KEPC UPDATE: Real state-of-the-state, KDOT answers, commerce quizzed, ed cmte reports, USD realignment

In this issue …

  • Legislators want to know the real State-of-the-State
  • KDOT answers questions about program/transfers
  • New Commerce Secretary quizzed
  • Education committee finally reports
  • “Realign” school districts?

 

Legislators want to know the real State-of-the-State

Legislative committees spent much of this week trying to figure out the real state-of-the-state, with a particular emphasis on the budget and the economy. A recurring theme from the Administration and legislative leadership was that because the unemployment rate is so low, businesses cannot expand due to a shallow pool of workers.

The latest unemployment rate is 4.0%.

Kansas has been lagging the region and the country for some time in employment growth.

Lawmakers also quizzed Brownback Administration officials about the slow growth of the Kansas sales tax. The major answer they got was that the oil and agriculture sectors of the economy are down.

In an appearance before the House Taxation Committee on Wednesday, Secretary of Revenue Nick Jordan said the state is “seeing some stabilization” in income tax. Corporate income tax is stable, the use tax is increasing, but the sales tax is not, Jordan said.

“Sales tax receipts have been a real challenge to us,” Jordan said, echoing comments by Budget Director Shawn Sullivan last week. Jordan said sales tax revenues are up in states on the East and West Coasts, but down in the Midwest. He said some of the problem with revenues may be timing. December Christmas shopping sales tax will not be reported until January.

Jordan said Kansas urban counties had healthy sales tax growth, but counties with economies heavy in oil and gas production and agriculture seemed to be where sales tax collections were down.

He also cited other reasons many Kansans might not be spending money on sales taxable items, including increased health care costs, online sales, and people using their income to pay off debt.

The sales tax growth question is important because Kansas is transitioning away from the income tax as a major revenue source, shifting the burden to a heavy dependence on the sales tax to fund state government.

For example, in 2012, the year the individual income tax cuts were passed, Kansas income tax collections made up 52% of the state general fund (SGF). In the current year budget (fiscal year 2016), that has dropped to 40.3%.

Meanwhile, dependence on the sales tax for the SGF has jumped from 40% in 2012 to 45.7% this budget year. A heavier dependence on an unstable sales tax means an unstable budget for Kansas.

Some legislators pushed back against Jordan’s take on the economy. Representative Kathy Wolfe Moore (D-Kansas City) said the income tax cuts are not working.

Representative John Edmonds (R-Great Bend) said, “The sun does not shine so bright in Western Kansas.”

Perhaps the strongest challenges came from Representative Mark Hutton (R-Wichita), who questioned Jordan on the correlation between income tax cuts and jobs.

He pointed out Governor Brownback has been taking credit for creating 76,000 jobs, but Hutton said half of those were created before the 2012 tax plan took effect.

Citing the estimated $700 million in income tax cuts, which he called an economic development investment, Hutton asked Administration officials, “What would you expect to be a return on that investment?” He could not get a straight answer in the opinion of many in the room.

Hutton’s question was pointed because some conservative legislators have been questioning the state’s traditional economic development programs, demanding that there be proof of a return on investment.

 

KDOT answers questions about program/transfers

Kansas Department of Transportation Secretary Mike King spent a lot of time this week testifying before legislative committees about the T-WORKS Program and answering questions about the heavy transfers from the highway fund to the state general fund.

The total transferred from the highway fund to the state general fund since 2011 is $2.124 billion, which doesn’t include the $47 million Governor Brownback transferred in November, or the $25 million he is now recommending be transferred for the FY 2017 budget.

There were also questions about KDOT’s bonds. The Department sold $400 million in highway bonds in December which brought the total bonds issued to 20% of the program. Last year’s legislature had lifted the 18% statutory cap on bonding the program for two years.

Some of the information provided:

  • Secretary King said when some current bonds are paid down, the total bonding will drop to 15% in FY 2018.
  • King said borrowing the $400 million in Fiscal Year 2016 takes advantage of low interest rates and would mean KDOT would not have to borrow in FY 2017.
  • King disagreed with the Alvarez and Marsal efficiency report that recommended closing KDOT area offices.
  • As the result of transfers from the highway fund last year, $250 million was removed from preservation projects. KDOT Deputy Secretary Jerry Younger said that would have paid for resurfacing, overlay seals, and patching. Younger said KDOT savings has allowed $50 million of that to be put back into preservation.
  • The low price of oil, which is a major cost in road projects, has resulted in savings.
  • Other savings have been realized by bids that are 10% to 15% lower than estimated on large projects
  • King said the Department continues to find efficiencies, has been refinancing bonds at lower interest rates, and projects are coming in under budget
  • King said modern asphalt mix is lasting longer, meaning roads that have it don’t need attention as often
  • The Secretary said that in the 6th year of a 10 year program, KDOT is beyond 60% of the projects it had scheduled. The bigger projects were handled at the beginning of the program

Representative Henry Helgerson (D-Wichita) asked probing questions about what is available to take from the transportation program in the future. King’s answer was, “It depends.” He said KDOT can do all of the work it’s supposed to for FY 2016 and FY 2017.

Asked if bonding was borrowing money to give to the state general fund, King said, “No!”

However, many legislators have noted that the amount borrowed is very close to the amount that has been transferred.

 

New Commerce Secretary quizzed

The man nominated to be Kansas Secretary of Commerce, Antonio Soave, appeared before a couple of legislative committees this week.

Already Acting Secretary of Commerce, Soave’s nomination must be approved by the full Kansas Senate. The Senate Commerce Committee recommended a favorable vote.

Some of Soave’s list of to-do items at the Commerce Department:

  • Adopt a system of proactive messaging and marketing
  • Emphasize Kansas quality of life
  • Publish a Department of Commerce Newsletter, both electronically and printed for mailing
  • Begin an extensive social media campaign on Kansas
  • Focus on research for prospective businesses
  • Don’t lead the conversation with prospects with incentive packages
  • Emphasize the ease of doing business
  • Tout the Kansas workforce
  • Build trust with prospects
  • A new Commerce Department website is planned: kscommerce.biz (not yet up)
  • Commerce needs 8 to 12 “consultants,” perhaps part-timers, who will generate leads

Soave said Kansas is not taking advantage of “direct foreign investment” in the state.

Senator Jeff Longbine (R-Emporia) urged Soave to take advantage of local economic development organizations, something Soave did not mention in his prepared remarks.

Senator Jeff Melcher (R-Leawood), who has strongly questioned some of the state’s economic development programs, asked if the “products” were working and how to measure return on investment.

Soave promised to provide “due diligence and assessment” of the incentives.

Soave most recently was chairman and CEO of Capistrano Global Advisory Services. He is a lawyer and has a Master of Law degree. He has a widely varied background and lives in the Kansas City area.

 

Education committee finally reports

An education committee of the legislature that met during the interim finally issued a final report this week. It’s very unusual for an interim committee to not conclude its work prior to the beginning of the session.

The K-12 Student Success Committee adopted a report drafted by the Legislative Research Department which was based on testimony the group received. Although the report contained recommendations and suggestions for a new school finance formula, a new formula was not proposed.

You can access the full report here which includes a minority report which disagrees with many of the recommendations.

Some of the report’s recommendations are controversial. Here’s a sampling:

  • Current state assessment testing should be reevaluated and revised to avoid “teaching to the test.” The recommendation said the assessments had “inconsistent standards of proficiency,” and cumbersome technology requirements.”
  • The state should provide funding for each student to take the ACT exam
  • The state should encourage other measures of outcome achievement, such as the Work Keys exam
  • An exam aligned with the Rose Standards should be developed by an objective third party with no connection to the State Department of Education or the Federal Department of Education
  • At-risk funding should not be based on the poverty level of the student
  • Any poverty measure for at-risk funding should be based on information provided by the Kansas Department of Revenue and the Kansas Department of Labor
  • Applications by parents or guardians for a school district to receive at-risk funding should be available for audit.
  • A state building architect and project manager should be used in any new building project to reduce costs
  • A special legislative committee should be created to approve any bond issue before it is placed on the ballot for local voters, if the school district wants to obtain capital improvement state aid

The report will probably be reviewed by the regular Education Committees of the Kansas House and Senate. Many observers and leadership doubt a new school finance formula will be written this year.

 

“Realign” school districts?

A bill to “realign” Kansas school districts has been introduced by the Kansas House Federal and State Affairs Committee. It would result in cutting the number of Kansas school districts in half.

Representative John Bradford (R-Lansing) asked for the bill to be introduced.

The bill requires the State Board of Education to:

  • Realign school districts every ten years
  • In counties with less than 10,000 students, there will be one school district
  • In counties with more than 10,000 students, boundaries are to be changed so that a district must have 1,500 or more students

There’s a lot more in the bill, including a limitation on the number of administrators.

Here’s a link to the bill.

No hearing has been scheduled on the measure, but it’s getting a lot of media attention. It’s been sent to the House Education Committee.