The Kansas Legislature celebrated day 100 last Wednesday, which was the last planned day of the 2017 legislative session. While last week saw more movement on school finance; lawmakers continued to hit a wall on taxes, struggling to find a compromise with enough votes for either passage or a veto-override.
School Funding Bills Advancing
The full House finally had the opportunity to consider its K-12 finance measure on Wednesday. After five hours of debate and 14 proposed amendments, Substitute for House Bill 2410 was approved by a vote of 84-39. The bill appropriates $280 million in new funding for schools over the next two years, increasing the Base State Aid Per Pupil from $3,859 to $4,006 in Fiscal Year 2018 and $4,128 in FY 2019. After that, funding will be adjusted according to inflation, estimated around 1.5% a year or $55 million.
While most Legislators agree on the specific provisions in the new formula, opponents argue that the dollar amount will not meet constitutional muster in the courts. An amendment by House Minority Whip Ed Trimmer (D-Winfield) – retired teacher serving on the K-12 Budget Committee – to increase spending by $600 million over three years was defeated 47-75.
The Senate Select Committee on Education Finance also advanced their similar school funding bill on Wednesday. House Bill 2186 spends an additional $165 million on schools in FY 2018 and $70 million in FY 2019. After that, funding would increase by a rolling three-year inflation average. A previous proposal to increase funding by $150 million a year from a charge on utilities was removed this week. HB 2186 is expected to be debated by the full Senate tomorrow.
The Kansas Supreme Court’s latest ruling gave the Legislature until June 30 to pass a new school finance formula to replace the expiring two-year block grant.
Still No Tax Plan
The House and Senate Tax Conference Committee met and agreed to a conference committee report (CCR) on Monday, which was defeated by the full House that evening by a vote of 68-53. The three-bracket income tax increase would have raised $591 million next fiscal year.
Back to the drawing board, negotiators signed a new CCR Tuesday morning. Senate Bill 30, a two-tier income tax plan, was scheduled to run on the House floor on Wednesday but pulled last minute as it appeared conservative support was waning. This tax plan is estimated to raise $488 million on FY 2018 and $460 million in FY 2019.
As it stands now, SB 30 would increase income taxes on all Kansans at the following rates: joint filers with income under $30,000 at 3% (currently 2.7%) and 5% on income over $30,000 (currently 4.6%). The increase would phase in with partial retroactivity for tax year 2017. It also includes a low-income exclusion of $5,000 for singles and $12,500 for married filers. The new income tax rates raise $412 million in FY 2018 and $384 million in FY 2019.
The bill also increases the alcohol enforcement tax from 8% to 10% effective July 1, 2017, which raises $15 million. It repeals the sales tax exemption on several personal services: towing, lawn care, detectives, security and guards, non-residential cleaning, personal care (tattoos, piercings, tanning) pet daycare, mini and self-storage, and custom computer software. That raises $61 million and goes into effect October 1, 2017 or upon renewal of an existing contract.
Other provisions include:
- Repeal of the LLC loophole and glide path to zero on future income taxes.
- 100% deduction on medical expenses.
- Buy-down on food sales tax from 6.5% to 5.5%, effective July 1, 2020.
- Five-year extension of the STAR Bond program, with a 1-year moratorium on new projects beginningSeptember 1, 2017.
- Aviation tax credit, effective July 1, 2017. Estimated to cost $7.7 million.
- Ad Astra rural jobs tax credit, effective July 1, 2020. Estimated to cost $10 million.
Conservatives Propose Budget Solution
A group of conservative lawmakers unveiled their “Republican Balanced Budget Solution” during a press conference last Monday. The plan calls for no new taxes, no new spending, and leaves an ending balance of $54 million for FY 2018.
Conservative lawmakers believe the key to avoiding a tax increase on Kansans is to eliminate any new spending in next year’s budget, other than increases in Medicaid caseloads. Included is a partial securitization of the state’s Tobacco Master Settlement Agreement of $19 million to pay toward KPERS, while leaving the roughly $40 million spent on children’s programs intact.
It’s rumored that the group is meeting with House and Senate leadership early this week to consider a hybrid of the Republican plan with a smaller tax increase that could be considered.
Hospital Conceal Carry Prohibition Reconsidered
The Senate Ways and Means Committee met last Tuesday to reconsider Senate Substitute for House Bill 2278 after the full Senate sent it back to committee last week for more work. The bill exempts state hospitals, community mental health centers and the University of Kansas Medical Center from allowing concealed handguns starting on July 1, 2017. College campuses are currently not included in the bill.
As of last Tuesday, a compromise between the interested parties had not yet been met, so the committee stripped from the bill an amendment made on the Senate floor – allowing conceal carry for licensees only (which would have killed the bill) – and sent it back to the floor for anticipated debate next week. Before kicking the bill out, the committee also added a provision that would not hold public employers liable for any wrongful act with a handgun by their employees outside of their facility.
HB 2278 will save the state at the minimum $12 million for installing adequate security measures at the four state mental hospitals, which would have otherwise been required by current law.
Legislature Approves Common Consumption Areas
The House concurred with the Senate’s amendments to Substitute for House Bill 2277 and sent the bill to the Governor by a vote of 97-22 on Tuesday. The bill allows adults to carry drinks into public common grounds and sidewalk areas, and authorizes a city or county to designate its boundaries and establish times for alcohol consumption.
Originally introduced by the city of Lenexa as part of their Vision 2030 plan for the construction of the Lenexa Public Market, other proponents argue the bill will spur economic development in their communities as well. Representative John Alcala (D-Topeka) spoke in support of the bill on the House floor citing the benefits to Topeka’s NOTO downtown district.
Legislators return to Topeka today to continue their work. We are keeping our eye on many issues especially extension of STAR Bond district legislation, insuring no further cuts to higher education, and any action related to concealed carry on college campuses.
The Kansas Legislature was back in business this week, marking the start of the second half of the 2017 Legislative Session. All bills that did not pass their House of Origin before
February 23rd’s turnaround deadline, are dead for the year unless they were “blessed” to a handful of committees exempt from all legislative deadlines.
During the one week legislative session break, February tax revenues came in $40 million above estimates, shrinking the shortfall for fiscal year 2017 from $350 million projected last November to $280 million. The good news was overshadowed, however, with the Kansas Supreme Court’s decision the next day which ruled Kansas’ block grant school funding system not constitutionally adequate.
New School Finance Committee Appointed
As reported last week the Kansas Supreme Court did not include a dollar amount in their Gannon vs. Kansas ruling that would indicate how much additional K-12 funding would be considered adequate. While it did mention a lower court’s ruling that a new formula might cost the state $500 million, the opinion also stated that “total spending is not dispositive of adequacy.” This has left lawmakers puzzled this week, to say the least.
Senate President Susan Wagle (R-Wichita) appointed a Select Committee on School Finance on Wednesday to craft the new formula to replace the current block grant distribution system expiring on June 30, 2017. Senator Jim Denning (R-Overland Park) was named Chair and Senator Carolyn McGinn (R-Sedgwick) Vice Chair of the panel. The House’s K-12 Budget Committee has been meeting since the first of the year receiving briefings from staff and considering several potential plans. With the adequacy ruling issued, both committees can now start hammering out the nuts and bolts.
Senate Examines Rescission Bill
The Senate Ways and Means Committee on Wednesday heard Substitute for House Bill 2052, the Governor’s FY17 rescission bill that passed the House weeks ago and leaves a $99 million ending balance in the State General Fund on June 30.
The Governor’s proposal included an elimination of the fourth quarter FY16 repayment of $85.9 million to the Kansas Public Employees Retirement System (KPERS). Sub HB 2052 requires the state pay 50% of the state’s ending balance back to KPERS. Then if after the full KPERS repayment can be made, 10% of whatever ending balance remains is put aside in the newly-created Budget Stabilization (Rainy Day) Fund.
The Ways and Means Committee did not hear the House’s companion borrowing bill, which authorizes the liquidation of $317 million from the state’s long-term investment fund. As you recall, the Senate unsuccessfully tried to pass a bill that only borrowed $100 million from the Pooled Money Investment Board (PMIB) and cut K-12 and higher education to make up the difference.
During Wednesday’s hearing, the major heartburn among Senators was over the Governor’s proposal to delay a $75 million payment to K-12 schools. Currently paid in June, the bill would delay it one month to July – into the next fiscal year. The state currently delays $200 million in school payments to July and has been doing so for about a decade.
There’s a $280 million shortfall left in this fiscal year ending on June 30, and Legislators must pass a rescission bill leaving the state in the black and before they can begin Omnibus work for FY18 and FY19.
Governor’s Tax Plan Killed
The full Senate sent a clear picture to Governor Brownback on Tuesday killing his proposed tax plan by a vote of 37-1. Senate Bill 175 would have increased taxes on cigarettes by $1/pack, doubled it on other tobacco products and liquor, raised the LLC annual filing fee, taxed passive income on rents and royalties, and frozen the bottom income tax bracket at 2.7% (scheduled do drop to 2.6% in FY18).
Senate Hears Economic Development Bills
The Senate Assessment and Taxation Committee held hearings on two economic development bills yesterday. Both deal with the Providing Employment Across Kansas (PEAK) program that allows employers to keep withholding taxes for up to ten years for relocating to or expanding in Kansas.
Senate Bill 222 would impose a one-year moratorium on the incentive program and Senate Bill 223 would limit eligibility to companies relocating over 250 miles to Kansas. With strong opposition from local chambers of commerce, the Kansas Chamber and the Kansas Department of Commerce, the sentiment from the committee appeared to be against moving these bills forward.
Appropriators Approve KDOT Bonding Authority
The House Appropriations Committee on Monday approved a report from the Transportation and Public Safety Budget Subcommittee that gives the Kansas Department of Transportation bonding authority up to $400 million in FY18 and FY19 for TWORKS preservation projects on roads and bridges. The 10-year highway program has issued $1.1 billion out of their total approved $1.7 billion in bonds. This week’s proviso – if approved during final mega bill negotiations – would also require removing the 18% bonding cap currently in statute.
Regarding funding for transportation, two bills were also introduced this week that would raise the motor fuel tax by five cents in Senate Bill 224 and 11 cents in House Bill 2382. Hearings have not yet been scheduled for either bill.
Mark your calendars. The Senate Public Health and Welfare Committee is expected to begin hearings on Medicaid expansion on March 21. It passed the House with 81-44 votes, but it’s expected to be a tougher sell in the Senate.