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

In this issue …

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


Prep for a new highway bill could be in the works

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

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

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

The mission of the task force is to:

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


In the year 2121 … no highway match

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

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

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


House Tax Committee looks at incentives audit

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

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

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

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

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


18% budget cut needed to pay for school finance

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

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

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

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


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

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

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

Chairman Waymaster said he had heard similar discussion.

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

Here’s the language:

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

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

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

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


State Chamber asks for “expensing” for small business

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

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

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

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

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

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

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

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