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

In this issue …

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


Halfway point of session is next week

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

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

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


Changes in federal law equal $137.7 million for Kansas

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

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

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

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

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

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

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

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

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

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


Medicaid expansion proponents try again

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

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

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

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


Hearing is scheduled on bill that requires transparency on incentives

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

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

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


HPIP changes voted out of committee

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

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

Those can be carried forward for 16 years.

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

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


Expansion of expensing incentive moves forward

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

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

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


How school districts would use new money

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

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

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


Education study author will brief legislators next week

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

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

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


Bill tracking

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

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