KEPC UPDATE: Income tax Friday morning, idle funds, FY17 budget fix, school finance, higher ed, KanCare

In this issue …

  • Senate will take up House income tax bill Friday morning
  • House taps Treasurer’s idle funds
  • Bill to fix FY 2017 budget passes House
  • School finance hearings held
  • Fewer Kansas students pursuing higher education
  • KanCare expansion vote could come soon

 

Senate will take up House income tax bill Friday morning

As the Kansas Legislature approaches the official halfway point of the regular session next week, measures to balance the state budget are beginning to advance.

On a bipartisan vote of 76 to 48 Thursday, the Kansas House of Representatives passed a bill to raise income taxes, add a third tax bracket, eliminate the so-called March to Zero trigger mechanism, and restore the itemized deduction for medical expenses.  The bill raises an estimated $590 million next fiscal year.  It now goes to the Kansas Senate, which has scheduled a debate for Friday morning.

Here’s a link to how lawmakers voted. The bill is Substitute for House Bill 2178.

40 Republicans and 36 Democrats voted for the measure, while 44 Republicans and four Democrats voted no.

Observers noted that a re-established Republican-Democrat coalition worked together to pass the bill and challenge Governor Sam Brownback’s tax plan.  Brownback wanted to use mostly one-time money to shore up the budget while keeping his 2012 income tax cuts.

Brownback has attacked the House measure and threatened to veto it.

On Thursday afternoon the Kansas Senate debated a Democrat-written bill (SB 188), but a motion to advance it to a final vote failed by a vote of 10 to 30.  The Senate Democrat bill would have raised $702 million in FY 2018, significantly more than the House bill that will be debated Friday.

Here’s a link to the explanation of that bill.

 

House taps Treasurer’s idle funds

One proposal by Governor Brownback has been given reluctant preliminary approval by the Kansas House.

House Bill 2161 liquidates the long term investment fund through the Pooled Money Investment Board (PMIB) to raise $317.1 million to fill the FY 2017 budget gap (said to be about $350 million).  Lawmakers express a lot of distaste for this approach, but say it’s the only option to prevent deep budget cuts, especially to education.

Under the bill, the state would make annual loan payments of about $52 million for six years to pay the money back.  The first installment would be due June 30, 2019.

The measure, if passed, would fill most of the budget hole until any income tax increases would start flowing into the state when 2017 taxes are due in 2018.

A final vote on HB 2161 will take place Friday morning in the House of Representatives.

 

Bill to fix FY 2017 budget passes House

In conjunction with HB 2161 (above), the House will also vote Friday morning on House Bill 2052, the rescission bill.

The bill makes adjustments to the current Fiscal Year 2017 budget to make it balance when passed in conjunction with the liquidation of the long term investment fund contained in HB 2161.

Here’s a link to an official Legislative Research explanation of the bill.

If both HB 2161 and HB 2052 pass on Friday, the Kansas House of Representatives will have accomplished something important.  It will have completed a House plan to fix the current year budget and deal with future budgets.

The Senate Ways & Means Committee has passed legislation dealing with the Treasurer’s idle funds and the FY 2017 budget rescission, but it has not been taken up yet by the full Senate.

A word of caution: although the House actions are significant to solving the state’s problems, the crisis facing the T-WORKS transportation program remains unsettled.  With the money taken from KDOT and funds expected to be taken from transportation-designated sales tax, highways and bridges face a bleak future.

Those familiar with KDOT believe significant erosion of roads and bridges will occur within the decade (if not sooner) without restoration of funding.

 

School finance hearings held

The first of three bills competing to be the next school finance formula had hearings this week in the House Committee on K-12 Education Budget.

House Bill 2270 was developed over the past two years by Representative Melissa Rooker (R-Fairway) and Senator Laura Kelly (D-Topeka).

Rooker and Kelly are proposing a new formula that is similar to the previous formula, which was repealed in 2015 for the current block grant system.

Some of the new ideas in the bill:

  • Enrollment count would be based on the previous year’s numbers
  • Kindergarten students are counted as full-time if it’s an all day program
  • The way at-risk weighting is determined changes: based on census information
  • Virtual school aid would be based on the “foundation student aid amount”
  • Capitol outlay budget help from the state would require local districts to levy a minimum of four mills local effort

The Legislative Research Department estimates the state would need to increase K-12 funding by $336.5 million in FY 2018 under the measure, with increases of about $200 million each year afterward for the next three years.

 

Fewer Kansas students pursuing higher education

Handouts compiled by Kansas State University officials for a meeting this week concerning University admissions contained some alarming information.

The percent of Kansas high school students pursuing higher education in Kansas has dropped from 83.6 percent in 2012 to 72.1 percent in 2016.  That an 11.5 percent drop.

The information was compiled by the Kansas State University Office of Undergraduate Admissions using a variety of reports.  The information was assembled for a qualified admissions presentation for the Kansas Board of Regents.

State budget reductions in support for higher education over the past several years have resulted in increased tuition costs.  Some believe that’s one reason that higher education enrollment is down 1.2 percent this year in Kansas.

Respected economic studies have indicated that a higher level of education in the population results in higher economic growth, which makes the latest revelations troubling.

 

KanCare expansion vote could come soon

The House Committee on Health and Human Services held hearings last week on HB 2064, which expands Medicaid in Kansas.

The committee might take a vote on the measure at its meeting Friday afternoon.  The agenda lists “action on bills previously heard.”  The measure takes effect in 2018.

Here’s a link to more information.

One key to passage is that if federal Medicaid funds are ever reduced, the program would be terminated over a 12-month period.  That’s designed to deal with detractors who argue that Medicaid expansion is bad because the federal government will default on its commitment and the state will be left holding the bag.

In previous years, legislative leadership has prevented Medicaid expansion from coming out of committee or even coming up for a vote on the floor.  That may change with many new members and new leadership.

 

Bill tracking

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

KEPC UPDATE: Income tax bill, cuts & tax debate, S&P bonds downgraded, economist, Medicaid expansion, STAR Bonds

In this issue …

  • House Tax kicks out an income tax bill
  • Senate delays cuts and tax increase debate
  • S & P moves Kansas bonds to negative
  • Economist questioned about tax policy
  • Medicaid expansion hearings continue next week
  • Intense STAR Bonds review next week

 

House Tax kicks out an income tax bill

By a bi-partisan vote of 13 to 9, the House Taxation Committee has passed House Bill 2178, which is now a tax reform bill that is designed to help Kansas get out of its budget problem.

Here’s what’s in the bill as we understand it:

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

Here’s the committee vote:

Voting for:  Sawyer, Wolf-Moore, Concannon, Ruiz, Burroughs, Proehl, Alcala, Ohaebosim, Francis, Eplee, Gartner, Kelly and Phillips.

Voting against:  Williams, Themesch, Rafie, Mason, Corbet, Davis, Hawkins, Rahjes and Smith.

The bill now goes to the full House of Representatives for debate.

We do not know how much money the bill raises exactly.  However, it appears it will be much more than the proposal the Senate was to debate Thursday, but postponed.


Senate delays cuts and tax increase debate

Meanwhile the Senate’s day was not as productive.

On Thursday, the Kansas Senate unexpectedly postponed debate on a bill to cut the current budget.  Leadership said there are not enough votes to pass the legislation.  Senators are being given the weekend to think things over and talk to constituents.

The legislation, SB 147, would have imposed a 5 percent cut on school districts and 3 percent on higher education.  Support began to falter when senators saw school finance runs that showed what would happen to the school districts they represent.

Statehouse observers and lawmakers had expected a long day of debate.  All Senate committee meetings for the day had been cancelled.  Behind the scenes strategies included reducing the cuts to three percent for schools, but even that failed to gain the 21 votes needed when senators were surveyed.

A second bill that was scheduled for debate would have increased income taxes and eliminated the business income tax exemption.

Senate President Susan Wagle (R-Wichita) and other Republican Senate leaders said because the situation is serious, no bills would be considered for passage until the budget solution is advanced in the Senate.  Kansas faces a $320 million shortage to fund the current year (FY 2017 budget).

In a curious related event, the Senate Assessment and Taxation Committee held a quick meeting afterward where a series of bills were introduced, perhaps to either raise money or put pressure on some senators to support the cuts.

The bills introduced included:

  • A three year moratorium on PEAK (Providing Employment Across Kansas)
  • A three year moratorium on HPIP (The High Performance Incentive Program)
  • A three year moratorium on new STAR Bonds (Sales Tax Revenue Bonds)
  • A bill that returns pass through wages to income tax
  • A bill that allows medical expenses to be deducted on state income tax
  • A bill that taxes Regents employees retirement, an issue that has been floating around in discussions

 

S & P moves Kansas bonds to negative

The bond ratings agency Standard and Poor’s has reportedly revised Kansas’ credit outlook from stable to negative.  The reason given: weak economic trends and “structural budget pressures.”  Standard and Poor’s downgraded Kansas credit rating in July.

According to a story in the Lawrence Journal-World, S & P Global Ratings ranks Kansas bonds as AA-.

The newspaper says, “Only three states – Illinois, New Jersey and Kentucky-have lower S&P ratings than Kansas.”

 

Economist questioned about tax policy

The House Taxation Committee, in an effort to get a handle on good tax policy, brought in Wichita State University economist Dr. Ken Kriz this week for a session of Q and A.

Kriz is the Distinguished Regents Professor of Public Finance at WSU.

During questions and answers, Kriz said there is no tax you can increase and not have a negative effect.  Some are less negative than others.

Kriz also said taxes are usually not a huge part of how people or businesses make their decisions.  It’s more about regulations and quality of life.

 

Medicaid expansion hearings will continue next week

Three days of Medicaid expansion hearings were held in the House Health and Human Service Committee this week.  The bill is HB 2064, the KanCare bridge to a healthy Kansas program.  Supporters packed the hearing for two days.  Opponents were heard Thursday and will continue next week.

It appears likely that the committee will be allowed to debate, amend, and vote on the bill, possibly next week.

 

Intense STAR Bonds review next week

STAR Bonds (Sales Tax Revenue Bonds) will expire this year without legislation to continue to program.

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 somewhat controversial because some lawmakers fear it is diverting sales tax revenue that would otherwise flow to governments.  Supporters say the developments would not take place without STAR Bonds.  Projects like Village West and the NASCAR Track in Wyandotte County have used STAR Bonds, as well as tourist attractions like Strataca, the underground salt mine museum near Hutchinson.

The Senate Commerce Committee will hold informational meetings next week on STAR Bonds and whether changes need to be made to them before the legislation is renewed.

 

Bill tracking

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

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

KEPC UPDATE: House tax, Senate income tax, transpo, senate cuts, sales tax problems, Medicaid expansion, new Economic Lifelines leader, immigration, watch online

In this issue …

  • House Taxation likely to begin working tax bills next week
  • Suddenly, Senate has an income tax bill
  • What about transportation?
  • Senate leaning toward budget cuts?
  • Problems with sales tax outlined
  • Medicaid expansion hearing is next week
  • New Economic Lifelines leadership announced
  • Immigration issue returns
  • Live streaming: how to watch committees online

 

House Taxation likely to begin working tax bills next week

The House Taxation Committee has held hours of hearings on tax issues during the first four weeks of the 2017 legislative session, exploring potential solutions to the state’s approximately $1.1 billion budget hole over the next two and a half years.

Chairman Steven Johnson (R-Assaria) said this week he hopes to begin working on tax legislation next week.  That would come sometime after Tuesday’s Rise Up Kansas bill has a hearing.

HB 2237 is the comprehensive plan developed by the coalition of organizations that make up Rise Up Kansas.  Here’s a link to the coalition’s web site that describes the legislation.

It includes taxing business pass through income; adjusting income tax rates; increasing motor vehicle fuels tax to replace transportation sales tax that would go to the general fund; stopping the “March to Zero” trigger mechanism that further reduces income tax rates; and reducing the food sales tax.

The committee spent much of this week reviewing sales tax exemptions with an eye toward removing some.  It also took testimony on liquor and tobacco tax increases proposed by Governor Brownback and motor vehicle fuel tax increases.

 

Suddenly, Senate has an income tax bill

SB 147, an income tax bill, was introduced Thursday afternoon in the Kansas Senate with little information available on it until Thursday evening.

On Thursday afternoon, Senate Assessment and Taxation Committee Chair Caryn Tyson (R-Parker) announced a hearing on the bill for one p.m. Monday as lobbyists struggled to understand it to see if they wanted to testify.

Our first reading of the bill indicates it increases some of the existing individual income tax rates this year and eliminates the business income tax exemption passed in 2012.  Penalties for certain underpayments are forgiven for much of this year since, if passed, many will not have had enough withholding or estimated tax paid.

 

What about transportation?

With all the focus on income taxes, the House Taxation Committee heard warnings from contractors and others that the state’s transportation program is on life support and needs attention.  The comments came as the committee discussed motor fuels tax increases on Wednesday.

Bob Totten, Executive Vice President of the Kansas Contractors Association, told committee members $3.4 billion has been taken from the T-WORKS program.  His association believes an eleven cent a gallon gas tax would raise $197 million, which would allow Kansas to have a safe and reliable highway system.  Totten said the KCA likes the fuel tax because it can’t be taken for other purposes. The KCA is part of the Rise Up Kansas coalition (see story above) that also supports the increase.

Kansas Contractors Association President Kelly Briggs of Manhattan said the KCA wants to get Kansas back to normal regarding highways.  “This was an experiment that did not work and we need to stop raiding the Bank of KDOT.”

Mike Shilling of Shilling Construction in Manhattan said, “When we have work, we employ 145 people.  Right now, there is little or no work available due to the loss of funding.”  Shilling blamed the situation o the 2012 income tax cuts and said the raiding of KDOT has to stop.

In my testimony on behalf of KEPC, I said, “As an organization, we do not yet have a position on what revenue source you should use to shore up the T-WORKS program, but it does need attention.  We understand the overwhelming nature of the state’s current fiscal crisis demands your attention, but we urge you not to forget the importance of transportation and the danger of not paying attention to it.”

 

Senate leaning toward budget cuts?

Even though the Senate will have a hearing on an income tax bill Monday, Senators seem to be moving more slowly than the House on the issue.

A host of possible cuts were outlined at a closed caucus of Republican Senators held away from the Statehouse.

One conservative senator talked with me earlier about how cuts might affect K-12 education.  In his scenario, school districts would be forced to use their reserves for the budget.  He said it was estimated that at a 5 percent cut, 24 school districts would not have enough in reserves to finish out their budgets.  At about an 8.5 percent cut, about 64 school districts would lack the reserves.

A solution would be to set aside a pool of funds to distribute to school districts without enough reserves to finish the year.

 

Problems with sales tax outlined

A leading researcher for the Kansas Legislature ran through problems with the state sales tax for the Senate Commerce Committee Thursday.

Chris Courtwright, Principal Economist with the Kansas Legislative Research Department, said Internet sales are a “huge and growing problem” for the state.  “Hundreds of millions of dollars” are lost for state and local governments because of an inability to collect sales taxes on most online purchases.  He said sales taxes lost to the internet are growing faster than expected.

Courtwright expressed two other opinions about what may be affecting poor collections.  The recovery from the recession was not robust for low and moderate income Kansans.  They don’t have the buying power they once possessed.  He added that the high combined sales tax (state and local) in Kansas may be influencing consumer behavior.  They might not spend as much or they might cross state lines for some purchases.

We at the Kansas Economic Progress Council have been arguing in testimony and public presentations that the shift from income to sales tax to fund state government is unwise because of just such weaknesses

A 1995 study by the Governor’s Tax Equity Task Force concluded: “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.”

 

Medicaid expansion hearing is next week

The House Health and Human Services Committee will hold hearings on a Medicaid expansion bill on Monday, Wednesday, and Thursday of next week.  Supporters will be heard February 8 (Wednesday).

If you would like to submit written testimony in support of expansion, you can e-mail it to testimony@expandKanCare.com.  It will be included in materials presented to the committee.

Testimony should be addressed to Chairman Dan Hawkins and the House Health and Human Services Committee.  Organizers suggest a people story would be powerful.  Information to help on testimony can be found on the Alliance for a Health Kansas website.

 

New Economic Lifelines leadership announced

The co-chairs of the transportation coalition Economic Lifelines, Dan Watkins and John Koger, have announced a new Executive Director of the organization.  She is Tara Mays.  She is part of the Mays Group headed by former Speaker of the House Doug Mays.

The announcement of her appointment said, “She has broad knowledge of policy development with both the Kansas Department of Transportation and the Kansas Turnpike Authority.  Tara’s work in Kansas government spans more than a decade centered around the development and implementation of the T-WORKS program and the advancement of transportation partnerships.”

 

Immigration issue returns

A business immigration coalition that seems to have been dormant for a few years is getting back together to react to new immigration-related legislation that has been introduced or is expected to be introduced.

The coalition of business and agriculture organizations was very active about five years ago.  The election of President Trump and his proposals to restrict immigration may have encouraged the issue to re-emerge at the state level.

SB 133, introduced Thursday, is one such measure.  The title of the bill is the Kansas employer e-verify accountability act.  E-verify is an Internet-based system that allows businesses to determine the eligibility of their employees to work in the United States.  It is a free service of U.S. Citizenship and Immigration Services.

Under the bill, all state and local government agencies must actively participate in the federal e-verify program to verify the legal status of all new employees. That would begin in 2018.  No contracts for goods or services having a value of over $50,000 can be awarded to anyone who does not verify employees through e-verify.

The program is controversial because legal workers must prove they are eligible.  If not approved, they have to spend their own time and effort to fix any errors in the system in order to be hired.  One audit estimated that about one percent of e-verify subjects have initially been deemed ineligible when they were actually legal.

 

Live streaming: how to watch committees online

You can now watch many legislative committees online as they meet.  Last year’s legislature authorized expansion of live streaming.  Most committees have video as well as audio, but not all.

To listen live, go to the Kansas Legislature’s website committee tab and click on the committee you would like to follow.

Here are the committees you can listen to live:

112-N: House Appropriations (9a); House Commerce, Labor, and Economic Development (1:30p); and House Judiciary (3:30p)

346-S: House Federal and State Affairs (9a); Senate Judiciary (10:30a); K-12 Education Budget Committee (1:30p); and House Taxation (3:30p).  346-S streams both audio and video feed.

548-S: Senate Commerce (8:30a); Senate Assessment and Taxation (9:30a); Senate Ways and Means Committee (10:30a); and Senate Utilities (1:30p)

582-N: House Energy, Utilities, and Telecommunications (9a M/W); House Water and Environment (9a T/TH); House Transportation (1:30p); and House Agriculture (3:30p)

Other rooms are expected to be added later this month or next.

 

Bill tracking

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

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

KEPC UPDATE: 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!

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