KEPC UPDATE: Ed funding report, tax reaction, enterprise zones, Rural Opportunity Zones, labor report

In this issue …

  • Slow week as lawmakers wait for education funding report
  • House Taxation tackles reaction to federal changes
  • Lawmakers consider reinstating enterprise zone
  • Committee reviews Rural Opportunity Zone results
  • Monthly labor report

 

Slow week as lawmakers wait for education funding report

Many legislative committees did not meet this week, but activity will pick up next week as lawmakers review an education study that is expected to guide them through how they react to the Kansas Supreme Court decision that the current K-12 funding formula is unconstitutional.

Texas A and M professor Dr. Lori Taylor has been hired to conduct the cost study.  Dr. Jesse Levin of the American Institutes for Research has been hired to do a peer review of Taylor’s study.

On Friday afternoon, attorneys Jeff King and Curt Tideman will present an overview of the Taylor study to the Senate Select Committee on Education Finance and the House K-12 Education Budget Committee.

The Chair of the Senate Education Committee, Senator Molly Baumgardner (R-Louisburg) announced in the Senate Thursday that the study will be released at one p.m. Friday to the entire legislature in an e-mail.

 

House Taxation tackles reaction to federal changes

Two bills designed in response to the new federal income tax changes were heard in the House Taxation Committee Wednesday.

House Bill 2569 doubles the standard deduction on Kansas income tax beginning in 2018.  The federal change doubled the standard deduction.  It’s estimated the state change could cost the state as much as $200 million per year.

House Bill 2761 allows Kansas individuals to itemize deductions on their state taxes despite not itemizing on their federal return. Currently, to itemize in Kansas, the taxpayer must also itemize on their federal return.  That’s expected to cost the state an estimated $34 million.

Committee Chairman Steve Johnson (R-Assaria) said the committee will work bills on the concepts next week.

 

Lawmakers consider reinstating enterprise zone

Economic development issues continue to be reviewed in some legislative committees.

The House Appropriations Committee has scheduled a hearing on HB 2767 next Wednesday, which reinstates the enterprise zone program in Kansas.  The program was eliminated by a previous legislature, but is important to local economic developers.

The bill was introduced just last week.  Appropriations is a committee that is exempt from deadlines, so the bill could pass yet this session.

The bill would provide tax credits and certain sales tax exemptions to businesses that expand.  However, it only applies to designated nonmetropolitan counties.

 

Committee reviews Rural Opportunity Zone results

Some lawmakers are interested in expanding the Rural Opportunity Zone (ROZ) program to more areas of Kansas. That discussion came as the Senate Assessment and Taxation Committee reviewed the program on Wednesday.

The program is designed to attract new residents to rural areas of the state by forgiving individual income taxes for five years and, in some cases, help pay off education loans up to $15,000.

To qualify, the new resident cannot be a current resident of Kansas.

The program has grown steadily since it began in 2012.  In 2016, 494 people took advantage of the program.

The biggest category of professions that have applied is education.  Many school districts have used the program to attract teachers.  The second-highest category was health care.

The largest numbers are coming from Nebraska (171) and Colorado (170).

 

Monthly labor report

Kansas continues to grow jobs at a slow rate, according to the latest Department of Labor report.

Total nonfarm jobs grew 0.6 percent from January of 2017 to January of 2018.  Information jobs declined 3.0 percent.  Construction jobs declined 2.4 percent.

The strongest growth was in transportation, warehousing and utilities with a 7.3 percent growth rate.

Here’s a link to the job growth information.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.  All of these bills are held over from 2017.  As new bills of interest are introduced, I will add them to the list.

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 funding, property tax, review of eco devo plans, convention of the states, internet sales tax, STAR bonds, income taxes

In this issue …

  • School funding delayed until studies are released
  • No support for property tax increase for schools
  • Tax Committee votes for regular review and disclosure of economic development programs
  • Convention of the states debated in Senate; fails
  • Proposal to collect more internet sales tax moves forward
  • Lawmakers question STAR bonds expansiveness
  • Hearings on income tax increases and cuts scheduled for next week

 

School funding delayed until studies are released

This week, the Chairman of the House K-12 Education Budget Committee said he will delay working the bulk of the school budget until later on in the session.

Representative Fred Patton (R-Topeka) said he plans to work on other parts of the school budget, such as special education, and teacher professional development.  The big part of the budget will be worked in a separate bill later.

The legislature is waiting on a report from Texas A and M professor Dr. Lori Taylor.  She’s been hired to conduct a cost study.  This week, Dr. Jesse Levin of the American Institutes for Research , who has been hired to do a peer review of Taylor’s study.  This week, he testified via Skype about previous school finance studies.

The two reports are due to the Legislature on March 15.  That’s a Thursday, so it seems likely that the lawmakers will take the weekend to digest the information before beginning committee discussion on Monday, March 19.

 

No support for property tax increase for schools

No one showed up to support a bill that would increase property taxes to support K-12 education, but several opponents testified against House Bill 2740 in the House Taxation Committee.

Opponents included:

  • Steve McCloud of the Kansas Farm Bureau, who said agriculture taxpayers prefer to pay income and sales taxes
  • Ken McCauley of the Kansas Corn Growers Association, who said property taxes are not a fair way to fund education
  • The Kansas Chamber’s Eric Stafford, who cited of poll of the organization’s members that indicates they prefer property taxes to be reduced
  • Daniel Heady of the Kansas Wheat Growers and the Kansas Ag Alliance, who said the farm economy is struggling and property tax increases would hurt farmers more
  • Kansas Association of Realtors’ Patrick Vogelsburg. He said a property tax increase will impact the housing market
  • Randy Stuckey, Agribusiness Retailers Association
  • Lucas Heinen, Kansas Soybean Association
  • Mandy Roe of the Kansas Cooperative Council
  • Dan Murray of the National Federation of Independent Business
  • Mike Beam of the Kansas Livestock Association
  • Jeff Glendening of Americans for Prosperity
  • Dave Trabert of the Kansas Policy Institute
  • John Donnelly of the Kansas Farm Bureau

 

Tax Committee votes for regular review and disclosure of economic development programs

The House Taxation Committee has passed out a substitute bill that requires public disclosure of certain economic incentive data.  The measure is HB 2572.

The substitute bill was proposed by Representative Kristey Williams (R-Augusta).

The original bill required the Secretary of Administration to publish selected economic development program data on the KanView website.  It also established a new Joint Committee on Taxpayer Transparency, which would advise the Secretary of Commerce.

After discussions with the Commerce Department and others, Representative Williams offered the substitute bill.

The new bill does not create a joint committee and gives the Commerce Department the responsibility to publish the information (not the Department of Administration).  It now also applies to many more programs.

The House Tax Committee passed another transparency bill this week.  HB 2753 sets up a periodic review for certain tax credits, incentives, and sales tax exemptions for the Insurance Department, Commerce Department, and Department of Revenue.

Each review would be required to provide a description of each incentive and an estimate of the economic and fiscal impact of each.  The report is required to be on the website of each agency on or before March 1st of every year.

 

Convention of the states debated in Senate; fails

A measure calling for a convention of the states to amend the U.S. Constitution has failed in the Kansas Senate.  SCR 1611 required a 2/3 majority (27 votes), but the final vote was 22 to 16.

If three-fourths of state legislatures would ratify changes to the Constitution, they would take effect.  Supporters of the constitutional convention want to add a requirement that prevents deficit spending and debt by the federal government.  Opponents are concerned that a constitutional convention cannot be limited to a specific topic and that anything in the U.S. Constitution could be changed, added, or eliminated.

 

Proposal to collect more internet sales tax moves forward

House Bill 2756 creating the Kansas Main Street Parity Act has passed out of the House Taxation Committee.

It requires some out-of-state retailers and “marketplace facilitators” to begin collecting Kansas retail sales and use taxes on sales to Kansas.  The bill is primarily aimed at internet sales.  Some collect Kansas sales tax.  Others do not.

Businesses with at least $50,000 in Kansas internet sales in the current year or last year must begin collecting the tax if the bill becomes law.

Here’s a link to a description of the bill as it came out of the committee.

 

Lawmakers question STAR bonds expansiveness

The Senate Commerce Committee continued hearings this week on bills dealing with STAR bond changes and restrictions this week.  There has been no progress moving the bills forward yet, and more discussion is planned.

The restrictions are contained in Senate Bill 434, which was supported by the Kansas Speedway.  That was a surprise for many local governments and economic development organizations.  Opponents included economic development organizations.

Here’s a link to the fiscal note on the bill, which includes a description.

There was a lot of questioning by Senators concerning projects in Johnson County.

 

Hearings on income tax increases and cuts scheduled for next week

Some income tax bills will be heard in the House Taxation Committee next week:

  • HB 2761 allows an individual to itemize deductions in Kansas despite not itemizing on their federal return. As of this writing, there is no estimate on the impact on the budget.
  • HB 2661 changes the corporate income tax rate and surtax.  The changes would bring in an estimated $117 million more in FY 2019 and FY 2020.  Here’s a link to the fiscal note that describes the changes.
  • The bill was introduced by Representative Tim Hodge (D-Newton)
  • House Bill 2569 would double the standard deduction on individual income tax in Kansas.  It would cost the state $208.8 million. Here’s a link to the fiscal note.
  • House Bill 2618 would increase Kansas income taxes for those with income over $500,000 and for those with income over a million dollars.  It would raise an estimated $307.5 million next year and the year after. Here’s a link to the fiscal note.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.  All of these bills are held over from 2017.  As new bills of interest are introduced, I will add them to the list.

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: Short week, KDOT, internet sales tax, NCSL update, STAR bonds, hearings, bill tracking

In this issue …

  • Legislature ends break with a short week
  • House Appropriations conflicted on how to proceed with KDOT budget
  • Collecting internet sales tax could raise $78 million for state next year
  • NCSL official gives update on federal tax changes
  • Hearing on new STAR bonds bill will be Tuesday
  • Hearings of interest next week
  • BILL TRACKING

 

Legislature ends break with a short week 

The Kansas Legislature returned to Topeka on Wednesday after a five-day “turnaround” break marking the mid-point of the session.

It was a somewhat slow week as Democrats prepared to hold their annual Washington Day meetings at Topeka’s Downtown Ramada and Convention Center.

On Thursday, lawmakers learned that state tax revenues were $24.2 million more than expected in February.  The state’s experts and others aren’t sure whether that additional money is coming from last year’s income tax increase or changes in late December to federal income tax law.

 

House Appropriations conflicted on how to proceed with KDOT budget

The full House Appropriations Committee heard recommendations on the Kansas Department of Transportation budget Thursday from subcommittee Chairman J.R. Claeys (R-Salina); but Democrats and some Republicans want to hold off on accepting the recommendations until there’s a better idea of what the state needs to spend on K-12 education.

The subcommittee report would take $102.2 million for KDOT from the state general fund for FY 2019, not the highway fund, which has been “raided” extensively for several years to pay for other spending.

Representative Henry Helgerson (D-Wichita) objected, saying he had problems dedicating money until he knows what education funding needs to be.  Most everyone who spoke on the topic wants to shore up KDOT, but not short-change education.

Claeys said putting the money in the budget sends a “strong signal” that the committee wants the T-WORKS transportation plan passed in 2010 to be completed.

Representative John Alcala (D-Topeka) offered an amendment that would delay decisions on the Transportation Department budget until the Omnibus bill (generally the last big budget bill of the session).

Helgerson supported that motion.

“We need all the cards on the table before we make a decision,” Helgerson said.

Chairman Claeys opposed the delay, claiming, “This is a vote to make T-WORKS happen!”

Alcala’s motion failed on a voice vote.  The Appropriations Committee will continue working the KDOT budget Monday.

 

Collecting internet sales tax could raise $78 million for state next year

The House Taxation Committee held a hearing on a bill Thursday that could result in more sales tax revenue being collected by Kansas.

House Bill 2756 creates the Kansas Main Street Parity Act.  It requires some out-of-state retailers and “marketplace facilitators” to begin collecting Kansas retail sales and use taxes on sales to Kansas.

A marketplace facilitator is defined as a person who facilitates sales by an internet retailer.  The seller does not have to have a physical presence in Kansas.

Businesses with at least $50.000 in Kansas internet sales in the current year or last year must begin collecting the tax if the bill becomes law.

With Congress seemingly unable to deal with the issue of internet sales, seven other states have turned to this type of legislation, according to the National Council of State Legislatures.

It is estimated by the Kansas Department of Revenue that the bill could raise an additional $78 million for the state in FY 2019 and about $93 million in FY 2020.

Trey Cocking of the League of Kansas Municipalities estimated the bill could raise anywhere from $45 million to $64 million for cities in Kansas.

 

NCSL official gives update on federal tax changes

Max Behlke, Director of Budget and Tax for the National Council of State Legislatures, spoke to the House Taxation Committee this week about the new federal tax law that went into effect on January 1.

Behlke said it was the largest tax bill ever to go through Congress.  He called it a “corporate tax bill with individual provisions.”  Behlke said Washington politicians had hoped to make tax law simpler “but really made it more complicated.”

In particular, he said there are international tax reform elements that will impact states, but no one knows exactly how.  Behlke said some states are reacting to the federal law, but he advised, “Patience this year will be your friend before moving forward.”

 

Hearing on new STAR bonds bill will be Tuesday

A new STAR bonds bill just introduced last week will have a hearing in the Senate Commerce Committee on Tuesday.

Senate Bill 432 creates a three member “underwriting commission.”

Here’s the exact pertinent language from the bill:

“The commission shall evaluate and approve or deny applications for STAR bond projects and shall provide the secretary of commerce and the applying city or county with a written decision including the reasons for the decision.  The commission shall limit its analysis and decision to the financial viability of the proposed project.  The decision of the commission to deny an application shall be final, however the city or county may reapply, or when permitted by the commission, provide additional information or make modifications to the project plan for the commission’s consideration.”

Approved projects would be forwarded to the Kansas Secretary of Commerce.

Some cities, counties, and economic developers strongly object to the bill.

Here’s a link to the actual bill.

 

Hearings of interest next week

Here’s an overview of some of what’s going on next week

  • The Senate Ways and Committee subcommittees on the budget will continue to meet to review budget proposals for individual departments
  • The House Appropriations Committee will review recommendations from its subcommittees on individual agency budgets
  • On Monday, two education committees from the House and Senate will meet jointly. The House K-12 Budget Committee and Senate Select Committee on Education Finance will hear a presentation from Dr. Jesse Levin.  Levin is involved with the Peer Review of Legislative Post Audit and Augenblick and Meyers studies on K-12 funding.  The presentation will be via Skype
  • On Tuesday and Wednesday, the House Taxation Committee will hold a hearing on HB 2740, which would require increases in property taxes to fund schools. The current required mill levy for schools is 20 mills.  It would go to 26.76 mills in school year 2018-19; 32.82 mills in school year 2019-20; and 38.43 mills in school year 2020-21.  Increasing property taxes is unpopular and the bill is not given much chance of passage, but anything can happen when the legislature is in session.  There is no estimate yet on how much money it could raise.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.  All of these bills are held over from 2017.  As new bills of interest are introduced, I will add them to the list.

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 NEWS: Halfway mark, Medicaid expansion blocked by leadership, eco devo transparency, expensing, HPIP, broadband

In this issue …

  • Legislature begins five day break marking halfway point
  • Medicaid expansion approved by committee but blocked by leadership
  • Hearing held on economic development transparency
  • Expensing bill passes Senate 31-8
  • HPIP changes referred back to committee
  • Broadband issue is aired on House floor 2701
  • BILL TRACKING

 

Legislature begins five day break marking halfway point

The 2018 Kansas Legislature is now on a five day break following a busy week on the House and Senate floors debating bills.  Legislation that has not passed one of the chambers by now is gone for the session, unless it comes from an “exempt” committee, such as Appropriations, Ways & Means, Federal and State Affairs, and Taxation.

There has been little activity on school finance with the exception of lawmakers reviewing the Kansas Supreme Court decision declaring the current law unconstitutional.

Although most lawmakers have gone home, some will be staying into Friday to hear from Professor Dr. Lori L. Taylor of Texas A&M, who’s be hired to conduct a cost study of K-12 education in Kansas.

Her report is due to the legislature by March 15.

Lawmakers will return next Wednesday, February 28 for a short week.  As of this writing the committee schedule has not been published.  Thursday of this week was officially the 33 day of the 2018 Kansas Legislature.

 

Medicaid expansion approved by committee but blocked by leadership

A Medicaid expansion bill introduced in 2017 was worked by the Senate Public Health and Welfare Committee on Monday and sent to the full Senate for debate.

However, Senate leadership did not allow the bill to come up before Thursday’s deadline for bills to be voted out of their house of origin.  Senate Bill 38 would expand Medicaid under the federal Affordable Care Act (Obamacare), beginning in 2019.  It would add as many as 150,000 people who would have the ability to access the health care insurance.

The legislation would establish the KanCare Bridge to a Health Kansas Program.  To qualify, Kansans could not have an income exceeding 133 percent of the federal poverty level.

The bill requires:

  • Referral to workforce training programs
  • Creation of a Program Drug Rebate Fund
  • Creation of a Program Privilege Fee Fund
  • Creation of a health insurance coverage premium assistance program
  • Addressing federal denial and approval of financial participation
  • Submission of a waiver request to the federal government
  • Various program reports to the Legislature
  • Creation of a Program Working Group

There were about 140 proponents who submitted testimony in support, including business, community, economic development interests, health foundations, policy and advocacy organizations, hospitals, community support agencies, health care providers, community health centers, and private citizens.

They said the bill would provide better health care for more Kansans, bring businesses and jobs to communities, providing funding for hospitals that are struggling, and return millions of federal tax dollars back to Kansas.

Opponents included Americans for Prosperity, the Foundation for Government Accountability, the Kansas Policy Institute, and the Kansas Department of Health and Environment.

They said the bill could not accurately predict Medicaid enrollment, that expansion would be costly, and expressed uncertainty that the Affordable Care Act will continue to exist and provide funding to the states.

 

Hearing held on economic development transparency

A hearing was held Monday in the House Taxation Committee on HB 2672, which requires public disclosure of certain economic development incentive data.  A joint legislative committee would be created to meet at least twice a year to study economic development incentives

Although it was not voted out of committee, the bill remains alive since it is in a committee which is exempt from legislative deadlines.

Representative Kristey Williams (R-Augusta) testified in support of the bill, saying it’s about transparency.  An internet portal would be created where people could access incentive data.  She said the bill would help lawmakers make better informed decisions on incentives and how to get the greatest return on investments.

 

Expensing bill passes Senate 31-8  

The bill that expands the expensing economic development incentive passed the Kansas Senate by a vote of 31 to 8 on Thursday.  Senate Bill 303 would allow certain individual income taxpayers to claim the expensing deduction now only available to C Corporations.

The tax incentive would be to reward businesses for the costs of placing certain tangible property (mainly machinery and equipment) and computer software into service in Kansas.

 

HPIP changes referred back to committee

A bill making changes how businesses use High Performance Incentive Program tax credits has been returned to the Senate Commerce Committee.  It had been on the Senate Calendar under General Orders for debate after passing out of the Commerce Committee earlier this week.

For many years, lawmakers and others have complained the program’s structure made it impossible to predict when the tax credits would be used, which could have a substantial impact on money available in the state general fund for state operations like education.

It’s unclear whether the bill (SB 334) will remain alive this session.

Meanwhile, Senate Bill 430 was introduced on Wednesday.  It extends the HPIP tax credit carry forward from 16 to 25 years.

 

Broadband issue is aired on House floor

A bill on the issue of providing broadband to rural areas of Kansas passed the Kansas House 117 to 0 on Thursday.

HB 2701 creates the Statewide Broadband Expansion Task Force.

Its mission is to collaboratively evaluate the broadband needs of Kansas citizens, business, industries, institutions, and organizations.

It is also tasked with indentifying opportunities and potential funding sources to:

  • Expand broadband infrastructure and increase statewide access to broadband services
  • Remove barriers that might hinder deployment of broadband infrastructure or access to services
  • Enable the creation and deployment of new advanced communications technologies
  • Prioritize the expansion of broadband to unserved areas of the state first and then to underserved areas

The bill requires the Task Force to submit a report to the 2019 Legislature on its work and recommendations.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.  All of these bills are held over from 2017.  As new bills of interest are introduced, I will add them to the list.

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: Halfway point, $137.7m from fed tax changes, Medicaid, incentives, HPIP, expensing, new money for schools, ed study author, bill tracking

In this issue …

  • Halfway point of session is next week
  • Changes in federal law equal $137.7 million for Kansas
  • Medicaid expansion proponents try again
  • Hearing scheduled on bill that requires transparency on incentives
  • HPIP changes voted out of committee
  • Expansion of expensing incentive moves forward
  • How school districts would use new money
  • Education study author will brief legislators next week
  • BILL TRACKER

 

Halfway point of session is next week

The “turnaround” known for being the halfway point of the Kansas Legislative session comes at the end of next week.  That’s the deadline for most Senate bills to have passed the Senate and most House bills to have passed the House.

As a result, there are very few committee meetings next week, not many new bills are being introduced, and legislators will spend a lot of time on the House and Senate floors debating bills that have passed out of committee.

Legislators should be done Thursday night and would return on Wednesday, February 28.

 

Changes in federal law equal $137.7 million for Kansas

As I reported in a KEPC Bulletin earlier this week, a joint meeting of the House Taxation Committee and the Senate Assessment and Taxation Committee heard Wednesday afternoon that the state may roughly pick up $137.7 million more than expected in FY 2019 due to the federal tax bill passed in December.

The estimate came from Kathleen Smith of the Kansas Revenue Department’s Office of Policy and Research.

The report estimates that $84.4 million comes from individual income tax provisions as the result of

  • increased limitations for certain charitable deductions
  • limitation on the deduction for state and local taxes
  • limitation on deduction for qualified residence interest

$53.4 million is the estimated effect from business provisions in the new federal tax law, the biggest amount coming from provisions involving foreign owned corporations including:

  • Deductions for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign-owned corporations
  • Special rules relating to sales or transfers involving specified 10-percent owned foreign corporations
  • Treatment of deferred foreign income upon transition to participation exemption system of taxation

The estimated total Kansas increase for FY 2020 is $179.9 million and for FY 2021 is $187.7 million.

Smith said the Revenue Department is still studying the impacts of the federal tax legislation and the report to the committees is by no means complete.  Revenue Department Economist Michael Austin echoed those remarks, calling the figures a “rough guess” that does not take into account how taxpayer behavior may change in a way that changes the numbers.

The question is now whether legislators will let this stand or attempt to change state tax law in an attempt to return the “windfall” to taxpayers.

Several months ago, the Kansas Economic Progress Council speculated that the federal tax changes could have an impact on state revenues, based on the experience of Kansas in the late 1980s when federal tax law changed, resulting in hundreds of millions of additional dollars being collected by the state.

 

Medicaid expansion proponents try again

Medicaid expansion in Kansas passed the Kansas Legislature last year, but was vetoed by then-Governor Sam Brownback.  Despite opposition from now-Governor Jeff Colyer, proponents are trying again in 2018.

A standing-room-only bill had a hearing Wednesday at the Statehouse.  It expands Medicaid eligibility to households with incomes below 138 percent of the federal poverty level.  That would be $35,218 for a family of three.

This bill is different from last year.  It requires able-bodied adults in Medicaid to work a minimum of 20 hours each week or be enrolled in a workforce training program.

Here’s a link to a story on the hearing from the Lawrence Journal-World.

 

Hearing is scheduled on bill that requires transparency on incentives

A Kansas House Committee has a hearing scheduled Monday on House Bill 2572 that creates a joint legislative committee on transparency on economic development incentives, including:

  • STAR Bonds
  • Income tax credits, including for rural opportunity zones (ROZ)
  • PEAK
  • The job creation fund
  • Property tax exemptions

The ten-member committee would advise on what information should and should not be available.  Five members would come from the House and five from the Senate.

 

HPIP changes voted out of committee

The Kansas Senate Commerce Committee has voted out a bill that makes changes to the High Performance Incentive Program (HPIP).  It changes how long tax credits under the program are available, including tax credits already earned by businesses.

Current law provides HPIP certified companies a ten percent income tax credit for eligible capital investments that exceed $50,000 in most places, but $51 million in metropolitan areas.

Those can be carried forward for 16 years.

Senate Bill 334 extends the timeframe beginning in tax year 2018.  75 percent of the HPIP tax credits that are unused at the end of the 16th year could be carried forward until used by the company.  After the 16th year, the company could only claim up to 25 percent of the unused HPIP credits in any one tax year.

The bill might be debated next week in the Kansas Senate.

 

Expansion of expensing incentive moves forward

In 2011, one of Governor Sam Brownback’s big economic development pushes was the expensing deduction for the costs of placing certain tangible property and computer software into service in Kansas.

To help pay for the 2012 income tax cuts, that incentive was eliminated for all businesses except C Corporations and those that pay the financial institution privilege tax, which did not get an income tax cut.

Senate Bill 303 restores the incentive for all businesses.  The bill passed out of the Senate Commerce Committee this week.

 

How school districts would use new money

There was more information given to a legislative committee this week on how Kansas school districts would use new money if they had it.  A survey asked, “what would you do if you had $200 million a year for three years in a row?”  That’s not for each school district, but a statewide number.

Dale Dennis with the Department of Education outlined what districts said:

  • There would be about a $285 increase each year in base aid
  • Teacher salaries would average 3.85 percent increase each year
  • Statewide, a total of 150 psychologists, social workers, and counselors would be hired (Districts added 126 statewide last year)
  • Work at closing the at-risk achievement gap
  • Lower class sizes (mostly in larger districts)
  • Provide health insurance premium assistance for employees
  • Increase pay for non-licenses employees so they are not lost to the private sector

 

Education study author will brief legislators next week

Even though the Kansas Legislature will not be meeting next Friday due to the five-day “turnaround,” some lawmakers will be meeting on education issues.  They will be hearing from Professor Dr. Lori L. Taylor of Texas A&M, who has been hired to conduct a cost study of K-12 education in Kansas.

Taylor is to provide the legislature with information on how much it will cost to satisfy the Kansas Supreme Court, which has ruled the current school funding formula unconstitutional.  Taylor’s report won’t be available until March 15.

Taylor will speak to a meeting of the Senate Select Committee on Education Finance.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.  As new bills of interest are introduced, I will add them to the list.

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: Session picks up speed, eco devo, transportation task force, rural jobs, rainy day funds threatened, bill tracking

In this issue …

  • Legislative activity picking up speed
  • Economic development hashed out in committees
  • Transportation task force passes Senate
  • Ad astra rural jobs act has hearing
  • Rainy day funds thrashed out once again
  • BILL TRACKING

 

Legislative activity picking up speed

The pace is starting to pick up in Topeka at the Statehouse.  Doctor Jeff Colyer began his term as the new Governor of Kansas, but gave little indication he had any new ideas on how to fund schools to meet the Kansas Supreme Court’s order to fix constitutional problems with the formula.

The budget committees of the legislature are beginning to go though budgets agency by agency and building the framework for a budget.  However, their work may be altered later in an effort to find money for schools.

Friday was the deadline for bill introductions in most committees.  That resulted in a flood of last-minute bills being introduced.

We are now within two weeks of the “turnaround,” considered the halfway point of the legislative session.  Lawmakers will be gone from February 23 through February 27th before returning.  The significance of the turnaround is that most legislation must be passed out of the originating house or it is considered dead for the year.

About three weeks after that, the long-awaited school finance study should be available, telling legislators how much they must raise to satisfy the Kansas Supreme Court.  It’s then that the real work begins.

The other activity of interest that is probably being overlooked by most lawmakers and observers is a joint hearing next Wednesday by the tax committees on the impact of federal tax reform.  The federal changes could affect revenue collected by Kansas in either a positive or negative way.  Kathleen Smith of the Revenue Department and Jay Langley of the Kansas Society of Certified Public Accountants will testify.

 

Economic development hashed out in committees

A couple of legislative committees spent considerable time this week discussing the state’s economic development programs and whether they were working.

In House Appropriations on Wednesday,  Interim Commerce Secretary Bob North said his agency completed 108 projects in 2017, creating 11,291 jobs and retaining 4,444.

Representative Henry Helgerson (D-Wichita) questioned some of the STAR Bonds projects.

“Some of these projects look great but some look marginal,” Helgerson said, “especially when you look at pure economic development.  Seems like with Heartland Park and others; the state jumps in, there is lots of talk about the beef but there is no beef.”

Testifying on behalf of the Kansas Economic Development Alliance, Andrew Nave of the Greater Wichita Partnership said budget cuts over the last decade have been making an impact on local efforts to work with the Commerce Department on economic development projects.  He said attractions are down, leads are down the same percentage as the budget, and project completions are down as well.

Nave said there needs to be a strategic economic development plan, the state needs to reinstate the sales tax project exemption legislation, and workforce development is an issue.

Appropriations Chairman Troy Waymaster (R-Bunker Hill) expressed concern about the disappearance of Main Street organizations that focused on making downtown areas more inviting, giving out loans to businesses for improvements.

Nave agreed, saying when state funding for the Main Street program was eliminated, many local groups went away.

Representative Helgerson commented that he’s seen good analysis and development go away when the Kansas Department of Commerce budget gets cut.  Nave said a Texas A & M Study referenced that very situation.  He said, “We have to have a strong state agency to drive the message and relationships.

Meanwhile, the Senate Commerce Committee also reviewed economic development programs and seemed favorable toward extending the HPIP program (High Performance Incentive) past is current 16 year limit.  They discussed having beneficiaries giving up 25 percent of their tax credits after the 16th year (if not claimed) and only being able to claim 25 percent of the remaining credit in any given year.

For several years, lawmakers have been concerned about tax credits from HPIP being carried over and having an impact on the state general fund all at once.

This discussion occurred as the committee talked about Senate Bill 334, which extends the time that taxpayers may carry forward the tax credits, but with the 25 percent “haircuts” included.

Patrick Fucik of Sprint supported the legislation, as did John Idoux of CenturyLink (the second largest landline telecom in the U.S.), and Eric Stafford of the Kansas Chamber of Commerce.

 

Transportation task force passes Senate

By a vote of 33 to 5, a bill setting up a task force to begin the process of putting together the next transportation program for Kansas passed the state senate Thursday.

The task force would be required to submit its report to the Kansas Legislature by January 31 of 2019.

Here’s a link to the Legislative Research summary of what is in the bill.

Not included in this summary, but added on the Senate floor was the addition of the chief executive officer of the Kansas Turnpike Authority, or their designee.

 

Ad Astra rural jobs act has hearing

A holdover economic development bill from last year had a hearing in the Senate Commerce Committee this week.  House Bill 2168 had passed the Kansas House of Representatives last year on a vote of 97 to 22.

The bill authorizes nonrefundable tax credits for taxpayers who contribute capital to an “approved investment company” to fund a “rural business concern” in a “rural area.”

Those terms are defined in the bill.

Beginning in tax year 2020, 20 percent of the tax credit could be claimed annually over a five-year period.  The amount of tax credits claimed in any one fiscal year could not exceed $20 million, exclusive of the tax credit amounts carried forward.

The Senate Commerce Committee has taken no action on the bill.

 

Rainy Day Funds thrashed out once again

The subject of a Budget Stabilization Fund for state revenue emergencies (also known as Rainy Day Funds) was discussed again this year in the Senate Ways and Means Committee.  Many states have such a fund to get them by in times when revenues are down.

The committee heard a presentation from the Pew Charitable Trust on the subject.  

Stephen Bailey, Associate Manager for State Fiscal Health from the Pew organization, gave the presentation.  He said Pew’s work in other states found, “ It is often very difficult to require saving when revenues are down, but it is important for a Rainy Day Fund structure to be in place when revenues return to health.”

Bailey recommended tying any Rainy Day Fund to a stable funding source that contributes to the fund when revenue is growing at above average levels.

Kansas does have a so-called Rainy Day Fund but it has no criteria or rules.

In response to a question from Senator Laura Kelly (D-Topeka), Bailey said 12 states have the fund requirement in their constitution while three have it in both statute and the constitution.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers. All of these bills are held over from 2017.  As new bills of interest are introduced, I will add them to the list.

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: Gov. Colyer, revenue up in Jan, tax chair asks for help, STAR Bonds, transpo task force, rural broadband, labor market, oil & gas, county profiles available

In this issue …

  • Colyer sworn in as governor
  • Revenues up in January
  • Tax Chairman asks for help on how to proceed
  • Proposed changes to STAR Bonds
  • Changes made to transportation task force bill
  • Committee hears rural broadband presentation
  • Kansas labor market report
  • State of the Kansas oil and gas industry
  • Kansas county profiles now available
  • BILL TRACKING

 

Colyer sworn in as governor

Lieutenant Governor Jeff Colyer is now the Governor of Kansas.  Colyer was sworn in Wednesday afternoon on the first floor of the Statehouse.  He replaces Sam Brownback, who has been appointed an ambassador at large for international religious freedom by President Donald Trump.

There wasn’t much news coming out of the swearing in, but earlier in the week, Colyer, a physician, told reporters he favored expanding Medicaid in Kansas.

 

Revenues up in January

The State of Kansas collected $165 million more than expected in taxes in January.  Secretary of Revenue Sam Williams said the increase is the result of federal tax changes in 2017.

Williams said the federal tax changes encouraged taxpayers to pay state and local taxes before the end of 2017.  That’s because the new federal law does not allow those taxes to be deducted in 2018.

Kansas revenues are now $249 million above estimates for the fiscal year, or 6.7 percent.

 

Tax Chairman asks for help on how to proceed

At Tuesday’s meeting of the House Taxation Committee, Chairman Steve Johnson (R-Assaria) asked committee members for their thoughts on how to proceed this year in light of the Kansas Supreme Court decision on school finance.

“I would prefer to wait on revenue, but the court has another idea,” said Johnson, referring to the deadline imposed by the court on a solution.

“We need to have a plan in front of us and how we satisfy the courts,” Johnson said.  “The legislature does not want to shut schools, but how do we address this issue?”

Johnson said the committee may begin looking at the revenue problem next week.  “I would prefer to do nothing,” said Johnson, “but I’m afraid that may not be an option.”

 

Proposed changes to STAR Bonds

Members of the Senate Commerce Committee and others are looking at possible changes to the state’s STAR Bonds program (Sales Tax And Revenue).  Committee Chair Julia Lynn (R-Olathe) says she’s still working on a reform bill, but wants to get it right.  Lynn called the issue “complex and politically charged.”

Lynn’s comments came this week as Commerce Department official Bob North delivered the annual report on STAR Bonds to the committee.  North said there are eleven active projects and another five have been approved but bonds have not yet been issued.

Lynn gave some hints about what will be in the bill and the future of STAR Bonds:

  • Online shopping will affect the ability to do projects in the future.
  • The bill limits projects to within five miles of a competitor. For example, a Menards cannot compete with a Lowe’s.
  • No landscaping will be permitted using STAR Bonds.
  • The bill requires input from local tourism organizations.
  • The state investment must be the same as the local investment in a project.
  • Transparency will be a significant part of the legislation with requirements for significant information on each project.

 

Changes made to transportation task force bill

The Senate Ways and Means began working on the bill (SB 285) that creates a transportation task force to study a future transportation program.

The committee added these amendments to the bill:

  • Representatives are added from the Portland Cement Association, the Petroleum Marketers and Convenience Star Association, the Kansas Asphalt and Pavement Association and the International Association of Sheet Metal, Air, Rail and Transportation Workers.
  • Economic Lifelines would be required to appoint a rural and an urban member to the task force.
  • Other members added were an airport representative and someone to represent UAVs (Unmanned Aerial Vehicles).

Work on the bill is not completed and will continue at future meetings.

 

Committee hears rural broadband presentation

The House Agriculture Committee held an informational hearing this week on expansion of rural broadband service.

Josh Roe with the Kansas Department of Agriculture spoke about the importance of broadband in rural areas to economic development, allowing adoption of the latest cutting edge technology in areas that are currently underserved.

Roe said new ag technology often requires significant download and upload capability, adding that broadband access is required to attract a quality workforce and provide for a quality family experience for those employees and their families.

Agriculture groups and individuals spoke about the need for broadband, while technology companies discussed the high cost of providing service in rural areas.

Legislation has been introduced to establish a task force to some up with recommendations on the dilemma.

 

Kansas labor market report

The latest Kansas Labor Market Report for December of 2017 has been released.  The Kansas Department of Labor says total nonfarm employment grew 0.4 percent from December of 2016 to December of 2017.  That’s about 6,300 jobs.

Here’s a link to the part of the report that breaks out job growth by industry sector.

 

 State of the Kansas oil and gas industry

The House Appropriations Committee heard an update on the oil and gas industry in Kansas, a segment of the economy that is being blamed by many for the state’s economic growth problems.

The committee discussed an emerging problem facing the industry.

The Russian government provided a loan to Venezuela using that country’s Citgo assets as collateral.  Many believe that Venezuela will default on the loan and the Russian government could shut down ten percent of U.S. refining assets through its interest in Citgo.

Asked about the impact on Kansas, Edward Cross, President of the Kansas Independent Oil and Gas Association, said if Venezuela defaults on the loan, it could have a Katrina-like impact on the gasoline market, leading to a glut on the market.

 

Kansas County profiles now available

The latest Kansas County Profile Report is now available from the University of Kansas.

The report contains the most recent population, socio-economic and employment data.  Profiles are available for all 105 counties.  County reports can be generated for any county in Kansas by clicking on the county from the website.

Each report contains twelve categories of information: population, vital statistics and health, housing, education, social environment, business, employment, income, banking, government, crime, and agriculture.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.  All of these bills are held over from 2017.  As new bills of interest are introduced, I will add them to the list.

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: New Gov on Weds, transpo task force, broadband access, school finance, internet tax lawsuit

In this issue …

  • A new governor on Wednesday
  • Bill on transportation task force gets a hearing
  • Broadband access an emerging problem
  • The plan on school finance
  • Survey shows how districts would spend $600 million in new dollars
  • South Dakota AG to discuss internet sales tax lawsuit
  • KEPC BILL TRACKER

 

A new governor on Wednesday

Governor Sam Brownback has submitted his resignation as Governor of Kansas to the Secretary of State, effective at 3 p.m. on Wednesday of next week.  The U.S. Senate has confirmed him as ambassador-at-large for international religious freedom.

That means Lieutenant-Governor Jeff Colyer will become the Governor of Kansas.

On Wednesday, Colyer plans to attend Mass, tour a child mental health center, and have lunch in his hometown of Hays.  He will then return to Topeka for the swearing-in ceremony, which will be held in the Capitol rotunda.

Speculation is ongoing concerning how Colyer will compare to Brownback.  We are hearing he may be more open to Medicaid expansion.  Colyer’s ideas on how to satisfy the Kansas Supreme Court on K-12 education funding will also be of interest.

 

Bill on transportation task force gets a hearing

Senator Carolyn McGinn’s Senate Ways and Means Committee held hearings on Senate Bill 285.  Senate Bill 285 establishes a joint legislative transportation task force with members appointed from a variety of organizations.

Some of the testimony:

  • Bridgette Williams of the Heavy Constructors Association of Greater Kansas City discussed the $2.4 billion diverted from the 2010 transportation program to other purposes. “The diversion of transportation funds has delayed promised projects across the state and resulted in a decline in the level of annual maintenance of the existing system,” said Williams.  She added that SB 285 is the first step in a process that would bring back thousands of good-paying, skilled construction jobs back to Kansas, jobs that have gone to other states as funding for the current program has dropped.
  • Michael White of the Kansas Contractors Association asked the committee to consider how the Kansas transportation industry can grow the Kansas economy. “This may require hard conversations about State General Fund and State Highway Fund expenditures.”
  • Melissa Wangemann with the Kansas Association of Counties asked that public safety be considered by the task force. “There have been reports that traffic accident fatalities are increasing in Kansas.  At the local level, we see outdated roads, many of which do not have shoulders and other modern safety details.
  • Eric Smith with the League of Kansas Municipalities said, “Economic development opportunities for our member cities require a properly funded state transportation program.
  • Cathy Bennett with the Greater Kansas City Chamber of Commerce said, “transportation is one of the major drivers of the economy in the KC region and throughout the state.”
  • Tom Whitaker of the Kansas Motor Carriers Association (the trucking industry) noted that the task force appears too tilted towards those that would profit from the program. He used members be included from highway users organizations.

A second day of hearings was held on Thursday.  Chair Carolyn McGinn said the committee will attempt to work the legislation next week.

 

Broadband access an emerging problem

Many legislators agree with a statement made this week by Kansas Representative Annie Kuether (D-Topeka).  Kuether, who is the ranking minority on the House Energy, Utilities, and Telecommunications Committee, was reacting to a discussion on the need to expand broadband access in rural areas of Kansas.

“It’s all throughout the building,” said Kuether, referring to Statehouse discussion of the issue.

The House Energy, Utilities, and Telecommunications heard from a representative of the cable television industry who is proposing a state task force on how to expand high speed broadband internet access.

John Federico, President of the Kansas Cable Telecommunications Association said the federal government is putting a lot of money into broadband, but he’s not sure there’s really a coordinated statewide effort.

“Let’s focus on the underserved areas,” he said, adding that Kansas should not focus on one technology over another.  He also said the state should determine how to pay for expanded service and that Kansas should keep away from already served areas.  He suggested a task force be formed, similar to the transportation program.

Some legislators on the committee disagreed that already served areas don’t need help.

The committee plans to continue discussions next week.

 

The plan on school finance

This was another slow week for school finance.  Facing a Kansas Supreme Court finding that the current law is unconstitutional, lawmakers seem to be moving slowly, at least in public.  The best guess of many Statehouse observers is that legislators are waiting to see how much money they need spend.

That information will come from the hiring of Texas A and M professor Dr. Lori L Taylor, who is conducting a cost study.  That won’t be available until March 15.

 

Survey shows how districts would spend $600 million in new dollars

In his blog this week, Mark Tallman of the Kansas Association of School Boards has released the results of a survey of the state’s school districts which asks how they would spend additional funding.  They dollars would be $600 million statewide over a three year period.

$600 million is the number mentioned most often as what may be needed to satisfy the Kansas Supreme Court.  First on the list spending on at-risk students, second is class size, and third is for more school counselors and social workers.

Here’s a link to the survey results.

 

South Dakota AG to discuss internet sales tax lawsuit

The Attorney General of South Dakota will appear before a joint meeting of the House and Senate Tax Committees next week.  South Dakota and 34 other states are suing online retailers Wayfair, Overstock.com and Newegg Inc. in an attempt to be able to collect state and local sales tax for online sales.

The U.S. Supreme Court agreed to take up the case two weeks ago.

South Dakota AG Marty Jackley will speak, along with Kansas Attorney General Derek Schmidt and Marc Beshears of the Kansas Department of Revenue.  Kansas is one of the states that has joined the lawsuit.

Under current interpretations of the law, states may collect sales tax on interstate sales if the retailer has a physical presence in the state.  The lawsuit asks the U.S. Supreme Court to nullify the physical presence requirement.  At stake are millions of dollars that could be coming to state and local governments.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers.  All of these bills are held over from 2017.  As new bills of interest are introduced, I will add them to the list.

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: Highway bill, no highway match in 2121, incentives audit, 18% budget cut for schools, constitution lawsuit, expensing

In this issue …

  • Prep for a new highway bill could be in the works
  • In the year 2121… no highway match
  • House Tax Committee looks at incentives audit
  • 18% budget cut needed to pay for school finance
  • Is another lawsuit possible on Article 7 of the Kansas Constitution?
  • State Chamber asks for “expensing” for small business
  • BILL TRACKING

 

Prep for a new highway bill could be in the works

There’s a hearing next Wednesday in the Senate Ways and Means Committee on a bill that could be a precursor to a new highway program.  It was introduced by Senator John Skubal (R-Overland Park).

Senate Bill 285 establishes a joint legislative transportation task force with members appointed from a variety of organizations including:

  • Members of the legislature
  • Two county commissioners appointed by the Kansas Association of Counties
  • Two city representatives appointed by the Kansas League of Municipalities
  • One member of Economic Lifelines
  • One member of the Kansas Contractors Association
  • One member from the Kansas City Heavy Constructors Association
  • One member from the Kansas Aggregate Producers Association/Kansas Ready Mix Association
  • One member from the Greater Kansas City Building and Construction Trades Council
  • One member appointed by the AFL-CIO
  • One member appointed by the American Council of Engineering Companies of Kansas
  • One member from the Kansas Public Transit Authority
  • One member from a class I railroad company (appointed by Economic Lifelines)
  • One member from a short line railroad company (appointed by Economic Lifelines)
  • Several other members from state government

The mission of the task force is to:

  • Evaluate the progress of the 2010 transportation program
  • Evaluate the current system condition of transportation
  • Evaluate current uses of the state highway fund dollars (including fund transfers for other purposes outside of infrastructure improvements)
  • Evaluate the sufficiency of funding to maintain the current and future transportation needs of the state
  • Make recommendations and reports to the Kansas Legislature on or before January 31, 2019

 

In the year 2121 … no highway match

KDOT Secretary Richard Carlson told the Senate Transportation Committee Thursday the department may not be able to match federal funds in four years.  

Carlson said with the recent history of $525 million in sales tax revenue being redirected to the state general fund, the annual cash flow to KDOT is just over $900 million.  In answer to a question from Senator John Skubal (R-Overland Park), Carlson said the Department may not be able to match federal funds in the year 2021.

Carlson also told the committee that highway fatalities in Kansas are up over the past two years.  The Secretary said 2016 fatalities increased 6.9% over 2015.  That’s about 459 deaths on Kansas roads.

 

House Tax Committee looks at incentives audit

The Kansas House Tax Committee, a major player in last year’s tax bill and school finance legislation, may be getting ready to play another big role in finding solutions this year.

On Wednesday, the committee spent time looking at an October Legislative Post Audit report that reviewed how other states inventory and evaluate tax credits and exemptions.  Kansas reportedly forgoes about $6 bill a year in tax credits and exemptions.

There was some direction provided by the Pew Charitable Trust, which was quoted in the LPA report:

  • Kansas trails other states in following best practices for evaluating tax incentives
  • The state does not have formal policies requiring regular, systematic evaluations of major tax incentives
  • Limited evaluations that are conducted do not necessarily address the cost or economic impact of tax incentives
  • Kansas does not live up to Pew best practices.  Many surrounding states do
  • Kansas does not have formal processes to ensure lawmakers consider the results of tax incentive evaluations
  • The conclusion: tax incentives can be an effective way to incentivize taxpayers to engage in behaviors which are beneficial to the state, but to merely reward behavior that might have occurred anyway, these credits can be costly and ineffective

Here’s a link to the complete Legislative Post Audit Report.

 

18% budget cut needed to pay for school finance

The House Appropriations Committee heard Wednesday that it would take an 18% across the board budget cut in the Kansas FY 2019 budget to come up with $600 million for school finance.  The Appropriations Committee was getting an overview of the work of the Special Committee on School Finance.

The committee heard the impact of that 18% across the board cut.  Chairman Troy Waymaster (R-Bunker Hill) said he thought the information on the Kansas Constitution, the 18% cut, and the possibility of a constitutional amendment were “insightful.”

Representative Clay Aurand (R-Belleville) who serves as the Chairman of the House Education Committee said he thought the most important action was the hiring of Texas A&M professor Dr. Lori L. Taylor was significant.  Taylor will conduct a new study of the cost of providing constitutionally adequate school funding in Kansas.  Legislative leaders also approved hiring Dr. Jesse Levin to “peer review” Taylor’s study and other studies conducted over the years on school finance in Kansas.

Lawmakers won’t get that study until March 15, which presents some timing problems.  The Kansas Supreme Court was the state’s brief by April 30th.  The Attorney General’s Office wants the legislature’s action by March 1 in order to brief the court.

 

Is another lawsuit possible on Article 7 of the Kansas Constitution?

The lawsuits challenging past and present school finance formulas have been based on Article 6 of the Kansas Constitution, which has to do with suitability. That says, in part: “The legislature shall make suitable provision for finance of the educational interests of the state.  The key words there are “shall” and “suitable.”

In the House Appropriations Committee Wednesday, Representative Brenda Landwehr (R-Wichita) brought up the possibility of a new lawsuit based on parts of Article 7.  Landwehr said there “has been discussion we may have another group of folks in the state who are saying Article 7 gives them a right to a certain amount of money, too.”

Chairman Waymaster said he had heard similar discussion.

Article 7 has to do with public institutions and welfare.  Two sections use the term “shall” when talking about the state’s obligation to finance something.

Here’s the language:

“Institutions for the benefit of mentally or physically incapacitated or handicapped persons, and such other benevolent institutions as the public good may require, shall be fostered and supported by the state, subject to such regulations as may be prescribed by law.”

The section on aged and inform persons uses both “shall” and may:

“The respective counties of the state shall provide, as may be prescribed by law, for those inhabitants who, by reason of age, infirmity or other misfortune, may have claims upon the aid of society.  The state may participate financially in such aid and supervise and control the administration thereof.

Sections on unemployment compensation; old-age benefits; taxation; and a tax levy for certain institutions use the term “may” instead of “shall.”

 

State Chamber asks for “expensing” for small business

The Senate Assessment and Taxation Committee was asked to introduce a bill Tuesday by Eric Stafford of the Kansas Chamber of Commerce.

The committee agreed to introduce a bill that restores the pre-2012 expensing of capital investments for small business entities that are not “C Corporations.”

In 2011 Governor Brownback proposed a new state income tax deduction known as “expensing” for qualified investments.  It basically allows businesses to deduct their full investment in equipment in one year instead of a prescribed schedule of smaller deductions over several years.  

The legislature passed Brownback’s proposal, only to take back a major part of it the next year (at Brownback’s request).

The big 2012 income tax cuts eliminated the ability of individuals to utilize the income tax deduction for expensing enacted in 2011.  That’s because Brownback’s tax legislation eliminated the state income tax on pass through income of businesses.  Because C Corporations did NOT get an income tax cut, they were allowed to continue to use the expensing deduction.

The 2011 legislation included big changes to several economic development programs designed to help pay for Brownback’s expensing and other programs.

One program eliminated that caught local economic developers by surprise was that income tax credits could no longer be earned pursuant to the Kansas Enterprise Zone Act and the Job Expansion and Investment Credit Act.

For several years, the Kansas Economic Development Alliance has asked that the program be reinstated.

KEPC UPDATE: Education fix runs dry in 2020, state and fed tax changes create uncertainty, property tax lid in House.

In this issue …

  • Brownback education fix runs out of money by 2020
  • State income tax increase and federal tax cuts combine to create uncertainty
  • Local property tax lid bill may be debated in House soon
     

Brownback education fix runs out of money by 2020

Governor Sam Brownback said in his State of the State Message to the 2018 Legislature Tuesday that he wants the Legislature to comply with the Kansas Supreme Court decision on education by adding $600 million to education over the next five years. That immediately brought strong criticism from Brownback’s own Republican leadership in the Legislature, who said five years was too long and would force a tax increase in future years.

Brownback’s goals for the State Board of Education were:

  • 95 percent graduation rate
  • 75 percent of students should be continuing education after graduation
  • Accelerate movement to Kansas Can school redesign

Brownback’s five strategic objectives for K-12:

  • Higher average teacher pay than any surrounding states
  • Increase the number of school counselors and psychologists by 150 positions each year for five years, making a total of 750 new positions
  • At least 50 schools participating in Kansas Can school redesign project
  • Every high school should offer at least 15 hours of dual credit at no cost
  • Every high school should offer, at no additional cost, the choice of taking the ACT or WorkKeys assessment

Brownback called for the Legislature to put a constitutional amendment on the ballot to “stop the never ending cycle of litigation.

During budget committee meetings on Wednesday, Budget Director Shawn Sullivan did not offer any way to pay for the new spending other than normal growth of the budget. Lawmakers say that means the state will be have no money by 2020 to pay for the increased education spending.

Here’s a link to Budget Director Shawn Sullivan’s PowerPoint presentation on the budget to legislative committees this week.

 

State income tax increase and federal tax cuts combine to create uncertainty

The House Appropriations Committee and the Senate Ways and Means Committee began the session this week with an overview of the current budget, expected revenues, and economic conditions that could have an impact on what’s available for the state to spend.

Those two committees are the budget-writing committees of the Kansas Legislature.

Here are some of the interesting discussions from those meetings.

  • There is strong uncertainty about the timing of the 2017 income tax increase.

    The new law (SB 30) is officially expected to collect an additional $591 million by the end of Fiscal Year 2018. Because of the timing of the new law, plus the impact of the new federal income tax cuts, we won’t know whether $591 million is correct, or even close. Chris Courtwright of the Kansas Legislative Research Department told the House Appropriations Committee the state was “fairly blind” on what the new tax bill will collect. Here’s why.

    Special language provides that taxpayers will not be assessed any penalties or interest relative to underpayments associated with the restoration of tax to non-wage business income. That’s because restoration of that income tax was retroactive to the beginning of 2017 and the law did not pass until June of 2017. Legislators didn’t think it was fair to assess penalties and interest the first year because of the mid-year change.

    It’s estimated that $270 million of the additional estimated $591 million will be from non-wage business income. That’s about 45 percent.

    Because there’s no penalty and interest, business owners had a choice. They could pay estimated tax to lower their eventual burden when income taxes are due in April of 2018, or they could just wait and pay the entire amount when it’s due.

    But then President Donald Trump and Congress stepped in and passed federal income tax cuts on December 22, 2017. It’s believed that had an effect on payment behavior. Some of the new federal law, such as elimination of deductions for state and local taxes paid, probably caused some businesses to make estimated payments in 2017 to take advantage of the federal deduction before it disappeared.

    The Kansas Department of Revenue and others in state government believe that $60 million in 2017 estimated payments may be attributable to the behavior caused by the new federal tax law.  In addition, fewer taxpayers will be able to itemize deductions under the new federal law.

    When will we know whether the estimates are high or low and how much money the state will take in from the 2017 Kansas income tax changes? Legislative staff says it will probably be June 30, 2018, the last day of the Kansas Fiscal Year.

    Coincidentally, that’s the deadline the Kansas Supreme Court has given the Legislature to bring the state into compliance on K-12 school spending.  The inability to know exactly how much the state income tax increase will bring in makes lawmakers’ work very difficult.

  • The Kansas economy is not growing as fast as the national economy and might actually be slowing.

    When it met in November, the state’s consensus revenue estimating group downgraded Kansas economic growth and personal income growth. That’s due largely to a perceived downturn in agriculture and oil and gas production and prices.

    Kansas Gross State Product (GSP) for 2017 was reduced from 1.8 to 0.2 percent. The state’s economy is now expected to grow 1.5 percent in 2018 (compared to 2.5 percent for the United States).

    Personal income growth was reduced from 4.0 to 1.5 percent for 2017 and from 4.1 percent to 3.1 percent for 2018.

    Here’s a link to the full “long-form” consensus revenue estimate document.

  • Despite all the negative news, sales tax receipts were unexpectedly up at the end of the year.

    Total state receipts were up about $83 million since the November estimates. In an era where local and state sales tax is being eroded by Internet sales, sales taxes made a surprising recovery.

    The reason is a mystery.

    One possible explanation is that with the stock market climbing to record levels and the national economy improving, consumers confidence (and thus sales) are up.

 

Local property tax lid bill may be debated in House soon

Kansas Speaker of the House Ron Ryckman (R-Olathe) met recently with local government groups about continuing problems with the local property tax lid law.

Ryckman has reportedly agreed to bring up House Bill 2424 for debate.  That bill passed out of committee last May 12 and sits on General Orders, the agenda for debate in the House.

The bill would add an exemption to the property tax lid for cities and counties.  That exemption would be costs associated with employer contributions for social security, workers compensation, unemployment insurance, health-care costs, employee benefit plans, and employee retirement and pension programs.  Increased property taxes associated with those benefits would be excluded from the calculation used to determine the tax lid.

The tax lid law has been seen as a hindrance to local economic development efforts and denies local elected officials the flexibility to use property taxes to continue services and add new ones that local communities need and want.  The law also lacks coordination with budget timelines.

 

Bill tracking

Here’s our latest bill tracking on measures we think are of interest to our readers. All of these bills are held over from 2017. As new bills of interest are introduced, I will add them to the list.

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.