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.
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.
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.