed by many as unfair.  It was not included.

Meanwhile the House Taxation Committee is looking at possible revenue sources including internet and remote sales; a motor fuels tax increase; increasing the cigarette tax; and maybe some sales tax on services.  Those are still in the early stages.

Members of the committee are mainly doing some informal polling of their colleagues to determine if there is support for any of those sources.

 

School finance still in process

The Kansas House K-12 Budget Committee has a school finance bill (HB 2410) that has been written but is still being tweaked.

Thursday, the Committee heard a presentation from former Kansas Senator Jeff King, the attorney hired by the Legislature to advise on school finance matters.

Some of his analysis included the following:

  • The more money you put into K-12, the more likely the bill is to be accepted by the court.
  • You have to provide the funding and have a funding stream. The legislature needs to provide “real dollars with revenues behind them.”
  • Whatever lawmakers do will become the “constitutional standards” that legislatures will be held to in the future.
  • The Kansas Supreme Court put an emphasis on providing funds to underperforming students. King said he believes the amended bill was less targeting of at-risk students than the original bill, and that will raise red flags with the Court.
  • Asked by Representative Brenda Landwehr (R-Wichita) if the state has to fund the constitutional promise of a suitable education regardless of economic conditions or the impact on other budget areas, King said, “Yes!”

The committee adjourned without taking action on the bill.  Chairman Larry Campbell (R-Olathe) did not set a time for a meeting Friday but said the committee was on call.  He had originally hoped to begin working the bill further and passing it out of committee on Friday.

 

20 mills renewed with change to property tax abatements

The Kansas Senate has renewed the statewide 20 mill property tax for K-12 education by a vote of 39 to one.  The renewal is good for two years.  The first $20,000 of assessed valuation of residential properties would continue to be exempt from the property tax levy.

In FY 2018, the 20 mill levy is estimated to raise about $630 million.

Local governments and economic developers might have a problem with a provision that was added to the bill that concerns property tax abatements.

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

There is no estimate yet available for how much the property tax abatement change would be expected to

Bring to the state.

The bill (Senate Bill 146) now resides in the House Taxation Committee.

 

STAR Bonds Action

The economic development tool known as STAR Bonds (Sales Tax Revenue Bonds) will go away this summer without legislative action to renew its use.

The House took action this week, passing HB 2184 by a vote of 112 to 11.

There are some changes:

  • The bill allows STAR bond project costs to include expenses for the renovation and expansion of an historic theater.
  • The bill would eliminate language that allows a county commission or school board to object to a proposed STAR bond district, if it is determined the STAR bond district would have an adverse effect on property tax revenues.
  • The Secretary of Commerce would no longer be required to approve a city or county option to use all or a portion of transient guest tax revenues to be pledged for principal and interest payments on the STAR bonds.
  • The bill would eliminate outdated language for a STAR bond project that involves auto racetrack facilities.
  • The bill extends the sunset date for the STAR Bond Financing Act from July 1, 2017 to July 1, 2022.

The bill was assigned to the Senate Commerce Committee after passing the House, where Chair Julie Lynn (R-Olathe) has expressed concern and a desire to make changes.  Her Commerce Committee has had hearings on STAR Bonds as well as the state’s other economic development tools.

 

Bill tracking

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

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.

KEPC UPDATE: Legislature returns, income tax, school finance, budget in works, Medicaid expansion, TRIP study, legislative post audits, bill tracking

In this issue …

  • Legislature returns
  • Income tax fast track could come in a conference committee today
  • Action expected on House school finance bill
  • Budget is still in the works
  • Another push expected on Medicaid expansion
  • TRIP study: Kansas roads need help
  • Legislative Post Audits firmed up

 

Legislature returns

The 2017 Kansas Legislature returns to Topeka Monday for what’s expected to be a difficult veto session.  The Senate goes in at 10 a.m. while the House returns at 2 p.m.

There’s not much officially scheduled for this first day.  The annual Shrimp Peel social event will be held to benefit Special Olympics.  It’s a first day tradition of the veto session and has lately been billed as a reunion, where several past legislators return.

Senate Majority Leader Jim Denning (R-Overland Park) told the Senate Ways & Means Committee last week that, “Things are pretty unpredictable.”  He said Senators will caucus Monday afternoon to talk about budget and taxes.  Denning said leadership hopes to have a tax plan passed by both houses by Friday, or Sunday at the latest.

 

Income tax fast track could come in a conference committee today

The direction forward on an income tax increase bill is not certain, but one possibility being discussed could fast track the issue through a parliamentary maneuver.

Some lawmakers familiar with the process believe a conference committee of House and Senate members will meet Monday to review tax bills that have passed one or both houses.  A new income tax proposal could be inserted into an existing tax bill through the process known as “gut and go.”

The proposal would then go to the House and Senate for an up or down vote and would not be subject to amendments.  Otherwise, any new proposal would have to start in a tax committee where hearings might be held, amendments made, and a vote taken before going to the full House or Senate.  That would take longer.

A new economic study we reported last week could have an impact on support for an income tax bill, particularly repeal of the business pass through exemption.  It hasn’t received much attention except on Twitter, but makes a powerful statement because it’s based on examination of over 255-thousand actual federal income tax returns of Kansans that contain business income.

The study by researchers at the University of South Carolina, the University of Indiana, and the U.S. Treasury Department concludes that the main result of exempting pass through income has been tax avoidance.  The study strongly refutes the claims of Governor Brownback and others that the exemption has helped grow the economy.

Here’s a link that will take you to the complete study.

 

Action expected on House school finance bill

As we reported in our newsletter at the conclusion of the regular session April 7, work on a new school finance formula in the House K-12 Education Budget Committee appears to be complete.  We expect House Bill 2410 will be voted out for debate in the full House of Representatives this week..

It’s expected to increase funding for school district general state aid and special education by about $150 million next year; then add $150 million more each of the next four years for a total of a $750 million increase.

Here’s a link to the Kansas State Department of Education web page with the estimated runs

The information is in the five links under House Bill 2410.

 

Budget is still in the works

The House and Senate budget committees met last week to talk about the Omnibus Appropriations Bill.  That’s the annual bill that cleans up the budget as it pertains to new legislation that has passed.

The committees look at new legislation to determine how the budget needs to be adjusted to implement the new laws.  Then they add or subtract from the budget so the legislation can work.

The Senate Ways & Means Committee work is nearly complete.  The committee will finalize its version of Omnibus on Tuesday.

The House Appropriations Committee just reviewed and discussed the list of legislative items that will cause budget adjustments.  It will also meet Tuesday to work the bill.

The regular budget bills (called the Mega Budget) for Fiscal Years 2018 and 2019 are still in the works.   Before adjourning in early April, the House Appropriations Committee passed a mega budget bill.  It’s House Bill 2364.   It may be debated by the full House of Representatives this week.

The Senate budget bill passed on March 30.  It’s Substitute for Senate Bill 189.

Both bills create deficit spending without passage of an income tax increase.  Both versions use PMIB (Pooled Money Investment Board) loans and delayed KPERS payments to balance the budget.  Neither budget cuts K-12 education or higher education.

 

Another push expected on Medicaid expansion

It looked like Medicaid expansion was nearly dead after the House could not muster enough votes to override Governor Sam Brownback’s veto.  Now the issue has new life.

The publicity surrounding the possible closure of Topeka’s St. Francis Hospital and the loss of about 1,600 jobs has given the issue new life.  St. Francis officials have said the lack of Medicaid expansion in Kansas has been one of the roadblocks to remaining open.

We’re not sure how or when the issue will resurface.

 

TRIP study: Kansas roads need help

A report released Thursday by a Washington, DC based national transportation organization warns that a third of Kansas’ major urban roads are in poor or mediocre condition.

The report comes from TRIP (The Road Information Program).

The study also says nine percent of the state’s locally and state-maintained bridges are structurally deficient; and that rural roads in the state have a traffic fatality rate four-and-a-half times higher than all other roads.

The study says, “Roads and bridges that are deteriorated, congested or lack some desirable safety features cost Kansas motorists a total of $2.7 billion statewide annually – as much as $1,600 in some urban areas – due to higher vehicle operating costs, traffic crashes and congestion-related delays.”

TRIP blames the problems on the state’s transfers of $2.4 billion in state highway funds to other purposes between FY 2011 and FY 2017.

Here’s the link to the Kansas TRIP Study.

The report comes as state legislators return for the veto session and ponder what to do about a dwindling amount of funding for even basic road preservation.

 

Legislative Post Audits firmed up

The Legislative Post Audit Committee of the Kansas Legislature approved audit topics for the next year during a meeting last week.

The Legislative Division of Post Audit is the non-partisan audit arm of the Kansas Legislature.  Its mission is to inform policy makers by providing accurate, unbiased information through audit reports.  They focus on three areas: oversight, insight, and foresight.

Here’s the list of approved audits:

  • K-12 Education: Reviewing the accuracy of free-lunch student counts
  • Department of Corrections: Comparing the merits of lease and bond options for improving or replacing the Lansing correctional facility
  • Medicaid: Evaluating issues related to KanCare and other important components of the state’s Medicaid system
  • Follow-up Audit: Reviewing agencies’ implementation of selected performance audit recommendations
  • K-12 Education: Evaluating the use of assessed valuation per pupil as the basis for state equalization aid
  • Kansas Tax Revenues: Reviewing how other states inventory and evaluate tax credits and exemptions
  • Community Mental Health: Evaluating mental health services in local jails (this is an extra audit that the Division may not have time to do)

 

Bill tracking

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

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.

KEPC UPDATE: Flat tax crushed, FY17 budget, school finance, Medicaid

In this issue …

  • Senate crushes the flat tax
  • Legislature moves toward first adjournment with FY 17 budget
  • House committee has a school finance bill
  • What about Medicaid expansion?
  • Bill Tracking

 

Senate crushes the flat tax

By a vote of 3 to 37, the Kansas Senate flattened a proposal for a 4.6 percent “flat” income tax in debate Thursday afternoon.  The vote sends a strong message to Governor Sam Brownback, who had expressed support publicly for the bill, saying he would sign it or something like it.

The old saying that “politics makes strange bedfellows” was confirmed as Democrats, moderate Republicans, and very conservative Republicans all joined to squash Senate Bill 214, although for different reasons. It appears that conservatives did not support the income tax increase, while moderates and Democrats objected to the bill’s impact on lower income Kansans. They prefer a bill with three or more brackets, similar to the bill that passed the legislature and was vetoed by Governor Brownback.

The three yes votes were Senate President Susan Wagle (R-Wichita); Majority Leader Jim Denning (R-Overland Park); and Senator Gene Suellentrop (R-Wichita).  All other senators voted against the bill on final action.

Wagle and Denning were among those who had met with Governor Brownback about the bill.

The bill had many things that many legislators support:

  • Removing the pass through exemption for business entities
  • Ending the “March to Zero” trigger mechanism that lowered income tax rates in the future
  • Itemized deduction of medical expenses
  • Increases in the standard deduction on state income taxes
  • A reduction in the food sales tax

However, many believe it did not raise the revenue necessary to fix the state’s budget problems.  They also object to its impact on low income taxpayers.

What happens now?

Following the Senate vote, some in House leadership are saying the Legislature will return to consideration of an income tax bill with brackets that raises the revenue needed.  They believe it will pass quickly when lawmakers return to the Statehouse for the veto session, beginning May 1.

 

Legislature moves toward first adjournment with FY 17 budget

The Kansas Legislature is scheduled to hold its first adjournment sometime today (Friday).

The senate returns Friday morning at 10 a.m.  The House comes back at 11 a.m.

On Thursday night, lawmakers passed a rescission bill that deals with the current year’s fiscal imbalance, a deficit of about $290 million.  That sets up adjournment.

Revenues for the current fiscal year (which ends June 30) will not be enough to fund the budget for the remaining three months, so the budget had to change to fit the revenues (or the revenues have to change to fit the budget).

House and senate negotiators had reached an agreement, but the Kansas House of Representatives rejected the agreement, sending the bill back to the negotiating table on Wednesday.  The house objected to using money that was to go to KPERS to balance the budget.

Senators agreed to remove that provision and the budget was passed by the house Thursday evening, 108 to 15.

The bill does not cut K-12 education or higher education.

 

House committee has a school finance bill

Work on a new school finance formula in the house K-12 Education Budget Committee appears to be complete.  However, the bill still resides in the committee.  We expect it will be voted out for debate in the full House of Representatives during the veto session.

The bill is HB 2410.

It’s expected to increase funding for school district general state aid and special education by about $150 million next year; then add $150 million more each of the next four years.

That totals a $750 million increase.

Here’s what we understand is in the bill, in detail, as described by the Kansas State Department of Education.  It is very similar in structure to the last school finance formula.

  • Base aid for student excellence (BASE) will increase to $4,006 in 2017-18, $4,206 in 2018-19, $4,406 in 2019-20, $4,606 in 2020-21, and $4,806, in 2021-22. It will increase based on the midwest consumer price index beginning with the 2022-23 school year.
  • Special mill levies now in place will continue, except declining enrollment will be reduced 50 percent in the 2017-18 school year, and eliminated the next school year.
  • Enrollment will be based upon prior year or second preceding year, whichever is higher. All weighted enrollment will be based upon the prior school year enrollment.
  • At-risk funding will be based upon free lunch count and funded the same as law prior to the 2014-15 school year.
  • High-density at-risk will be funded the same as law prior to 2014-15 school year.
  • Provides a floor of ten percent for computing free lunch for any school district offering K-12.
  • All-day kindergarten will be funded and counted in the enrollment.
  • Career & Technical Education (vocational education) funding will be based upon .5 weighting (same as old law). The State Department of Education will study CTE cost by program and report to the Legislature by January 1, 2018.
  • Virtual students will be funded as in current law.
  • Non-resident virtual students will be excluded in the computation of assessed valuation per pupil for capital outlay and bond and interest state aid.
  • Special education funding remains the same as current law.
  • Transportation is amended slightly and on a statewide basis there will be a small increase in the state appropriation. No school district will receive less transportation state aid than received in 2016-17.
  • New facilities will be funded for all elections held prior to July 1, 2015 with a .25 weighting.
  • Bilingual education is computed using the higher of .361 of the contact hours or .185 of the bilingual headcount enrollment for students who qualify for bilingual services. The weighting under current law is .395 based on contact hours.
  • 20-mill levy will remain the same as current law.
  • Low and high enrollment will be reinstated as in law prior to 2014-15.
  • Expands early childhood funding by increasing state aid for four-year-old at-risk programs, $2,000,000 each year in 2017-18 through 2021-22.
  • The local option budget will be renamed the local foundation budget (LFB).
  • School districts may adopt up to 30 percent of their local foundation budget on board action. If a district chooses to increase the LFB up to 33 percent, this would require board action and right of protest petition.  Those school districts that are already at 33 percent will retain that authority.
  • Partially funds the mentoring program and professional development as provided by law
  • Adds utilities as an option for capital outlay fund if the school district republishes their capital outlay resolution.
  • Students from schools in the bottom 25 percent of student achievement and direct certified are eligible for tax credit for low income student scholarships effective July 1, 2017.

If you really want to get into the weeds and see what your school district gets, here’s a link to the Kansas State Department of Education web page with the estimated runs

The information is in the five links found here under House Bill 2410.

 

What about Medicaid expansion?

Governor Brownback’s veto of Medicaid expansion will stand.  On Monday, the Kansas House of Representatives could not muster the 84 votes necessary for an override.  The vote was 81 to 44 to sustain the veto.

Here’s how the House voted:  http://www.kslegislature.org/li/b2017_18/measures/vote_view/je_20170403115129_310009/

What happens now?  Although prospects for resurrection seem unlikely, Medicaid expansion supporters still harbor some optimism and will look for opportunities to bring the issue up during the May veto session.

As former Kansas Senator Phil Martin (D-Pittsburg) is reported to have said many years ago, “When I die, I hope I’m in the statehouse. Things have a way of coming back to life in this building.”

 

Bill tracking

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

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.

KEPC UPDATE: Perfect storm, school finance, flat income tax, senate budget, highway bonds, rescission, Medicaid veto

In this issue …

  • A perfect storm of issues
  • House committee builds school finance bill
  • House Tax Committee forwards “flat income tax”
  • Senate passes a budget
  • House budget includes highway bonds
  • Rescission bill agreement reached
  • Brownback vetoes Medicaid expansion
  • BILL TRACKING

 

A perfect storm of issues

Legislative leaders are beginning to call them “The Big Three.”  They are the big three issues of the 2017 Kansas legislative session and they began coming together this week with heavy activity on all three expected next week.

The Big Three are:

  • The budget
  • The income tax
  • School finance

The legislature is not meeting today (Friday) but will return for the final week of the legislative session next week.  At the end of the week, they will have what’s called First Adjournment.  After breaking for three weeks, they come back May 1 for the veto session.

Leadership in the House of Representatives hopes to see major advancement on a portion of all three big issues by the First Adjournment.

The senate has already passed a budget.

 

House committee builds school finance bill

Once the Kansas House of Representatives adjourned Thursday for their three-day weekend, the House K-12 Education Budget Committee began meeting to write a new school finance formula.

As of this writing, the committee was working into late Thursday evening.  It was apparent the committee would not finish a formula Thursday evening when at least one item was tabled until Monday.

The committee is using HB 2410 as a base.  That’s the bill that Committee Chairman Larry Campbell (R-Olathe) put forward with the help of House Education Committee Chairman Clay Aurand (R-Belleville).

As of this writing, the committee members appeared to be heavily amending the bill.  We will have to wait to learn (and understand) the results until all of the work is done and Kansas Department of Education officials have a chance to produce data that shows the impact on local school districts.

Among those who have successfully proposed amendments is Representative Melissa Rooker (R-Fairway).  Rooker has been very active on school finance and is considered a leader on the issue among Moderate Republicans and many Democrats.  On the Democrat side, Representative Ed Trimmer (D-Winfield) is considered the go-to guy on K-12.  He’s also deeply involved in the discussion.

KEPC will try to get you information on the bill as soon as possible.

 

House Tax Committee forwards “flat income tax”

After Governor Brownback’s veto of an income tax increase bill February 22, we’ve been waiting to see what’s next.  The House Taxation Committee waited for the Senate Assessment and Taxation Committee to come up with something but that hasn’t happened yet.

So, this week, the House committee has forwarded a “flat tax” bill to the full House of Representatives at the request of Speaker of the House Ron Ryckman (R-Olathe).  Democrats opposed the measure.  Many Republicans on the committee also don’t like the bill but were called in by the Speaker and urged to send it out to the floor for debate.

Here’s what’s in Substitute for House Bill 2395:

  • Business pass-through income would be taxed, retroactive to January 1, 2017
  • Certain non-wage business income losses could be claimed
  • There would be a single 5 percent tax bracket, beginning January 1, 2018 (current law has two brackets of 1.6 percent and 4.6 percent)
  • The “March to Zero” trigger mechanism that lowers rates in the future is repealed
  • Medical expenses would be allowed as itemized deductions. Those deductions were repealed in 2015 in an effort to save money
  • Standard deductions would be increased from $3,000 to $7,500 for single taxpayers; from $7,500 to $15,000 for married filing jointly; and from $5,500 to $11,000 for heads of household
  • The sales tax on food and food ingredients would be reduced from 6.5 percent to 5 percent on January 1, 2019
  • The food sales tax reduction would apply to bottled water, but not to alcoholic beverages, tobacco, candy, dietary supplements, soft drinks, or food sold through vending machines

The best guess on how much it brings in?

The Department of Revenue says the increase for FY18 (beginning July 1, 2017) is $373.7 million.  For FY19, the amount increases to $472.7 million.

The bill is expected to be debated in the house next week, but it is not listed on the agenda for General Orders on Monday.

The Ranking Minority on the Tax Committee, Representative Tom Sawyer (D-Wichita), is an accountant.  He quickly pointed out that some single taxpayers income tax liability would go up 29 percent and some married taxpayers with two children and $70,000 of income would see an increase of 48 percent in Kansas income taxes under the bill.

The Kansas Department of Revenue agreed with Sawyer’s calculations.

Some Moderate Republicans who voted to get the bill out of committee tell me they will not vote for it on the House floor.

The hallway talk is this bill will fail, but may have to be debated to move the process forward.  In addition to concern about income tax increases for lower income Kansans, the bill does not appear to bring in enough to meet the needs of the state, particularly for school finance.

Meanwhile, the Senate Assessment and Taxation Committee continues to discuss a similar flat income tax proposed by Senate Majority Leader Jim Denning (R-Overland Park).  That committee is scheduled to continue income tax discussion, beginning at 8:30 a.m. on Monday morning.

The Kansas Center for Economic Growth (KCEG) has put out an informational piece critical of flat income taxes.  It’s available online.

 

Rescission bill agreement reached

An agreement on the current fiscal year budget has been reached by House and Senate negotiators.

The current fiscal year for Kansas ends on June 30 and the budget is deeply in the red.  The rescission bill is HB 2052.  It does not cut K-12 or higher education.

It relies on transfers from the Pooled Money Investment Board (PMIB), to be paid back in six payments sometime in the future.  State KPERS contributions are reduced with further review of more KPERS contribution delays in May during the veto session.

Nobody really likes any of that, but the only other options are deep cuts.

A final vote on passage is expected next week in the House and Senate.

 

Senate passes a budget

While the Kansas House of Representatives was dramatically talking about Governor Brownback’s veto of Medicaid expansion Thursday, the Kansas Senate was passing a budget for the next two years. The vote was 25 to 15.

The spending in the bill, which funds Fiscal Year 2018 and 2019 budgets, is not currently supported by expected revenues.

Once an income tax increase is passed, along with a school finance bill; another bill will adjust everything to fit.  That’s most likely to come during the veto session in what’s called the Omnibus Appropriations Bill.  That’s the final catch-all bill of the session that balances everything.

The Omnibus bill is usually the final bill, or nearly final bill, passed in any legislative session.

 

House budget includes highway bonds

Meanwhile, the Kansas House Appropriations Committee has passed their version of a two-year budget on to the full House for debate.  That’s expected next week.  It is House Bill 2364.

Like the Senate budget passed on Thursday, it currently creates deficit spending, but relies on an income tax bill to be passed in the future.

Without more revenue, the House budget has a negative $248.6 million ending balance for FY18 and negative $237 million ending balance in FY19.

Like the Senate budget, the House version uses PMIB loans and delayed KPERS payments to balance the budget until new income tax revenue arrives.

Also like the Senate budget, it does not cut K-12 education or higher education.

There are two items of interest that provide some hope for highway supporters who have suffered through raids on the highway fund over the past years, delays of major projects, and a dramatic drop on basic preservation (maintenance).

The bill suspends the 18 percent limit on annual debt service to the highway fund for FY 2018 and 2019.  It also provides authority to bond an additional $400 million for KDOT, which would provide a much needed infusion of funds.

How bad is it?  During a little reported presentation to the Senate Ways and Means Committee January 25, KDOT predicted a substantial decrease in preservation projects under Governor Brownback’s proposed budget at that time.  KDOT officials said only $28 million was available for preservation projects, compared to $88 million in FY 2017.

The bonding authority will provide some breathing room and more attention to maintenance.

Expect a debate on the House floor next week on the two-year budget.  It is not on the General Orders list of bills for debate on Monday in the House.

 

Brownback vetoes Medicaid expansion

A rapid series of events on Medicaid expansion took place this week on House Bill 2044.

A week ago on February 23, the House passed the bill, 81 to 44. Here’s how House members voted.

The Senate passed the bill on Monday, 25 to 14.  Here’s how Senators voted.

Governor Sam Brownback vetoed the bill on Thursday morning.

Within minutes, opponents of Medicaid expansion in the House brought the matter up for a motion to override the Governor.  They weren’t trying to help the bill.  This was a parliamentary maneuver.

They didn’t want supporters to have the time to whip up support for an override.

After some discussion and motions, expansion supporter Representative Russ Jennings (R-Lakin) made a motion to lay the veto override on the table.  It passed 81 to 43 on an unrecorded vote.

That gives health care providers and other Medicaid expansion supporters the weekend to whip up support for a veto override.  It takes a majority vote (63) to bring the veto override vote back before the House.

Supporters of Medicaid expansion need 84 votes in the House to override a veto.  If successful, the override will go to the Senate, which must have 27 votes to override a veto by the Governor.

 

Bill tracking

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

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.

KEPC UPDATE: school finance, Medicaid expansion, income tax, recission, senate cmte budget, gas tax, STAR Bonds, property tax, early break

In this issue …

  • Lawmakers and educators try to understand House school finance bill
  • Medicaid expansion goes to the full Senate
  • House Tax Committee may move ahead on income tax
  • Rescission bill in conference
  • Senate Committee passes a budget
  • House holds hearing on 11 cent gas tax increase
  • STAR Bonds out of House committee
  • Property tax lid changes
  • Will lawmakers break early?
  • KEPC Bill Tracking

 

Lawmakers and educators try to understand House school finance bill

A long-awaited school finance bill was unveiled this week by the House K-12 Education Budget Committee.  The bill was not available in print until Wednesday and hearings were held Thursday and will continue today (Friday) and Monday.

The quick timing has caught many school officials off guard because it came during Spring break.

Committee Chairman Larry Campbell (R-Olathe) wants the committee to begin working the bill Monday and hopes to have something voted out of committee by Thursday.

Although similar to the previous formula, House Bill 2410 also has differences.

Lawmakers and education groups are trying to understand how it works and what it does.

Here are some of the highlights:

  • 107 of the 286 school districts lose money, mainly because of declining numbers of students
  • The state would only spend an additional $75.6 million next year. Many education groups and lawmakers say this number is too low and will not satisfy the Kansas Supreme Court
  • It appears this formula relies more heavily on local property taxes to fund schools, depending on the will of local school boards
  • School boards could raise property taxes for local enhancements and extracurricular activities
  • School districts would receive $5,320 per student. About 80 percent ($4,170) would come from the state, while about 20 percent ($1,150) would come from local property taxes that would be required to be levied
  • Any school district whose enrollment declines more than five percent from the previous year would base their budget on 95 percent of the preceding year’s enrollment
  • Beginning in the 2018-19 school year, the September 20 and February 20 enrollments would be averaged for budget purposes
  • All day-kindergarten would be phased in by 2019-20
  • Vocation weighting would be eliminated and $100 per full-time equivalent student would be transferred from the general fund to pay for vocational education
  • Virtual state aid remains the same as it is now
  • At-risk weighting remains the same as it is now
  • Transportation state aid is reduced $4.3 million
  • High density at-risk and bilingual state aid are included

Want to know what this means for your school district?

Here’s a link to the Kansas State Department of Education spread sheet. To see whether your school district gets or loses from the state, look at column 14 in the SF17-091 (State Foundation Aid) spreadsheet.

If you really want to delve into everything about the bill, here’s the link to the full KSDE web page on it.

This is not an easy review and not for the faint of heart.

The committee chairman, Representative Larry Campbell (R-Olathe) says this is just a starting point.  It is widely believed there are enough votes on the committee to significantly change the measure.

 

Medicaid expansion goes to the full Senate

After only brief discussion Thursday, the Senate Public Health and Welfare Committee passed out a bill that expands Medicaid in Kansas by a vote of 6 to 2.  The bill is House Bill 2044.

Supporters of Medicaid expansion are confident the bill will be passed by the full Kansas Senate.  The question is whether Governor Sam Brownback will veto the measure.  He continues to say he opposes it.  The question then becomes whether there are enough votes to override his veto.

Complicating the situation is the legislation in Congress to repeal the Affordable Care Act (Obamacare).  As proposed, the legislation would freeze Medicaid.

House Bill 2044 is currently exactly the same bill that came over from the House of Representatives. There were no amendments. That means if the Senate passes it without amendments, it will go directly to the Governor for his consideration.

 

House Tax Committee may move ahead on income tax

The House Taxation Committee may be weary of waiting on the Kansas Senate to come up with a new income tax bill and appears to be poised to come up with another plan of its own. However, one representative deeply involved in the issue tells us the House will let the Senate struggle a bit longer.

Committee Chairman Steven Johnson (R-Assaria) told the committee this week he would like the members to consider looking at perhaps four income tax brackets in a new bill. Johnson said the committee would use the bill vetoed by Governor Brownback (HB 2178) as a base.

The 2012 income tax cuts moved Kansas from three brackets to two. HB 2178 returned to three brackets.

There is another bill currently in the Tax Committee similar to HB 2178 that could be used for a new income tax measure.

The committee may also put forth a flat income tax with one rate, somewhere around 5 percent.

 

Rescission bill in conference

The budget bill that reconciles the current state budget is in a conference committee of House and Senate members. They will try to iron out differences in each version. The bill does not cut K-12 or higher education.

It is House Bill 2052. The bill essentially relies on internal borrowing to balance the budget and leaves an ending balance in the bank of about $50 million.

The current budget year is FY 2017.  It ends on June 30.

 

Senate Committee passes a budget

Meanwhile, the Senate Ways and Means Committee passed a budget Thursday for the next two years with little fanfare.

It’s Senate Bill 189, the so-called “mega budget” bill. The guts of the bill contain a state budget for Fiscal Years 2018 and 2019. Because school finance and income tax increases are still in the works, the budget does not contain K-12 funding or some other items. Those will be added later once the revenue and education pictures become more focused.

The bill now goes to the floor of the Kansas Senate. The house and senate have very few committee meetings next week and are expected to be spending most of their time on the house and senate floors debating bills.

 

House holds hearing on 11 cent gas tax increase

The House Taxation Committee held a hearing Thursday on a bill to increase the motor vehicle fuels tax by 11 cents a gallon.  It’s House Bill 2382.

A bill raising the tax by five cents a gallon had a hearing a week ago in the Senate Assessment and Taxation Committee.

 

STAR Bonds out of House committee

A bill that extends STAR Bond financing until 2022 has passed the House Appropriations Committee and will be debated in the full House of Representatives.  Without the bill, STAR Bonds could no longer be used as an economic development tool.

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 is HB 2184.  It contains some other changes:

  • The bill allows STAR Bonds projects costs to include expenses for the renovation and expansion of an historic theater
  • Language is eliminated in the law that allows a county commission or school board to object to a proposed STAR bond district, if it is determined the district would have an adverse effect on property tax revenues
  • The Secretary of Commerce would no longer be required to approve a city or county option to use all or a portion of transient guest tax revenues to be pledged for principal and interest payments on the STAR bonds.
  • The bill eliminates some outdated language about the NASCAR facilities in Wyandotte County.

Meanwhile, reliable legislative sources tell us the Senate Commerce Committee has ended its look at economic development incentives and may not make any changes to programs like HPIP and PEAK.  A quick check of next week’s agenda shows no committee meetings scheduled.

 

Property tax lid changes

Here’s one of those crazy things that happens in the final weeks of a legislative session.

The Senate Assessment and Taxation Committee held hearings last week on a bill to repeal the local property tax lid.

Senate Bill 167 was completely gutted in committee Thursday of any mention of the tax lid.  It has now become a bill that requires County Appraisers be elected to four year terms, beginning in 2018!

There are also several provisions in the bill having to do with how appraisals will be conducted.  Attorneys familiar with government appraisal of property believe some of those provisions are probably unconstitutional.  The bill is still in the Senate committee.

The committee has an 8:30 a.m. meeting scheduled this morning (Friday) to hear from the Revenue Department’s Property Valuation Division (PVD).  PVD may inform them of problems with the bill.

The House Taxation Committee has held hearings on a House Bill 2376, which changes the local property tax lid from requiring an election to only requiring an election when 10% of the voters sign a protest petition asking for an election.

Our best guess is that this bill will be passed out of the committee, but with changes that lower the number of signatures needed on a protest petition.  It will then probably sit on the agenda for debate in the full house until some of the other major issues of the session (school finance, taxes, and the budget) have some movement.

 

Will lawmakers break early?

Next week’s schedule indicates the Legislature will NOT meet on Friday.  Lawmakers were originally scheduled to be in session the next week (the week of April 3).  There are rumblings around the Statehouse (usually reliable) about how that week could be a short one.  Depending on how much has been accomplished, legislative leadership may decide to hold the First Adjournment early to save more days for the veto session.

The veto session is scheduled to begin May 1 this year.

 

Bill tracking

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

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.

KEPC UPDATE: Budget cuts, taxes & ed, gas tax, TABOR, eco devo, property tax, rural jobs, Medicaid, sales tax, upcoming

In this issue …

  • Senate rejects budget cuts
  • Taxes and education: where are we?
  • Hearing on gas tax increase for transportation is today
  • TABOR constitutional amendment hearing is held
  • Economic development under the magnifying glass
  • Property tax lid hearings
  • Rural jobs bill gets okay from House
  • Medicaid expansion hearing Monday and Tuesday
  • Bill would put sales tax on some services
  • Some bills of interest for next week

 

Senate rejects budget cuts

The Kansas Senate overwhelmingly rejected across the board cuts to the current year state budget, including proposed cuts to education.

Senate President Susan Wagle proposed the two percent across-the-board cuts.  They excluded debt service and caseload obligations.

Wagle argued that school districts could use their reserve funds to fill the void.  She said education cuts would be confined to non-instructional activity.  That would have meant positions like school counselors, librarians, and school nurses could be affected, but not football coaches.

Wagle said it was apparent that the legislature was going to pass an income tax increase this year.  She said the size of that tax increase would be less if there were some cuts.  The Wagle Amendment would have cut $104 million from the budget.  That would have included a $64 million cut from schools.

On a recorded vote, Wagle’s amendment failed 7 to 33.

Here’s a link to how senators voted on the Wagle amendment.

Two other amendments to cut the budget also failed.  They were proposed by Senator Dennis Pyle (R-Hiawatha).

The bill was House Bill 2052, designed to balance the Fiscal Year 2017 budget.  Fiscal Year 2017 ends on June 30.  This is the so-called rescission bill.

About 9:15 Thursday night, the Senate passed the entire bill (HB 2052) by a vote of 27 to 13.  The bill has already passed the House.  It will now likely go to a conference committee to iron out differences between the House and Senate.

 

Taxes and education: where are we?

Here’s a quick update on where we are on tax and education spending, as we understand how things are going at this time.

  • The Kansas House of Representatives passed an income tax bill and overrode Governor Brownback’s veto. The Kansas Senate passed the bill, but fell three votes short of an override.
  • The ball is now in the Senate’s court. The House will wait for the Senate to pass an income tax bill and send it over.  However, hearings on a couple of “flat tax” income tax bills that have only one rate for everyone will be held next week.
  • Senate President Susan Wagle has said the Senate won’t begin work on a new income tax bill until after the rescission bill is passed.
  • The Kansas Supreme Court decision on school finance will likely require any income tax bill to raise more than the bill that passed the legislature but was vetoed by the Governor.
  • Meanwhile, the House K-12 Education Budget Committee has been working to build a “consensus bill.” Listening to discussions, Committee Chair Larry Campbell (R-Olathe), working with House Education Committee Chair Clay Aurand (R-Belleville) will attempt to write a school finance bill built on the previous formula’s idea of a base budget and weightings.  Campbell says when the bill is introduced, he will hold hearings. The bill is expected to be introduced next week.
  • Senate President Wagle has formed a Senate Select Committee on Education Finance. Its first meeting was Thursday afternoon.  Four more meetings are scheduled next week.

 

Hearing on gas tax increase for transportation is today

Last week, we told you about the two motor fuels tax increase bills that were introduced.  Hearings have now been scheduled on the bills, which would try to salvage the 2010 T-WORKS program that has been decimated over the past six years by raids to fund other parts of the budget.

Senate Bill 224 is a five cent a gallon increase.  The hearing is Friday morning in the Senate Assessment and Taxation Committee.  Senate Vice President Jeff Longbine (R-Emporia) requested the bill.  It would raise an estimated $100 million.  The increase would be effective July 1 of this year.

House Bill 2382 would raise the motor fuels tax by eleven cents a gallon.  That hearing is scheduled for Thursday of next week, March 23, in the House Taxation Committee.  In addition to the amount of the increase, the House bill would change the formula for distribution.  Cities and counties would continue to get their current distribution, but most of the increase would go to the state’s T-WORKS program.

The current Kansas gasoline tax is 24 cents per gallon.

 

TABOR constitutional amendment hearing is held

Only one person gave stand-up testimony in support of a proposed tax and spending limitation constitutional amendment at a hearing Wednesday.  Senator Ty Masterson (R-Andover) said it was his proposal.

Under his proposal, state tax increases would require a 2/3 supermajority of the House and Senate; state spending and revenue limits would be imposed; and the limits could only be exceeded by a vote of the people.

Supporting the amendment with written-only testimony were the Kansas Policy Institute and Americans For Prosperity (perhaps sensing it has no chance of passage this year).

Among opponents were the Kansas Center for Economic Growth, the Kansas- National Education Association, the Kansas Association of School Boards and me, representing the Kansas Economic Progress Council.

I pointed out that Colorado’s TABOR (Taxpayer Bill of Rights) is being challenged in the federal courts as unconstitutional.  I also pointed out the many problems Colorado is having as the result of TABOR.

My conclusion was, “The danger of spending limitations is they can prevent you from doing what needs to be done.  They take the responsibility away from elected officials, the representatives of the people.

“Decisions will be made through a difficult process, and sometimes decided by the difficulty of that process, rather than by evaluating the issues.”

 

Economic development under the magnifying glass

The Senate Commerce Committee has been delving into the economic development programs and incentives of the state, asking if they work and/or if they need to be changed.

Several days of hearings, including questions and answers, have been held on STAR Bonds, PEAK (Providing Employment Across Kansas), and HPIP (High Performance Incentive Program).

Secretary of Commerce Antonio Soave will discuss the programs on Wednesday.  He will also discuss the ROZ program (Rural Opportunity Zones).

 

Property tax lid hearings

A bill that repeals the local property tax lid legislation from 2015 had a hearing in the Senate Assessment and Taxation Committee Thursday.  The bill is SB 167.

Senator Randall Hardy (R-Salina) introduced the bill.  Hardy testified that as a former Salina City Commissioner, he always had the best interest of taxpayers in mind.  He said he believes in local control and that the property tax lid is imposing an artificial barrier that has saddled local governments.

Eric Sartorius, the Executive Director of the League of Kansas Municipalities, said the bill is contradictory to democracy.  He said the election provision to opt out of the lid doesn’t allow local governments to have actual data to help decide if elections are needed.  He also pointed out the cost of elections is an issue.

The Kansas Association of Counties also supported the repeal.

Americans For Prosperity, the Kansas Chamber of Commerce, the Kansas Association of Realtors, and the Kansas Policy Institute opposed the measure.

A hearing was also held Thursday on House Bill 2376 in the House Taxation Committee.  It changes the local property tax lid from a requiring an election to only requiring an election when 10% of the voters sign a protest petition asking for an election.

The same groups basically testified as at the Senate Committee.  However, the House Taxation Committee hearing was described as much more contentious.

 

Rural jobs bill gets okay from House

On a vote of 97 to 22, the Kansas House passed and sent to the Senate the “Ad Astra Rural Jobs Act,” House Bill 2186.  It offers tax incentives to finance business projects that create jobs in rural areas.  The tax incentives would go through certain types of investment companies.

The Department of Commerce would have to approve the investment companies and their business plans.

 

Medicaid expansion hearing Monday and Tuesday

The Medicaid expansion bill that passed the Kansas House 81 to 44 will have a hearing in a Senate committee on Monday.  House Bill 2044 is expected to draw testimony from many supporters in the Senate Public Health and Welfare Committee.

Proponents will be heard Tuesday, while opponents are scheduled to be heard Tuesday.

The bill is HB 2044.  Here’s a link to the supplemental note describing what’s in the bill.

 

Bill would put sales tax on some services

A bill that puts a sales tax on certain services will have a hearing Tuesday in the House Taxation Committee.  It is House Bill 2384.  Here are the services:

  • Emergency road services (towing)
  • Investigative services (detective agencies)
  • Security guards and patrol services (body guard services)
  • Security system services, except locksmiths (alarm system monitoring services)
  • Certain non-residential cleaning services
  • Dating services

There is no fiscal note available on the bill, so we don’t know how much money it would bring in.

 

Some other bills of interest for next week

The so-called Mega Budget bill will be worked next week in the House Appropriations Committee.  HB 2364 is the big budget bill for Fiscal Years 2018 and 2019.

A bill that institutes a 3.9% flat income tax will have a hearing in the House Taxation Committee.  It is House Bill 2385.

A bill that institutes a 5% flat income tax will have a hearing in the House Taxation Committee.  It is House Bill 2395.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers. You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.

KEPC UPDATE: School finance, income tax, transportation, Medicaid expansion, property tax, TABOR, eco devo programs

In this issue …

  • Slow week as lawmakers consider school finance decision
  • Senate Tax will look at income tax bill next week
  • Bills would find funds for transportation
  • Senate Medicaid expansion hearing March 21
  • Hearing was delayed on property tax lid bill
  • Senate will hold hearing on TABOR constitutional amendment
  • Economic development programs under the magnifying glass
  • BILL TRACKING

 

Slow week as lawmakers consider school finance decision

Kansas lawmakers spent the week pondering the meaning of the Kansas Supreme Court’s decision last week on school finance, trying to figure out how much it will cost the state and how to find the money.

The Court ruled unanimously that Kansas’ block grant system is unconstitutional and it retained jurisdiction of the case, giving lawmakers until June 30 to pass something constitutional.  The court gave lawmakers clues about what it would take.  For example, they pointed out that testing indicates about a fourth of public school students are not getting an adequate education.  That’s telling legislators where to concentrate some attention.

One big concern is the court did not name a dollar amount.  However, the decision did make note of a lower court ruling last year that a constitutional formula might cost over $500 million next year while saying, “Total spending is not dispositive of adequacy.”

That’s got everybody scratching their collective legislative heads.

Now, the committees go to work on the problem.

In the senate, President Susan Wagle (R-Wichita) appointed a Senate Select Committee on Education Finance.  The chair is Majority Leader Jim Denning (R-Overland Park) and the Vice Chair is Ways and Means Chair Carolyn McGinn (R-Sedgwick).

Other members

  • Senator Anthony Hensley (D-Topeka) will be the ranking minority
  • Senator Molly Baumgardner (R-Louisburg), the Senate Education Chair
  • Senator Barbara Bollier (R-Mission Hills)
  • Senator Bud Estes (R-Dodge City)
  • Senator Dan Goddard (R-Goddard)
  • Senator Dan Kerschen (R-Garden Plain)
  • Senator Pat Petty (D-Kansas City)

Work has been underway in the house where the K-12 Education Budget Committee will continue meeting, likely using a proposal by Representative Melissa Rooker (R-Fairway) as a base, although many are concerned about its cost right now.

 

Senate Tax will look at income tax bill next week

Having successfully passed an income tax increase and overturned a veto by Governor Sam Brownback, the Kansas House of Representatives will wait to see what the senate comes up with.  The senate also passed the bill, but fell three votes short of overriding the Brownback veto.

It seems very clear from discussions with senators that changing the effective date from January 1, 2017 to January 1, 2018 would cause three no votes to shift to the yes column.  However, that leaves a bigger hole in the budget until the income tax increases starting flowing to the state treasury.

There’s also that pesky school finance decision and balancing the need for unknown funding against the ability to get enough votes.

The Senate Assessment and Taxation Committee will hold a hearing Tuesday on Senate Bill 192.

This bill is a little different from the one vetoed by the Governor.

It keeps the two current income tax brackets at the same rates, but adds a third bracket for single people making $35,000 a year and over; and married people filing jointly who make more than $70,000 a year jointly.  That rate would be 6.1 percent.

The bill also eliminates the “March to Zero” trigger mechanism that automatically lowers rates in the future and it allows a 100 percent itemized deduction for medical expenses.

The bill would raise an estimated $578.5 million for FY18.

This bill, like the one vetoed by Brownback, is retroactive to January 1, 2017.

 

Bills would find funds for transportation

Things are starting to move on the transportation front as lawmakers try to salvage the 2010 T-WORKS program that has been decimated over the past six years by raids to fund other parts of the budget.

Here’s the shorthand:

  • Senate Bill 224 was introduced Tuesday and sent to the Senate Assessment and Taxation Committee. It raises gas taxes five cents a gallon.  Senate Vice President Jeff Longbine (R-Emporia) asked for the bill, which would raise an estimated $100 million.
  • House Bill 2382, which contains an eleven cent a gallon gas tax increase, was introduced Wednesday and sent to the House Taxation Committee. That raises in excess of $200 million.
  • After a spirited debate Thursday, the House Appropriations Committee approved the use of $400 million in additional bonding authority for KDOT. It is seen as a temporary “bridge” for work in FY18 and FY19.  The subcommittee had considered a gas tax increase but could not agree.
  • The legislature would have to remove the 18 percent bonding cap in current law. KDOT is at $1.1 billion in bonding.  The original T-WORKS bill was built on $1.7 billion in bonds.  An attempt to eliminate the bonding authority failed on a vote of the full Appropriations Committee, so it’s still in the budget.

 

Senate Medicaid expansion hearing March 21

Our sources in the medical community tell us hearings will be held on Medicaid expansion in the Senate Public Health and Welfare Committee on March 21.  The Kansas House already passed the bill a few weeks ago by a vote of 81 to 44.

Supporters believe the vote will be closer in the Senate.  They estimate they have between 22 and 24 votes right now.  A majority needed for passage is 21 votes.

 

Hearing was delayed on property tax lid bill

A hearing was delayed this week on a bill to change the local property tax lid from requiring an election to exceed the lid.  House Bill 2376 is now scheduled for a hearing Thursday in the House Taxation Committee.

It changes the current law to say an election will not be held unless a ten percent protest petition is turned in within 21 days of a local government publishing a notice they intend to exceed the lid.

Meanwhile, the Senate Assessment and Taxation Committee will hold a hearing on the same day on Senate Bill 167, which totally repeals the property tax lid.  Local government lobbyists say they will support the bill, but don’t think it has a realistic chance of passage right now.

 

Senate will hold hearing on TABOR constitutional amendment

A constitutional amendment to enact a TABOR spending and revenue limitation in Kansas will have a hearing Wednesday in the Senate Assessment and Taxation Committee.  The measure is SCR 1602.

TABOR stands for Taxpayer Bill of Rights.  Colorado enacted TABOR in 1992, but voters approved suspending many of its requirements in 2005 due to problems it caused.

The latest problem in Colorado is a conflict with the state’s legalized marijuana legislation.  The money raised for government by marijuana is supposed to go to schools, police, and drug education.  However, the TABOR constitutional amendment is in conflict with that intent and the pot money is prevented from being used for those purposes.

Meanwhile, a long-standing lawsuit challenging TABOR continues in a federal appeals court.  Those bringing the lawsuit include current and former legislators, educators, and parents of school children.  In 2011 they filed suit, claiming TABOR stripped them of legislative powers regarding taxation, which violates the guarantee clause of the U.S. Constitution.

Colorado’s TABOR is also in conflict with another portion of that state’s constitution, which requires a certain level of spending on public education.

Meanwhile, local Colorado chambers of commerce and economic development organizations are telling lawmakers there’s a $9 billion gap in funding roads that needs to be addressed.  That gap is hindered by Colorado’s TABOR.

Here’s what’s in the Kansas TABOR constitutional amendment.

  • State tax increases or extensions would require a 2/3 supermajority of the house and senate
  • State spending and revenue limits would be imposed
  • The legislature could only exceed the spending limit if approved by a vote of the people at a general election
  • Excess state revenues would be reserved for economic downturns and reducing state debt (or to be refunded to taxpayers)
  • State borrowing would be limited

A constitutional amendment takes a 2/3rds vote of the Kansas House of Representatives and Kansas Senate before it is put to Kansas voters in an election.

 

Economic development programs under the magnifying glass

For the past few weeks, the Senate Commerce Committee has been holding hearings on STAR Bonds (Sales Tax Revenue Bonds) and the projects they fund.  STAR Bond legislation will expire without the legislature voting to continue the program, which has been used for projects like the Kansas City NASCAR Track and Village West.

The Senate Assessment and Taxation Committee held a long hearing Thursday on the PEAK Program.  PEAK stands for Providing Employment Across Kansas.

Enacted in 2009, PEAK provides benefits to companies to relocate or expand operations and jobs in Kansas.

Approved companies can receive up to 95 percent of the Kansas withholding of PEAK eligible employees that are paid at or above the county median wage.  The incentive can be approved by the Kansas Secretary of Commerce for up to ten years.

Hearings were held on two bills. Senate Bill 222 would impose a one year moratorium on PEAK.  Senate Bill 223 puts limitations on how PEAK can be used.  Most notably, it could not be used to attract a business from less than 250 miles away!

Supporters of the bills were the Kansas Policy Institute and Americans For Prosperity.  The Kansas Chamber of Commerce, often aligned with those groups on tax issues, was on the other side this time, opposing the bills.

Local chamber of commerce and economic development officials also appeared in support of PEAK.

Tom Robinette of the Overland Park Chamber of Commerce said, “…it makes little sense to tie the hands of those professionals (economic developers) for an entire year, taking away what has been demonstrated to be a very successful and effective economic development tool.”

Robinette also produced a statement from 21 local chambers of commerce calling for the preservation of economic development programs, including PEAK, which are “critical tools used to retain and attract businesses and create jobs throughout Kansas.”

Blake Schreck of the Lenexa Chamber said, “an aggressive incentive package is expected” when competing with other states for jobs, adding, “A new job to the state is new revenue to the state.

The Topeka Chamber’s Matt Pivarnik said, “A number of Topeka’s fastest-growing employers have taken advantage of these incentives.  In most cases, these were companies which could have chosen to locate elsewhere.  They chose to relocate to Topeka, or to stay here, for a number of reasons.  Having spoken directly with officials at these companies, we know their ability to utilize PEAK tax credits was an important part of their decision-logic.”

The committee took no action on the bills.

 

Bill tracking

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

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.

KEPC UPDATE: June 30 deadline looms – what now?, raise income taxes, new biz filings debunked, blistering attack on bix exemption, hearing on tax lid

In this issue …

  • Court gives legislature until June 30 to fix school funding
  • What now on school finance?
  • Ruling means more pressure to raise income taxes
  • KCEG debunks arguments on new business filings
  • Tax Foundation publishes blistering attack on business exemption
  • Hearing Wednesday on property tax lid

 

Court gives legislature until June 30 to fix school funding

The Kansas Supreme Court unanimously ruled Thursday that the Kansas “block grant” system that was to temporarily replace the school finance formula is unconstitutional.  The Court retained jurisdiction of the case and is giving the Kansas Legislature until June 30 to pass something constitutional.

In its ruling, the Court says about a fourth of all students are not being properly educated:

“Plaintiffs have shown through the evidence from trial-and through updated results on standardized testing since then-that not only is the State failing to provide approximately one-fourth of all its public school K-12 students with the basic skills of both reading and math, but that it is also leaving behind significant groups of harder-to-educate students.”

The Court did not give the legislature a dollar amount that must be spent on K-12.  There is speculation the legislature could return to a form of the old formula and boost spending on at-risk students as a quick way to appease the justices.

The number most mentioned comes from the Kansas Department of Education, where Deputy Commissioner Dale Dennis was saying before the decision he thought it would take about $520 million.

The ruling by the Kansas Supreme Court that Kansas’ block grant system for public education is unconstitutional is no surprise and has been widely expected for months.  The block grants limited public school spending by the state and were a thinly veiled attempt to protect the 2012 income tax cuts by reducing the pressure to repeal them.

Having closely watched the new 2017 Kansas Legislature, it’s clear a strong bi-partisan majority of lawmakers understand the damage done by the income tax cuts because they passed legislation to reverse them.  Unfortunately, that legislation was vetoed by Governor Brownback.

It’s also clear a strong bi-partisan majority support public education and will do what’s necessary to follow the Court’s ruling and correct the funding structure, although that will be a difficult process.

Here’s a link to the 83-page decision.

 

What now on school finance?

Although there have been some hearings on bills introduced to deal with a new school finance formula, none have passed out of committees.  Key committees have been mainly studying the problem and may have been waiting for the direction of the Kansas Supreme Court before proceeding.

Activity is expected to speed up almost immediately when lawmakers return to the Statehouse Monday after a nine day mid-session break.

 

Ruling means more pressure to raise income taxes

The ruling puts pressure on legislators to come up with more revenue, particularly efforts to revisit income tax increases following Governor Brownback’s veto of House Bill 2178, which would have provided $590 million to the state for Fiscal Year 2018.

The House overrode the veto 85 to 40 (84 are needed to override a veto).

The Senate voted 24 to 16, three votes short of the 27 needed to override.

Here’s what was in the bill:

  • The business tax exemption is eliminated
  • A third tax bracket is added of 5.45 percent. It applies to single taxpayers that make more than $50,000 and married taxpayers that make more than $100,000
  • The bill is retroactive to January 1 of this year
  • Medical deductions (which were eliminated previously) are restored at 100 percent
  • The so-called March to Zero trigger mechanism that lowers income taxes in the future is eliminated

One possible path is to re-introduce the measure and see if three more votes can be picked up in the Senate with the knowledge that the Supreme Court has given the legislature a deadline.

Another path is to tweak the legislation to pick up three Senate votes and hope that the rest of the votes in the Senate and House will hold up under another veto.

In a statement reacting to the ruling, Governor Brownback says in part, “The Kansas Supreme Court correctly observes that our education system has failed to provide a suitable education for the lowest performing 25 percent of students.  The old funding formula failed our students, particularly those that struggle most.”

That statement is misleading.  The Supreme Court was talking about the failure of the Governor’s block grant system, not the old funding formula.

Here is Governor Sam Brownback’s complete statement reacting to the ruling.

 

KCEG debunks arguments on new business filings

Our friends at the Kansas Center for Economic Growth, have done some impressive research that strongly challenges Governor Brownback’s claim that his income tax cuts have created new businesses in the state.

The KCEG information using data from the Kansas Secretary of State’s Office shows that new business filings in Kansas are still below pre-recession levels, even with the income tax cuts. That occurs when you subtract the businesses that have gone away during the period.

The study also shows that employment growth at businesses that received the “pass through” income tax break lags the United States and much of the region.

Colorado, Nebraska, Missouri, and Oklahoma all had higher employment growth in pass through businesses.  Arkansas and Iowa had lower growth than Kansas.

Both the analysis of new business filings and employment growth provide no evidence that the 2012 income tax cuts have had an impact.

The charts are particularly illustrative.  Here’s a link to the information.

 

Tax Foundation publishes blistering attack on business exemption

The nonpartisan Tax Foundation in Washington, D.C. was often quoted during and after the 2012 debate over Kansas income tax cuts in efforts by supporters to justify the cuts.

Since then the respected research organization has been very critical of Kansas income tax exemption for business.

On February 21, the organization published online a blistering attack on the exemption, reminding readers that, “We described the pass-through carveout as ‘an incentive to game the tax system without doing anything productive for the economy.’  We acknowledge that pass-through entities face higher tax burdens than C-corporations, but argue that a tax carveout or reduced rate compared to wage income is administratively challenging and difficult to justify.”

The online story continues, “The Kansas pass-through carveout has no place in a good tax code.  It also destabilized the budget and made revenue projections volatile.”

“Kansas prior attempts to resolve its budget issues focused on temporary, short-term solutions – emptying the rainy day fund, raiding program reserve funds, and offering bonds on its tobacco revenue stream.  These were not sustainable fiscal solutions. “

Here’s a link to the entire online report.

 

Hearing Wednesday on property tax lid

There’s no bill number yet, but a hearing will be held Wednesday in the House Taxation Committee on a bill that changes the 2015 local property tax lid process from a mandated election to a protest petition election.

Current law caps cities’ and counties’ ability to raise property tax revenue up to 1.4 percent of their 2018 budget, taking into account some exemptions.  The percentage is calculated via a formula involving the Consumer Price Index and will vary from year to year.  In order to exceed the cap, a local election must be held to decide whether the increased spending takes effect.

Local governments say the current election provisions are incomplete.

The new proposal from the League of Kansas Municipalities (in conjunction with the Kansas Association of Counties) says an election will not be held unless a ten percent protest petition is turned in within 21 days of local government publishing a notice about the increased spending.

The ten percent is based on the number of voters who participated in the last city or county election, depending on which entity is proposing the budget.  If there is no protest petition (or not enough signatures), the increase can be implemented.  If an election is forced and voters do not overturn the increase, it can be implemented.

The protest petition election does not alter the tax lid law, only the election process.

KEPC UPDATE: Unthinkable, taxes & budget, Medicaid expansion, turnaround, surprises

In this issue …

  • Unthinkable?
  • Where we are on taxes and budget
  • Medicaid expansion passes House
  • We are at the turnaround
  • Is a surprise coming?
  • Bill Tracking

 

Unthinkable?

At the halfway point of the 2017 Kansas Legislature, lawmakers have taken actions that would have been unthinkable heresy by the 2016 Kansas Legislature, which was much more conservative.

The turning points were the August and November elections where voters upset with years of state budget turmoil voted for candidates who promised to fix the problem.

Here’s the shorthand.

  • On Wednesday, Governor Sam Brownback vetoed Substitute for House Bill 2178, the income tax bill that would have gone a long way toward fixing Kansas structural budget problems.
  • On Wednesday, the Kansas House of Representatives successfully overrode the Governor’s veto by a vote of 85 to 40. It takes 84 votes to override a veto in the House.  Here’s how they voted.
  • Later that day the Senate vote to override the veto was not successful. It was 24 to 16.  27 votes are needed to override.  Here’s how the senate voted.
  • After a lengthy debate on Wednesday, the House passed Medicaid expansion Thursday by a vote of 81 to 44. That is not a veto proof majority.  Here’s how they voted.

New legislators tended toward discouragement, but those who have been around longer see this as a monumental change from less than a year ago, when such actions would have been unthinkable.

 

Where we are on taxes and budget

With the failure by three votes to override the Governor’s veto of the income tax bill, here’s what’s happening.

Both the House and Senate Tax Committees met briefly “at the rail” on the 3rd floor of the Statehouse Thursday and passed out bills that could be part of a new tax package.

The House Taxation Committee bills:

  • House Bill 2370 is very similar to the vetoed bill.
  • House Bill 2315, which is the Governor’s tax bill with small tax increases (it depends on one-time fixes)
  • A bill requested by Rep. Ken Rahjes (R-Agra) that is basically the vetoed bill with two income tax brackets instead of three
  • A bill by Rep. Erin Davis (R-Olathe) that has to do with non-wage income

The Senate Assessment and Taxation Committee bills:

  • Senate Bill 175, the Governor’s tax bill
  • A suggestion by Sen. Jim Denning (R-Overland Park), the Senate Majority Leader, which is the vetoed bill without retroactivity on individual income tax rate increases. Those increases would take effect in 2018 rather than 2017 and cost the state about $100 million
  • Committee Chair Sen. Caryn Tyson (R-Parker) asked for an income tax bill suggested last year by then-Senate Tax Chairman Les Donovan (R-Wichita). It’s unclear what this bill does.
  • A bill that suspends the PEAK program (Providing Employment Across Kansas) for one year, requested by Sen. Tom Holland (D-Baldwin City)
  • A bill requested by Sen. Holland that includes modifications to PEAK.

Please note that we do not have details of some of these bills and they might not be available for more than a week.

The overall thinking is that if most of the “yes” votes will hold, tweaking the brackets or retroactivity could bring in the three senate votes needed to pass an override.

With the Governor’s veto sustained and bills that raise less money now in the mix, senate budget writers are going to begin to look at where to cut the budget.  They appear to be looking at cuts that assume that some income tax bill will pass, but one that will not cover all of expected future shortfalls for a few years.

 

Medicaid expansion passes House

The Kansas House of Representatives took House Bill 2044, which had to do with programs designed to alleviate emotional and behavior problems, and changed it to include Medicaid expansion, passing it 81 to 44.

The action came after the House Health and Human Services Committee tabled Medicaid expansion by one vote.

Here’s a link to the Legislative Research description of the bill.

The bill would expand eligibility for Medicaid to an estimated 150,000-plus residents of Kansas.

31 states, many with Republican governors, have already expanded Medicaid.  In addition to providing many Kansans with health care insurance (paid largely by the federal government) the measure is seen as relief for overburdened health care providers.  Many painted expansion as a way to help rural health care facilities which are in danger of closing.

Opponents point out that Medicaid expansion is part of the Affordable Care Act (Obamacare) which President Trump and many in Congress promise to “repeal and replace.”

Supporters say it’s unlikely that the president and congress will take health care away from large numbers of Americans.

 

We are at the turnaround

The Kansas Legislature is now on a ten-day unpaid break.  Thursday was the deadline for bills to pass out of their house of origin.

House bills must be passed by the House; Senate bills must be passed by the Senate or they are dead for the session.  However, bills from certain exempt committees are still alive.

This period is called the turnaround and is supposed to mark the halfway point of the legislative session.  The turnaround break is normally only four or five days.  The unusually long break is supposed to help save days for later in the session when difficult decisions might be faced.

 

Is a surprise coming?

Here’s a quick reminder that the Kansas Supreme Court could yet throw a monkey wrench into the proceedings.  Lawmakers know that a decision could come any day now on the school finance lawsuit that challenges the adequacy of state funding for public education.

A court ruling in favor of the school districts that are suing the state could force lawmakers to find an additional $150 million to $500 million.

 

Bill tracking

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

You should be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared.