KEPC UPDATE: Tax options, cut budget, sales tax, KDOT, medicaid, TABOR, ed commissioner, tax lid, bill tracking

In this issue …

  • Committees talk about income tax options
  • What if we just cut the budget?
  • House Taxation delves into controversial sales tax exemptions
  • KDOT talks about delays, transfers
  • Medicaid expansion hearings will be held in February
  • Administration defends against Medicaid action by feds
  • TABOR introduced
  • Education Commissioner wants more counselors, psychologists, social workers
  • Leadership group supports repeal of tax lid, but some warn it won’t be easy
  • Bill tracking

 

Committees talk about income tax options

House and Senate Taxation Committees continued to discuss changes to the 2012 income tax cuts.  They are widely seen as responsible for the state’s current deep budget crisis.

The House Taxation Committee continued its hearing from last week on HB 2023, which eliminates the exemption for business income taxes for most business entities in the state.  Notable opponents included the Kansas Chamber of Commerce and Americans For Prosperity.  Both organizations argued that the 2012 exemption is growing business and jobs despite a lack of tangible evidence.

Official figures show the opposite: that private sector job growth was negative 0.8 percent in Kansas for 2016.  That’s a loss of 9,400 jobs.

Tom Robinette of the Overland Park Chamber of Commerce spoke on behalf of a coalition of local chambers of commerce who represent 13,000 businesses.  On behalf of those chambers, Robinette said the tax cuts went too far too fast and have not helped the economy.  He added that the cuts have not had a positive effect on jobs or growth.

Testifying on behalf of the Greater Kansas City Chamber, Sandy Braden supported the measure, saying it would help return the tax structure to what it was originally and establish a more fair and equitable structure.

I testified on behalf of KEPC as neutral.  Our position is that the business exemption and the individual income tax rates must both be revisited.  I also said the trigger mechanism that cuts rates further in the future must be stopped.

“The idea of shifting the burden of state government finance from income to sales taxes was flawed,” I said.  “It’s not working and we need to begin shifting back to the income tax.

“The decision was made in 2012 without adequate consideration of whether the sales tax could support the burden and especially the affect of the sales tax on business in Kansas.”

In summary, I pointed out, “Government stability in revenue and services is a strong foundation of business growth.  We support a return to income tax to balance our revenue streams.”

Meanwhile the Senate Assessment and Taxation Committee has been reviewing information on the Kansas income tax cuts, but has not held any hearings yet.  There was discussion of various scenarios to change the business exemption and what would happen to revenues with each of them.  The committee also discussed possible rate increases.

Committee Chair Caryn Tyson (R-Parker) said the committee will continue to look at the issue and might be continuing its discussion into next week.

At the Local Government Day activities Wednesday, Senate Vice President Jeff Longbine (R-Emporia) said that he thinks elimination of the business income tax exemption is a foregone conclusion.

There were reports Thursday evening that Senate Republicans will unveil a plan on Monday.

 

What if we just cut the budget?

This week the House Appropriations Committee took a look at what it would take to balance the current fiscal year budget with just budget cuts, as some have suggested.  The answer was not pretty.

It would take 6.95 percent across the board cuts for everything in the general fund.  That raises an estimated $224.5 million.

Here’s just some of what that would do:

  • K-12 public education would lose $225 million
  • The Department of Aging and Disability Services loses $25
  • Kansas Board of Regents loses $13 million
  • Kansas Department of Corrections loses $11 million
  • Kansas Department for Children and Families would lose $9.4 million

Some school district losses:

  • Wichita: $24 million
  • Kansas City, Kansas: $11.1 million
  • Olathe: $10.8 million
  • Shawnee Mission: $10.6 million
  • Blue Valley: $7.8 million
  • Topeka: $6.3 million
  • Lawrence: $4.7 million
  • Garden City: $3.6 million
  • Dodge City: $3.5 million
  • Salina: $3.1 million
  • Manhattan: $2.5 million
  • Hutchinson: $2.2 million
  • Hays: $1.1 million
  • Ottawa: $1 million

It’s basically an $8.5 percent reduction to each school district in Kansas.

The two major budget committees of the legislature, House Appropriations and Senate Ways & Means, have begun going through the governor’s budget agency by agency.  They use a subcommittee system.  Various subcommittees review budget requests, make changes and recommendations, and then present reports to the full committee for action.

 

House Taxation delves into controversial sales tax exemptions

Those who have been around the Statehouse for many years can remember the can of worms that has been opened at least four times in the past 40 years when removal of sales tax exemptions was discussed.

Removing some exemptions was discussed in the House Taxation Committee on Tuesday.  Another idea was to tax some of the exemptions at a lower rate and/ or for a set period of time, after which the change would sunset.

Various committee members asked to look into exemptions.  Here’s the list of what will be considered next week, as we understand it.  These are the items exempt from sales tax in current law that would be considered for imposition of the sales tax.

  • Telephone and telegraph service except certain interstate and international service
  • Labor service on original construction of a building or facility, the restoration, replacement or repair of a residence, bridge or highway
  • Sale of bingo cards
  • Customized computer software
  • Lottery tickets
  • Sale of farm or aquaculture machinery and equipment
  • Services rendered by an advertising agency or broadcast station
  • Lease or rental of films, records, tapes by motion picture exhibitors
  • Modified definition of sales or selling price to not include cash rebates granted by a manufacturer to a purchaser or lease or a new motor vehicle

In all, the committee discussed removing sales tax exemptions that could raise about $400 million.

Groups that support these exemptions are already mobilizing to protect them, much as they have when the subject came up in the past.

 

KDOT talks about delays, transfers

The Kansas Department of Transportation has been explaining what the raids on transportation funds have been doing to the T-WORKS program and it’s not good news.

For Fiscal Year 2018, new road and bridge projects will only total about $28 million.  That’s supposed to cover about 235 miles.

This year’s projects cost $88 million and covered 765 miles.  In FY 2015 new projects totaled $167 million and covered more than a thousand miles of roadways.

Over half a billion dollars in constructions projects continue to be delayed.  Ten are modernization and 13 are expansion projects.  Kansas Secretary of Transportation Richard Carlson was grilled about the agency’s activities at a meeting of the Senate Ways and Means Committee on Tuesday.

The Governor’s budget takes about $530 million a year from KDOT in 2018 and 2019.  Added to previous transfers, that means $3.7 billion will have been diverted from the T-WORKS Program by 2019.

48 projects have been cancelled since April of 2016, according to the Kansas Contractors Association.

At the Local Government Day activities on Wednesday, Senate Vice President Jeff Longbine (R-Emporia) said the state must first stabilize its fiscal situation before it can deal with salvaging the highway program.

 

Medicaid expansion hearings will be held in February

Medicaid expansion supporters are preparing for hearings on KanCare (Medicaid) expansion before the House Health and Human Services Committee on February 6, 8, and 9.  The measure being heard is HB 2064.

Testimony from supporters will be heard on February 8.  As in the past, a large crowd is expected.  Kansas’ major health care organizations support expansion, which would provide millions in federal money under is the Affordable Care Act (Obamacare).

Governor Brownback and the Kansas Legislature have resisted expansion in the past, to the point that any bills that could be amended to include expansion were prevented from coming up for debate in the House of Representatives.  With new leadership and newly elected lawmakers this year, that could change.

Clouding the picture is the election of President Donald Trump, who has promised to eliminate the Affordable Care Act.  Opponents of expansion argue it should not take place since the underlying federal funding may go away.

Supporters argue just the opposite.  They say Trump and Congress might eliminate Obamacare, but allow those states that have already expanded Medicaid to continue to receive the funding.  Kansas, they argue, could find itself without the additional money because it did not act earlier.

 

Administration defends against Medicaid action by feds

Federal officials have declared Kansas’ existing Medicaid program “substantively out of compliance” with federal law.  Brownback Administration officials say it was a political move by the outgoing Obama Administration.

Legislative committees are hearing about the report by the Centers for Medicare and Medicaid Services, which said there is a risk to the health and safety of some Medicaid participants in Kansas.  The CMS has denied Kansas’ request to extend a waiver, which would allow the state’s Medicaid program (called KanCare) to continue to receive funding.

Kansas Secretary of Health and Environment Dr. Susan Mosier discussed the federal action with a Senate Committee this week.  She said the extension was not denied, but delayed, and that Kansas was provided a pathway to approval.  The CMS is requiring the state to come up with a Corrective Action Plan.

Mosier admitted to the committee that public meetings scheduled for December were cancelled, but the agency now understands they are needed.  Mosier said she was alarmed at the tone of the language in the CMS letter and is concerned about the quality of the CMS analysis.

 

TABOR introduced

Constitutional amendments that limit tax and spending increases are on their way to introduction in the legislature.  One such amendment, SCR 1601, was introduced in the Kansas Senate Tuesday.

These are so-called Taxpayer Bill of Rights (TABOR) amendments, promoted by conservative and free market libertarian groups.  TABOR passed in Colorado in 1992.  In 2005, Colorado voters changed TABOR in a way that continues to raise the cap on spending because it was so restrictive.    That cap continues to increase.

One unforeseen side effect was when Colorado passed decriminalization of marijuana, which resulted in a lot of additional revenue for the state.  The money generated was supposed to be used for schools, police, and drug education.  However, there is so much additional revenue that TABOR prevents it from being spent.  The last available estimate for that revenue is $58 million.

Here’s what’s in SCR 1601.

  • A supermajority of 2/3 of the House and Senate would be required to create a new tax or increase an existing one
  • Spending and revenue limits on the state are imposed based on increases in inflation and population, with provisions for economic downturns
  • Expenditures in excess of the limit would have to be authorized by voters in a general election
  • A budget stabilization fund is created for use when state revenue declines
  • A debt prepayment fund is created to be used to redeem state bonds payable from the state general fund to produce debt service savings
  • Excess state revenues (after payments to the budget stabilization fund and debt prepayment fund) would be refunded to state property or income taxpayers
  • State temporary borrowing would be limited

It’s not certain how much support a TABOR amendment would garner these days.  The most recent election produced a more centrist legislature.  Overspending does not appear to be a problem in the past several years as the 2012 income tax cuts have resulted in reduced revenue and reduced state services.

 

Education Commissioner wants more counselors, psychologists, social workers

Kansas Education Commissioner Randy Watson this week told legislators looking at school finance that the state needs more school counselors, more school psychologists, and more school social workers.  That’s not a new position for Watson, who has been promoting school counseling for some time now.

Watson told the Topeka Capitol-Journal last year he thinks there are not enough school counselors in Kansas.  There are currently about 1,100 at Kansas public schools, resulting in a ratio of about 440 students per counselor.  Watson thinks a ratio of 200 to 250 students per counselor would be more effective.

The recommend standard by the American School Counselor Association is one counselor for every 250 students.  To reach that level, Kansas school districts would have to hire about 840 more.

Speaking to the House of Representatives K-12 Education Budget Committee this week, Watson urged lawmakers to consider school counselors, psychologists, and social workers when a new school finance formula is written.

Watson noted that at Atwood, Kansas there is one school counselor for five school districts.  That person spends more time on the road than with students.

 

Leadership group supports repeal of tax lid, but some warn it won’t be easy

A group of legislative leaders supported repealing the property tax lid legislation of 2015, but some think it could be difficult to explain to voters.

The discussion came Wednesday at Local Government Day in Topeka, sponsored by the League of Kansas Municipalities and the Kansas Association of Counties.

Senate Vice President Jeff Longbine (R-Emporia), Senate Minority Leader Anthony Hensley (D-Topeka), and House Minority Leader Jim Ward (D-Topeka) all supported repeal.

House Local Government Committee Chair Kristey Williams (R-August) said it would not be so easy.  Williams said a vote to repeal would be hard for legislators to defend to voters.  She supported other changes mentioned to soften the tax lid.  They include requiring a protest petition before an election is forced and changes that allowed more exemptions to what’s covered in the tax lid.

 

Bill tracking

Here’s our second week of bill tracking on measures we think are of interest to our readers. You will be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared. We are in the process of creating a user-friendly web interface, but in the meantime you may click here to open a printable PDF version of the latest bill tracking information. Please don’t hesitate to contact us if you have any questions or need more information.

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

In this issue …

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

 

“State checks will start bouncing in March”

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

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

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

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

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

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

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

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

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

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

 

Kansas “substantively out of compliance” on Medicaid

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

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

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

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

You can read the story here.

 

Bill repealing business tax exemptions has hearing

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

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

 

Soave says ROZ is underutilized

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

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

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

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

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

 

Military aircraft expansion hinted

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

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

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

 

What about extending STAR Bonds?

Some who follow economic development legislation (including KEPC) are scratching our collective heads about what’s going on with STAR Bonds.  Sales Tax Revenue (STAR) Bonds provide Kansas municipalities the opportunity to issue bonds to finance the development of major commercial, entertainment and tourism areas and use the sales tax revenue generated by the development to pay off the bonds.

The program has been used to attract projects like the NASCAR Track and to lure the American Royal from Missouri.  Several communities have projects on the drawing board.

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

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

 

Regents update lawmakers

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

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

 

A new service – tracking bills

There’s a lot of legislation introduced during the session in Kansas, too much to report on in depth in this weekly newsletter.  In this newsletter, we will try something new.  We will track bills we think are of interest to KEPC readers. We have a page dedicated to these bills and will add to them each week as new legislation is introduced. You will be able to click on the bill number and be taken to the Kansas Legislature’s web site page for that particular bill.  You will be able to see all actions taken, read the bill, and read any supplemental notes (layman’s descriptions) and fiscal notes (how much does the bill cost the state) that have been prepared. We are in the process of creating a user-friendly web interface, but in the meantime you may click here to open a printable PDF version of the latest bill tracking information. Please don’t hesitate to contact us if you have any questions or need more information.

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

In this issue …

  • Bill repealing business tax exemption will have hearing
  • Lawmakers not enthused about Governor’s budget
  • Governor’s budget continues to gut transportation
  • A tax increase for health care providers
  • Property tax lid repeal bill introduced

 

Bill repealing business tax exemption will have hearing

A bill that appears to reverse the 2012 income tax break on most business income will have a hearing in the House Taxation Committee on Thursday of next week.  House Bill 2023’s title is Determination of Kansas adjusted gross income; sun-setting certain modifications.

This would be the first big tax hearing of the 2017 Kansas legislative session and is expected to draw a lot of interest.

Here’s a link to the bill on the Kansas Legislature’s web site.

This appears to be the bill requested for introduction in the Tax Committee on Monday by Committee Chairman Rep. Steve Johnson (R-Assaria) and Committee Vice-Chairman Rep. Tom Phillips (R-Manhattan).

At that time, it was explained that the bill returned the income tax to most Kansas businesses.

A version from last year (HB 2444) eliminated the business non-wage income tax exemption and used the money to reduce the sales tax on food.  Its author was then-Rep. Mark Hutton (R-Wichita).  That bill died in committee, but there was a later vote in the Kansas House in April on the concept.  It failed 45 to 74.  Many who voted against it were opposed to repeal, but others wanted a more comprehensive plan to deal with the state’s budget problems.

This year’s bill repeals the business exemption, but does not have the reduction in sales tax on food.

 

Lawmakers not enthused about Governor’s budget

We are learning more about Governor Brownback’s proposed budget, which was unveiled by Budget Director Shawn Sullivan in legislative committees this week.  Leadership of both political parties has little enthusiasm for the Governor’s plan.  That also seems to be the case with rank-and-file legislators.

However, some one-time measures might be adopted to soften the blow from the expected deep budget cuts that will be needed without some revenue-raising action.

In particular, the idea of selling unclaimed property with proceeds routed to the state general fund from the Pooled Money Investment Board could have some support.  That one-time money would raise an estimated $317 million for the FY 2017 budget.

Brownback wants to delay a payment of $75 million to local school districts until after July 1, the beginning of the 2018 fiscal year.  That may also be something legislators consider in his budget.

 

Governor’s budget continues to gut transportation

The Kansas Contractors Association has examined the Governor’s budget and believes it continues to take about $530 million a year from KDOT in 2018 and 2019.  Added to previous transfers, that means $3.7 billion will have been diverted from the T-WORKS Program by 2019.

Bob Totten of the Contractors says, “It means at least 25 thousand jobs will be lost this coming year.”  He added that Kansas is now ranked 51st in the nation for the creation of construction jobs.

Totten says KDOT is letting only eight projects in January instead of the 18 that were expected.

48 projects have been cancelled since April of 2016.

A November poll of Kansans by the Contractors indicates the public disagrees with what’s happening.

  • 86% of those surveyed agreed that investing in highways, bridges and roads helps create jobs and is a wise investment of public funds
  • 63% said that the legislature has not adequately funded road programs
  • 59% believe roads are in poor condition and need repair

Here’s a link to the Kansas Contractors Association web page that has information on the poll and the construction jobs growth rate.

 

A tax increase for health care providers

As we told you earlier this week, the Governor has a few tax increases in his plan, including cigarettes, alcohol, income from rents and royalties, and an increase in the filing fee for for-profit entities.

We failed to mention he wants to increase the privilege fee for managed care organizations from 3.31% to 5.77%.

The hospital provider assessment would go up from 1.83% to 4.65%.  The $91 million raised would go to increase rates for all providers, increase funding for rural hospitals, and implement recommendations of the Governor’s Rural Health Task Force.

 

Property tax lid repeal bill introduced

A surprise bill to repeal the property tax lid enacted in 2015 and amended by the 2016 Legislature was introduced in the House Taxation Committee on Monday.  Representative Greg Lewis (R-St. John) asked for the bill.

Some legislation on the controversial local property tax lid will likely be considered, but probably not until March, after budget and income tax issues are vetted.

There are still timing issues with having an election for a property tax increase beyond the rate of growth of the consumer price index.  Local government groups are leaning toward asking for legislation that says an election would be held only if enough signatures are gathered on a protest petition.

 

Odds and ends

Here are some of the other goings-on as the Legislature concludes its first week with a long Martin Luther King, Jr. Holiday weekend:

  • About four workers compensation-related bills have been introduced in the House Commerce and Economic Development Committee
  • Another bill moves Workforce Development from the Commerce Department into the Department of Labor
  • Yet another Commerce bill creates a new revenue fund where aviation sales taxes would be deposited and used for aviation incubation at Kansas colleges and universities. They money currently goes into the state general fund
  • Wichita State Economist Jeremy Hill spoke to committees about population trends. Only 20 counties are growing. Statewide growth is 0.4%, but Johnson County’s growth is 1%.  Hill said the ability to attract workforce is the key to population
  • KPERS Executive Director Alan Conroy told a Senate Committee Governor Brownback’s plan to freeze state payments to KPERS at 2016 levels until 2019 will cost KPERS about $600 million in the long run
  • House Bill 2051, introduced this week, reinstates the Kansas enterprise zone act, something long sought by economic development officials at the local level

Next week, most committees will spend time getting briefings in their particular areas of expertise.

KEPC UPDATE: Gov’s budget proposals are temporary solutions

Governor’s budget proposals are temporary solutions

Kansas Budget Director Shawn Sullivan gave legislative committees details of Governor Sam Brownback’s budget proposals today.

Most of the proposals to fill a $1.1 billion budget hole over the next three years are temporary solutions that move money around, delay payments, or essentially have the state borrowing from itself.  There are a few tax increases.

You can view the entire budget and a summary at the Budget Department’s web site.  You can click on the “Budget Director’s Overview Presentation” for a quick look.  Two volumes of detailed budget information are also available at the web site.

Here’s a quick and dirty overview:

“Non-recurring” revenue proposals (This is where the state borrows from itself)

  • Tobacco settlement money would be securitized. Kansas would get a lump sum from investors in return for turning over a portion of future settlement moneys.  This money is supposed to flow to the Children’s Initiative Fund (CIF), which would supposedly now be funded by the state general fund.  Estimated one-time income ranges from $480 million to $775 million.
  • To come up with $317 million in one-time money, the Governor proposes a series of actions that go this way (as we understand them):
  • The Treasurer’s Unclaimed Property Fund (currently at KPERS) would be sold.
  • The money from the sale would go to the Pooled Money Investment Board (PMIB).
  • The PMIB would transfer $317 million to the state general fund to help balance the FY 2017 budget.

Taxes

  • “Passive income” would be taxed. This would include rents and royalties.  The so-called LLC income exemption remains in place.
  • The lower income tax rate of 2.7% would be frozen, thus preventing a scheduled tax cut for married/filing jointly who make less than $30,000 a year.
  • The annual filing fee paid by “for-profit” entities goes up from $40 a year to $200 a year.
  • The cigarette tax is increased by a dollar a pack.
  • Tobacco products tax goes up from 10% to 20%.
  • The liquor enforcement tax would double, from 8% to 16%.
  • It’s estimated all of these, if implemented, would result in $179 million in FY 2018.

Transportation

  • The budget continues to delay projects that were previously announced as delayed
  • Spending on maintenance/preservation will continue
  • It appears the budget essentially keeps all of the sales tax that is supposed to be transferred to KDOT.

Also part of the Governor’s budget

  • KPERS state general fund contributions are frozen at their current level.
  • Although there are some targeted increases for higher education, operating grants are flat.

A major change to K-12 would be to adopt the Alvarez and Marsal Efficiency Report recommendations that all school districts consolidate health insurance benefits for employees to save money.  That’s controversial because some school districts could end up with lesser benefits for their employees and those benefits are what helps the districts attract teachers and other employees.

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

In this issue …

  • Session begins Monday; big changes to calendar
  • Assessing the new legislature
  • Will there be a Trump affect?
  • Last budget committee
  • Waiting on school finance
  • Economic developers meet with Commerce Secretary
  • KEPC will be at the Capitol

 

 Session begins Monday; big changes to calendar

The calendar for the 2017 Kansas Legislature has some significant changes to the usual schedule of events.  Lawmakers will convene on Monday for the start of the new session, but Governor Sam Brownback’s State of the State address will be earlier in the day and earlier in the week than usual.

Brownback will address lawmakers in the House Chambers at 5 p.m. on Tuesday evening.  The real news, however, will be Wednesday when his budget proposals are expected to be reviewed by the budget committees.

Another big change is that the “turnaround,” which marks the halfway point of the session, will be a week earlier than usual (on February 23) and last for an unprecedented ten days!  February 23 is the last day for most committee bills to be passed out of the house in which they originated.  Instead of a normal four or five day turnaround break, lawmakers will not meet from Friday, February 24 until Monday, March 6.

The First Adjournment will be April 7th.  It’s normally a week earlier.  The veto session then begins May 1 instead of the normal start on the last Wednesday of April.

These changes appear to be an effort to save days should lawmakers need them to complete their work, which is a strong likelihood considering the tough issues they face.

 

Assessing the new legislature

The new legislature includes 56 new lawmakers who were not there in 2016.  The newcomers are the result of retirements and the defeat of many incumbents in the primary and general elections, including many prominent conservatives.

Observers will be watching to see how a possible coalition of strengthened Moderate Republicans and Democrats will be able to operate as they face overwhelming budget problems.

The new leadership is a mix of Moderate Republicans and Conservative Republicans, but many of the most conservative lawmakers will not be back.

Although some want to hit the ground running the first week, our experience is that new legislators will need some time to adjust.  The old joke is that they need time to learn where all the bathrooms are located in the Statehouse before they can begin to figure out a multi-billion dollar budget.

 

Will there be a Trump affect?

It is possible the election of Donald Trump to the presidency will have an impact on a minimum of two major issues facing lawmakers.

Trump has promised a big infrastructure investment program, which could be helpful to salvaging the Kansas T-WORKS transportation program.  If Congress can quickly pass an infrastructure investment program, Kansas has the advantage of having many shovel-ready projects.  Federal funds could replace some of the $2 billion plus revenue that has been diverted from T-WORKS to pay for funding lost to the 2012 income tax cuts.

The Trump infrastructure promises can also have a negative effect.  Waiting to see what Congress does might give Kansas lawmakers an excuse to delay action on shoring up T-WORKS.

The second possible Trump impact is the growing support for Medicaid expansion in Kansas.  With Trump and the Republican-majority Congress promising to eliminate the Affordable Care Act (Obamacare), there’s an excuse to delay action.  However, supporters will continue to press for expansion in 2017.

 

Last budget committee

Tuesday’s announcement that Kansas December revenues were up $5.6 million is positive news, but will have little influence on the ability of Kansas to dig out of its deep budget hole.

Those problems were discussed in depth at the last Legislative Budget Committee meeting of the year on December 16.

Some of the highlights:

  • Human Services caseload estimates increased $203 million for Fiscal Years 2017, 2018, and 2019.
  • The State General Fund Profile showed a $349.1 million shortfall for the current year, a $582.6 million shortfall for FY 2018, and a $172.3 million shortfall for FY 2019.
  • What about efficiency? The Alvarez and Marsal Efficiency Study made 105 recommendations.  20% have been fully or partially implemented; 36% are in progress, and no action is planned on 41%.  An estimated $80 million in savings could come from consolidation of K-12 benefits, which was recommended by the study.
  • The Larned Juvenile Correctional Facility will be closed within a year. Deputy Corrections Secretary Terry Williams said there’s been a steady decline in the juvenile population and reforms passed by the legislature in 2016 are expected to lead to accelerated decline.
  • The legislature passed a “rainy day fund” but didn’t put any money in it.

 

Waiting on school finance

Some legislators are suggesting that another year of delay on re-writing the school finance formula may be an option, given the pressing budget imbalance problems of the state.

They may not have that luxury, depending on what the Kansas Supreme Court rules on the lawsuit that claims K-12 spending is inadequate.  Oral arguments in the case were heard in September and a ruling is expected any time.  A decision against the State of Kansas could mean an additional budget challenge of $500 million or more.

Meanwhile, a group of Kansas school superintendents have come up with some guiding principles for any new school finance formula:

“Every public school student in Kansas will have an equal opportunity to be college and career ready, as defined by the Kansas State Board of Education’s Kansans Can mission and vision as aligned with the Rose Standards; Some students will require greater supports to meet standards; Funding to districts must be directly related to what it costs to educate each individual student; Any formula must meet constitutional requirements for equity and adequacy; The formula should recognize local control and provide funding of educational services; and, The Legislature and school districts need budgeting predictability.”

 

Economic developers meet with Commerce Secretary

We take it as a positive sign that Kansas Secretary of Commerce Antonio Soave is holding a working lunch January 10 in Topeka with economic development professionals from around the state.

The invitation went out through the Kansas Economic Development Alliance (KEDA), the professional organization for Kansas economic developers.  Members include local economic development officials, Commerce Department staff, and private business executives who have economic development as a function of their position (such as utility companies).

Too often in the past, the administrations of governors have paid scant attention to these boots-on-the ground economic developers, who are on the front lines of trying to expand and attract business to Kansas.  For example, Governor Sam Brownback’s 2011 package of tax legislation included repeal of Kansas Enterprise Zone Act incentives that were highly valued by the locals as an effective tool (particularly in rural areas).  KEDA members have continued to ask for their reinstatement.

Brownback was asked about bringing the incentive back at a KEDA meeting in 2014 and had trouble remembering that he had successfully asked for its elimination.

Highly touted by Brownback in that 2011 package was a state income tax deduction known as “expensing.”  It allowed businesses to deduct their full investment in equipment in one year instead of a prescribed schedule of smaller deductions over several years.

Local economic developers told me it was not helpful because it was so difficult to explain.  “If you can’t describe it to a prospect simply in one sentence, their eyes glaze over,” a local official explained.

In addition, expensing was eliminated for all but C corporations in the 2012 income tax legislation, meaning a big majority of Kansas businesses are prohibited from using it.

Another frequently-heard comment in private from economic developers concerns what budget cuts have done to the staff of the Commerce Department over the past several years.  It appears that many local organizations have more staff working directly on economic development that Commerce.

The four hour meeting next week will “discuss the next phase of cooperation and collaboration between the Kansas Department of Commerce and the Economic Development Community.”

 

KEPC will be at the Capitol

Once again in 2017, the Kansas Economic Progress Council will be at the Statehouse.  At least weekly, this newsletter will bring you up to speed on budget, tax, transportation, education, economic development, and other issues of importance to the state’s economic prosperity.

###

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

In this issue …

  • Revenue estimates “long memo” contradicts Administration
  • Waiting for the committee chairs to be named
  • Rise Up Kansas plan ends “March to Zero”
  • Election issue emerges after Pompeo CIA appointment
  • Radio interview

 

Revenue estimates long memo contradicts Administration

The so-called “long memo” that follows the release of new revenue estimates in Kansas has some predictions that seem to contradict the Brownback Administration’s optimistic insistence that the 2012 income tax cuts will jump-start the state’s economy.

The November 10 release has been followed by a longer document, which includes the reasons for the adjustment of revenues downward by $345 million, putting the current budget in the red.

In the long form document, U.S. economic growth is estimated at 1.6 percent in 2016.  Kansas economic growth during the same period is expected to be zero.

Kansas personal income has been growing slower than U.S. personal income since early 2014.  That is forecast to continue.

Then there’s this statement about employment growth:

“The Kansas Department of Labor reports that job growth has been stagnant since early 2015.  The most recent monthly data show that from September to September, private nonfarm jobs decreased by 4,100, or 0.3 percent.  Real weekly earnings in Kansas fell by 0.8 percent over the same 12-month period, while real weekly earnings were increasing nationally by 1.4 percent.

“The overall Kansas labor force decreased by 1.0 percent at the same time the U.S. labor force was increasing by 1.9 percent.

“While the Kansas unemployment rate has historically remained below the national rate, the current forecast calls for the rate in Kansas to exceed the national rate beginning in 2018.”

Here’s a link to the full long memo, which was released December 1.

The consensus revenue estimating committee includes economists from Kansas Regents institutions.

 

Rise Up Kansas plan ends “March to Zero”

A coalition of five advocacy groups has proposed a tax package designed to solve Kansas’ budget problems in the next few years.  Using the name “Rise Up Kansas” the groups say they want to affect the fewest Kansans while increasing the burden on those who can best afford it.

A major component is to end the “March to Zero” in current law.

The March to Zero is a trigger mechanism that goes into effect in 2019.  Kansas revenues that exceed 2.5 percent growth yearly would go into further reducing income taxes.  Ultimately, the individual income tax would disappear, putting Kansas at the mercy of a reliance on sales taxes, which can be fickle.

Sales taxes to local and state governments have been impacted by a growing trend of internet sales, which often do not result in collection of local and state sales taxes.

Here’s a link to a more detailed explanation of the plan than has been previously available.

The plan includes income tax rate adjustments, eliminating the LLC exemption for business, an increase in fuel taxes, and a decrease in the sales tax on food.

The five organizations are the Kansas Center for Economic Growth, Kansas Action for Children, the Kansas Contractors Association, Kansas-National Education Association, and the Kansas Organization of State Employees.

 

Waiting for the committee chairs to be named

Now that a lot of new, more moderate leadership has been elected to the Kansas Legislature, we are waiting for the next step in evaluating the results of legislative elections.  That’s the naming of committee chairs and committee members.

Here’s some we will be watching:

  • Senate Ways and Means – The current chairman, Ty Masterson (R-Andover), unsuccessfully challenged Senate President Susan Wagle (R-Wichita) for her position.  Will she re-appoint him?  Ways and Means is the committee that writes the budget.
  • Senate Assessment and Taxation – Current chairman Les Donovan did not run for re-election.  This committee will deal with any changes to 2012 income tax legislation.
  • House Appropriations – The current chair of the House budget-writing committee is the newly elected Speaker of the House, Ron Ryckman, Jr. (R-Olathe).  His elevation to Speaker means he won’t be Appropriations Chairman.

 

Election issue emerges after Pompeo CIA appointment

The appointment of Kansas Fourth District Congressman Mike Pompeo to be Director of the Central Intelligence Agency is causing a headache for local election officials in South Central Kansas.  They have discovered that the Kansas process for electing a replacement could be in conflict with federal election law.

Here’s the problem that local officials have been discussing at pre-legislative meetings recently.

  • Federal law says ballots must be mailed to the military by 45 days before the election.
  • The Kansas process is that within five days of Pompeo’s resignation, the Governor must set a date for a special election to replace him. That must be 45 to 60 days from then.
  • The political parties must then select their candidates and there’s a process for independents to get on the ballot by collecting signatures.
  • It’s very likely that the political parties will not have their selections in time for ballots to be printed and mailed at least 45 days before the election.
  • By following Kansas law, local officials fear they may be violating federal law.

The solution is for the 2017 Kansas Legislature to fix the problem by extending the time frame for holding the special election.  They would have to change state law very early in the session.

No one noticed the potential conflict because the procedure for replacing a member of Congress has been rarely used.

 

Radio interview

Although it’s somewhat dated after being recorded in late November, here’s my recent interview with Wichita’s Entercom Radio News Director Steve McIntosh. In it, I talk about the election and the possibilities for the 2017 Kansas Legislature.

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

In this issue …

  • Finding a path forward after the election
  • KDOT said to be preparing for cuts
  • What Kansans think as the election nears

 

Finding a path forward after the election

After the sweeping changes in the makeup of the Kansas Legislature brought by the primary election (with that trend expected to continue at least somewhat Tuesday), Kansas lawmakers will be understandably anxious to reverse the financial mess of the state.

But the 2017 Legislature should proceed with caution.

Part of the solution is to reverse the much-debated business income tax exemption.  There are two problems with that, other than the objections of Governor Brownback.

Even if lawmakers reverse the business exemption the first day of the session, it won’t bring any significant revenue to the state budget for another year.

The second problem is that the state’s revenue shortfalls were not solely caused by the business exemption.  About 70 percent of the revenue forgone since the income tax cuts came from the rate reductions granted to the rest of Kansans who pay individual income tax.

Then there are the problems with the Kansas tax structure that existed before the 2012 income tax cuts and continue today. Cited most often is the sales tax on food, but there are others.

For example, a 2011 study of business taxes in the region by Ernst and Young for the Arkansas Chamber of Commerce concluded Kansas has the highest effective tax rate in the region on business services, nearly 20 percent.  The excessive burden was the result of high sales and property taxes.

That disproportionate tax load has been intensified by the income tax cuts and the two state sales tax increases since 2012.

How should Kansas proceed?

An excellent model is the 1995 Governor’s Tax Equity Task Force authorized by executive order of Governor Bill Graves.  It was in response to strong anti-property tax sentiment following reappraisal and classification in the early 1990s.  Although now dated, it was, and still is, the most comprehensive overview ever done of the Kansas tax structure.

The 280 page all-inclusive study incorporated 14 research papers by respected Kansas authorities who were experts in specific fields of Kansas taxation.

The 21 member Task Force came up with a list of tax policy objectives that have stood the test of time, such as, “The state and local tax system should be balanced and diversified,” a warning since ignored.

The report said, “Because all revenue sources have their weaknesses, a balanced tax system will reduce the magnitude of problems caused by over reliance on a single tax source.”

Kansas violated this standard by trying to eliminate the income tax and becoming overly reliant on a single revenue source, the sales tax.   With no action, that reliance will grow.

In 2012, Kansas hired celebrity economist Arthur Laffer for $75,000 to tell us to cut the income tax. In 2015, the legislature hired the consulting firm of Alvarez and Marsal for $2.6 million to do an efficiency study to tell us what we can do to try to live with the tax cuts.

As we look at tax policy solutions, we must take sufficient time and make thoughtful efforts to formulate the best answers toward finding our way out of our state fiscal disaster.

Something like the Tax Equity Task Force would be a good start to sorting out the solutions.

After several years in obscurity, it is now available online, thanks to the Kansas State University Department of Agricultural Economics.  Here’s a link to the task force report.

 

KDOT said to be preparing for cuts

In a newsletter published on Friday, Hawver’s Capitol Report said the Kansas Department of Transportation may be shortening its list of highway projects scheduled for bid lettings in December.  Martin Hawver says the move is being considered, “partly due to revenues and partly due to publication deadlines in the official Kansas Register, where it publishes its list of projects up for bids.”

Hawver adds, “The possibility that KDOT won’t provide specifications for some projects is the first time in recent memory that delayed basic road repair and safety projects will become identifiable.”

The story comes on the heels of the latest monthly revenue reports.  October revenues were $13 million less than expected, putting the current year state budget over $75 million under water.

As we have pointed out previously in our KEPC Newsletter, KDOT announced delays of over $500 million in projects earlier this year.  We believe those funds are what the Governor may propose using to fill the budget gap.  That would jive with the Hawver report.

Here’s the April, 2016 news release announcing the project delays.

 

What Kansans think as the election nears

By now, you may have read about last week’s release of the annual Kansas Speaks Survey, done by the Docking Institute of Public Affairs at Fort Hays State University.

Want to see the actual survey? Here’s a link to the entire 67 page report.

…By the way, if you haven’t already, don’t forget to vote!

###

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

In this issue …

  • Majority of Kansans favor change to income tax law
  • Transportation debate breaks out
  • About transportation
  • Economic Lifelines lists pro-transportation candidates
  • National report says Kansas education had 8th largest cut

 

Majority of Kansans favor change to income tax law

A scientific statewide poll of Kansans indicates 68 percent want to eliminate the Kansas pass through income tax exemption for business.

The Survey USA poll interviewed 800 adults from October 11 through October 15.  The poll was conducted for Wichita television station KSN.  The margin for error on that question was 3.8 percent.

Respondents were asked:

In 2012, the state legislature changed the law so some independent businesses, known as limited liability companies, or LLCs, pay no state tax on most, and sometimes all of their income.  Should the state legislature change the law so that most LLCs do pay state taxes again?  Or should the legislature leave the law as it is?

  • 68 percent said change the law.
  • 19 percent said leave it alone.
  • 13 percent were undecided.

Here’s a link to the entire poll, including breakout information.

Support for the change is pretty much uniform across the demographic spectrum.

Another policy question showed strong support for public education:

Should funding for education be increased?  Decreased?  Or left as it is?

  • 68 percent said increased.
  • 9 percent said decreased.
  • 20 percent said left as it is.

When presented with the choice of increased taxes or spending cuts to balance the state’s budget, 36 percent preferred increased taxes, while 48 percent said spending cuts.

The survey asks several questions about who Kansans will support in the November election and there are questions that measure the opinions of major elected officials in the state.

69 percent have an unfavorable opinion of Governor Sam Brownback.

 

Transportation debate breaks out

A war of words on Kansas transportation funding has emerged recently between former Kansas Secretary of Transportation Deb Miller and newly named KDOT Secretary Richard Carlson.

Miller wrote an op-ed recently that criticized what’s happened to the Kansas T-WORKS program as the result of elimination of income taxes.  “As a result,” Miller said, “today’s transportation headlines aren’t about progress; they’re about highway fund sweeps.”

She added, “Brownback and his legislative allies have borrowed more money than planned – meaning what little is left for maintenance and construction must now be used to pay off debt.”

She predicted, “rougher roads, higher debt and lost economic opportunity.”

You can read her op-ed here.

Carlson appears to be answering Miller in a recent op-ed to major newspapers, saying Kansas roads are in great shape.

He cites a high ranking by the Reason Foundation, a limited government, libertarian think tank.  He notes that expenditures are up 12.4 percent since Governor Brownback took office, and says KDOT “will continue to build and maintain world-class roads that will serve our state well for generations to come.”

You can read the Carlson op-ed here.

Carlson was Chairman of the Kansas House Taxation Committee when the 2012 income tax bill passed.  He supported the measure.  He has since served as legislative liaison for the Department of Revenue.

Miller was Kansas Secretary of Transportation from 2003 until 2011.  That’s the longest anyone has ever held the position. Miller is a Commissioner on the U.S. Surface Transportation Board.

 

About transportation

There’s no doubt that the legislature has transferred over $1.4 billion from KDOT to shore up the state general fund over the past several years.  KDOT also issued $400 million in bonds.

In an April 20, 2016 news release, KDOT said it was delaying over $553 million in projects.  That was as the legislature was struggling with a budget because revenues were not coming in as expected.

Here’s that news release:  http://www.ksdot.org/Assets/wwwksdotorg/Headquarters/PDF_Files/pressrelease2016/April20modern.pdf

There is deep concern among those who follow transportation matters about whether KDOT can continue to maintain roads.  KDOT’s term is “preservation.”

About the time of the announcement of delays, Senator Vicki Schmidt (R-Topeka) directly asked KDOT staff in a legislative committee how much preservation was planned for this year.  We are told the answer was 200 miles.

At the rate of 200 miles per year, the approximate 10,000 miles of Kansas roads would get maintenance about once every 50 years.  That obviously won’t work to maintain roads.

More recently, that mileage was altered to 750 miles of preservation a year, which translates to each road receiving attention about every 13 years.  The original intent was 1250 miles a year, or once every eight years for every road.

Want more specific information on projects in your area and statewide?  Here’s a link to a September 1, 2016 report by the Kansas Legislative Research Department that goes into great detail about T-WORKS projects status.

 

Economic Lifelines lists pro-transportation candidates

Kansas’ leading transportation coalition has released a list of legislative candidates who have demonstrated strong support for transportation.

Economic Lifelines CEO Mike Johnston (former KDOT Secretary and Kansas Turnpike Manager) said, “These legislative candidates have demonstrated an exceptional understanding of the role transportation plays in creating jobs and economic activity in all corners of our state.” Read the full press release here.

Here’s a link to the candidate listing from the Economic Lifelines website.

 

National report says Kansas education had 8th largest cut

A national report by the Center for Budget and Policy Priorities (CBPP) states Kansas has sustaining the eighth biggest cut in the nation in education funding.  When adjusted for inflation, Kansas school funding was cut 14.2 percent between 2008 and 2014, according to the report.

The report says the cuts nationally have actually slowed economic recovery from the Great Recession.

“By mid-2012, local school districts had cut 351,000 jobs.  Since then they’ve restored some of the jobs but still are down 221,000 jobs compared with 2008.  These job losses reduced the purchasing power of workers’ families, weakening overall economic consumption and thus slowing the recovery.”

Here’s a link to the CBPP report.

Meanwhile, the Kansas Association of School Boards (KASB) issued its annual State Education Report Card in September.  It shows Kansas ranks 10th in student outcomes.  All states that rank ahead of Kansas on student outcomes spend more per pupil.

KASB Associate Director for Advocacy Mark Tallman said, “To be among the top tier in student achievement while being among those hardest hit in budgets is a testament to the dedication of our great school leaders, teachers and those working hard every day to help Kansas children succeed.”

Here’s a link to the KASB report.

###

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

In this issue …

  • Revenue estimate recommendations raise questions
  • September revenues mean state budget is under water
  • Kansas abandons a useful measure of success
  • Regents say college grads leaving state

 

Revenue estimate recommendations raise questions

This week, Governor Brownback’s Consensus Revenue Estimating Working Group issued its final recommendations.  In recent years, official revenue estimates have not been accurate and have over-estimated the amount of revenue expected to be collected by the state.

Recommendations by the group included discontinuing the monthly comparison of revenue collected to official estimates of what would be collected.

Another major recommendation that has not received much attention is to move development of fiscal notes from the Kansas Legislative Research Department to the Kansas Department of Revenue.

Here is a link to the working group’s final recommendations.

That monthly comparison has been useful in letting everyone know whether state revenue was enough to fund the state’s budget (it has not been enough in recent years).

The group recommended monthly reports that compare actual collections in the month with actual collections from the same month the previous year.

Ironically, the abandonment of the monthly comparison is contained in a recommendation entitled, “Build greater transparency into the CRE process.”  The recommendation says, “Monthly estimates (SGF spreads) relating to the official CRE estimate should not be used to avoid trend analysis bias in revising future official estimates by the CRE group.”

Our reaction is to ask, “Why not do both?”  Provide information in many forms so policy makers and the public have as many tools as possible to understand whether the state’s revenues are enough to fund the budget.

The other problematic recommendation is moving responsibility for developing fiscal notes on legislation from Legislative Research to the Revenue Department.

Fiscal notes are estimates provided to the legislature about how much a bill will cost the state or bring to the state in additional revenue.  The working group’s report recommends the move without offering much rationale for it.

The Kansas Legislative Research Department is widely viewed as non-partisan, while the Kansas Department of Revenue (under control of whatever administration is in power) is sometimes seen as partisan.

One major example of why this is problematic is the 2012 income tax cuts, which have cut deeply into state revenues, and are a major cause of the problems with estimating state revenues.  After the legislation passed, the Legislative Research Department released a budget profile that accurately predicted the ensuing trend of a negative impact on revenues.

At the same time, the Kansas Department of Revenue was supporting Governor Brownback’s claim that the legislation would be a “shot of adrenaline” into the state’s economy.

Here’s a paragraph from the May 23, 2012 report on the signing of the income tax bill in the Kansas City Star:

“Nick Jordan, the state’s revenue secretary, said the administration ultimately imagines the creation of 22,000 more jobs over ‘normal growth’ and 35,000 more people moving into the state over the next five years.  And he expects the tax changes to expand disposable income by $2 billion over the same period.”

The trend predicted by the Research Department was accurate while Jordan’s was not.

Here’s a link to that Kansas City Star story from 2012.

Other recommendations seem to center on providing more input and expertise to the revenue estimating process to make it a more accurate tool for building a state budget.

Some of the recommendations seem to contradict a news conference called by Senate President Susan Wagle (R-Wichita) on Wednesday morning.  She and several other Republican Senate candidates want more legislative control over the budget, not less.

The GOP Senate proposes the formation of a legislative budget oversight committee.  Wagle said the legislature should be able to develop its own budget proposal.

She said anger is great among voters about the condition of Kansas finances.

 

September revenues mean state budget is under water

Meanwhile, the latest monthly revenue report is telling us that the Kansas’ 2017 fiscal year budget is already in the red.  September revenues were almost $45 million less than expected.

A state general fund profile from the Legislative Research Department on September 21 (before news that September revenues were down) estimated a fiscal year ending balance of $5.6 million.  Taking into account the $45 million shortfall for September, that puts the FY 2017 budget at a deficit of over $39 million.  However, some estimates put the deficit at over $60 million.

Of course, Kansas cannot operate at a deficit, so something has to give.

Read former Kansas Budget Director Duane Goossen’s explanation of why the 2017 budget won’t work and why he expects new revenues estimates in November to be about $200 million lower.

 

 

Kansas abandons a useful measure of success

The Brownback Administration is no longer producing the IKE (Indicators of the Kansas Economy) report for the Governor’s Council of Economic Advisors.

We here at the Kansas Economic Progress Council took special note of that news because we were the first to publicize the reports and their importance.  We were tipped off by a Republican legislator about the reports’ existence.  They were posted on the Commerce Department web site.

In a March 31, 2014 news release, we said “standards established by the State of Kansas two years ago to measure economic growth show the state’s income tax cuts are not growing the economy.”

We pointed out the report showed Kansas lagging in growth behind other states in the region in growth in employment, population, gross domestic product, personal income, private industry wage levels and establishment of private businesses.

Our news release received considerable attention in the media and among editorial writers.

After our first news release, the IKE reports were no longer made available on the Kansas Department of Commerce web page.

We were able to obtain copies of subsequent reports and issued news releases on them in 2015 and 2016.  By that time, it wasn’t really news anymore.  The reports continued to show lackluster economic performance in the state.  Some reporters and editorial writers began to obtain copies on their own and write about them.

We thought the IKE reports were common sense, useful, and accurate in their depiction of where we are as a state.

In that first news release, I said:

“This is a responsible report that confirms what’s really going on with the Kansas economy.  It comes from the Governor’s own Council of Economic Advisors and uses benchmarks established specifically to measure the success or failure of the state’s economic policies.  It draws no conclusions, but simply presents the facts.

“The reports used a system of measurements to monitor key economic indicators in the state.  At the time of the first report in 2012, Governor Brownback said, “These economic metrics will allow us to determine the state’s relative economic position as it relates to the six-state region and the nation, and to monitor in a timely manner if our policies and initiatives are having the desired economic effect.”

The six other states included in the analysis were Arkansas, Colorado, Iowa, Missouri, Nebraska, and Oklahoma.  The reports looked at growth over the past year, the past five years, and the past ten years.  It compared us to ourselves, our region, and the country.

The last report produced was in May of this year. We have obtained a copy and have posted it on our web page here.

It shows Kansas continues to lag the region in:

  • Population growth
  • Personal income growth
  • Nonfarm employment growth (was a negative over the one-year period)
  • Private sector employment growth (also a negative over the previous year)
  • Public sector employment growth (which was zero)
  • Private establishment growth

Ironically, the May report does show some minor improvements.

  • We are barely above the region in gross state product growth but trail the U.S. average.
  • We lead the region in personal income per capita growth but trail the U.S. average.
  • Kansas building permit growth leads the region and the U.S. over a one-year period.

 

Regents say college grads leaving state

At its annual retreat this summer, the Kansas Board of Regents heard that fewer Kansas college graduates are staying in the state.

The Regents President and CEO Blake Flanders gave the assessment, saying it’s not clear if higher education is not aligned with the economy, or whether the economy in Kansas is not offering the jobs that college graduates want.

Flanders cited numbers that indicate a decline in college graduates who remain employed in Kansas five years after graduation.  He said that applies to all post-secondary graduates, including those who received a bachelor’s degree, associate degree from a community college, or technical college certificate.

Those earning bachelor’s and master’s degrees are more likely to leave.

###

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

In this issue …

  • Why the primary election means a change
  • What can change in 2017?
  • Osawatomie Post Audit: $15 million lost so far
  • Credit rating drops
  • The March of Folly

 

Why the primary election means a change

By now you’ve heard about Tuesday’s primary election in Kansas and the discussion about how moderates shocked conservatives at the ballot box in legislative races.  The number of changes might seem low, but they are critical in determining who is in the majority in the Kansas Senate and Kansas House of Representatives.

In the Kansas Senate, six very conservative Senators lost their seats to moderates:

  • Tom Arpke (R-Salina)
  • Terry Bruce (R-Hutchinson) – The Senate Majority Leader
  • Forrest Knox (R-Altoona)
  • Jeff Melcher (R-Leawood)
  • Larry Powell (R-Garden City)
  • Greg Smith (R-Overland Park)

In two or three other Republican races, conservative candidates seeking to replace conservatives who did not run for re-election were defeated by moderate Republicans.

There are currently four moderate Republican seats in the Senate. Two of them, Senators Carolyn McGinn (R-Sedgwick) and Vicki Schmidt (R-Topeka), survived tough primaries.

If those four moderate seats hold in the general election that adds up to 12 moderate Republicans.  Add the 8 current Democratic votes and you get a moderate Republican-Democrat coalition that can produce 20 votes, enough to block legislation in the 40 seat Senate.

However, observers widely believe Democrats can pick up somewhere between three and five seats in the general election.  That could produce a “working majority,” similar to the 2010 Kansas Legislature which passed the temporary one-cent sales tax and the now devastated transportation program.

If Democrats hold on to their current seats and pick up a few more, they can run the Senate with moderate Republicans.  If they beat enough conservative Republicans in the general election, moderate Republicans might be in a position to elect their own leadership.

A similar situation occurred in the House Republican primary election.

Eight conservatives lost their re-election.

  • Craig McPherson (R-Overland Park)
  • Brett Hildabrand (R-Shawnee)
  • Rob Bruchman (R-Leawood)
  • Jerry Lunn (R-Overland Park)
  • Charles Macheers (R-Shawnee)
  • Connie O’Brien (R-Tonganoxie)
  • Will Carpenter (R-El Dorado)
  • Kasha Kelly (R-Arkansas City)

In three House races where a conservative Republican did not seek re-election, moderates won.

That’s a tentative pickup of eleven Moderate Republican seats.

There are 94 House Republicans.  Twenty-two or so are considered dependably moderate, depending on the issue.

All things being equal, let’s say those seats remain moderate Republican.  Twenty-two and eleven is 33 moderate Republicans.  Add that to the 31 existing Democratic seats and you get 64 votes.  It takes 63 out of the 125 votes in the House to pass a bill, so a moderate Republican-Democrat coalition would be able to control legislation.

But, as was the case with the Senate, Democrats are expected to pick up some seats.  If their candidates can beat conservative Republicans, that makes an even bigger margin.  Some observers it is possible for moderate Republicans to take over the House leadership.

Don’t hold me to the numbers above.  Some observers believe there were other incumbents who lost who might be considered conservative.  That changes the whole picture as well, to the better for moderate Republicans.

Also, anything can happen in the general election.  What we know for sure is the 2017 Kansas Legislature will be much less conservative.

 

What can change in 2017?

In addition to legislative leadership changes in 2017, there are the issues that dominated the primary election and will continue to be in the forefront of the general election.  They include education, transportation, and other public services that have been impacted by a continuing budget crisis brought about by tax cuts.

Reversing that trend cannot occur quickly.  For example, any change in income taxes for 2017 would not have a measureable effect on revenue coming into the state until the first quarter of 2018, a year and a half from now.  Building a budget will continue to be very difficult and likely controversial.

Adding to that difficulty is the expected Kansas Supreme Court decision on school funding.  If that goes against the state, the bill could come to as much as $500 million.

One possibility that looks strong at first glance is passage of Medicaid expansion.

Whatever a new legislature wants to do would require approval from Governor Brownback, who still wields the power of the veto.

 

Osawatomie Post Audit: $15 million lost so far

Lost in all the election news is a recently released Legislative Post Audit of the Osawatomie State Hospital, which was reviewed recently by the Legislative Post Audit Committee.

State auditors were asked to review the state psychiatric facility’s recent loss of federal funding.

Representative Henry Helgerson (D-Wichita) asked for the audit.

Osawatomie State Hospital’s Medicare funding was terminated by the federal government in December because it failed to comply with federal regulations related to staff and patient safety.

Some of the findings:

  • As of June, the loss of Medicare funding and additional expenses to address the deficiencies have cost an estimated $15 million.
  • Federal officials and state officials have offered “significantly different estimates of the time it will take to recertify a 60-bed unit.”
  •  The audit says the hospital will continue to lose significant Medicare funding until the entire facility is recertified.

Here’s a link to the audit.

 

Credit Rating drops

The same continuing Kansas budget problems that many believe are a source of problems at Osawatomie and Larned State Hospitals were mentioned a week before the primary election when Kansas’ credit rating was downgraded by S & P Global Ratings.

The rating agency dropped Kansas from AA to AA-, which means 41 states now have a higher rating than Kansas.

Cited in the drop (the second in two years) was the state’s lack of cash reserves.

 

The March of Folly

In case you missed it, at least two Kansas newspapers published my op-ed on Kansas ongoing budget problems and other examples in history of governments and institutions that take actions that are in conflict with their own best interest.

I related Kansas current problems to Pulitzer Prize-winning historian Dorothy Tuchman’s book, “The March of Folly.”  The book looks at historic bonehead actions, such as the British government’s activities that led to the loss of its American colonies.

Here’s a link to the Garden City Telegram version. A shorter version was published by the Wichita Eagle.