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 is not much closer to adjournment, unfortunately, with little advancement on major tax policy or budget issues last week. However, we did see movement on school finance as the House K-12 bill was voted out of committee on Monday and a new Senate education plan was introduced on Wednesday. Some are hoping that the Senate’s measure with targeted funding could be the kick start needed to finish the rest of the work for the year.
Negotiations Stalled on Full Repeal of 2012 Tax Cuts
The House and Senate Tax Conference Committee met late yesterday to discuss a full repeal of the income tax cuts passed in 2012. However, negotiations stalled after Senators refused to have simultaneous floor debates and votes and requested the House consider the measure first.
In addition to bringing small business non-wage income back on the tax rolls and eliminating Governor Brownback’s glide path to zero, the plan would also increase rates on all income taxpayers in Kansas. Joint filers would pay 3.5% on income under $30,000 (currently 2.7%), 6.25% on income under $100,000 (currently 4.6%), and creates a top bracket of 6.45% on income over $100,000. The measure would also partially increase rates retroactively for tax year 2017.
Returning to pre-2012 rates would raise state revenue by $649.5 million in FY18, $722 million in FY19, $781 million in FY20, and $791 million in FY21. More than enough to fill the budget shortfall, it’s still not clear if it’s enough to cover additional investment in K-12 education as well. Senate Hearing on Sales Tax Exemption Repeal, Reduction on Food
The Senate Assessment and Taxation Committee held two days of hearings on a bill that would repeal several sales tax exemptions on personal services. House Bill 2380 would save the state roughly $58 million in FY18 and FY19 and uses the revenue to buy down sales tax on food from 6.5% to 5.5% effective in FY2020.
As currently written, the repealed sales tax exemptions in the bill are on the following personal services: towing, detective services, security guards and patrol services, non residential cleaning, pet daycare, mini and self-storage and collection agencies. Non-profit, public gym memberships (to include YMCAs) are not included. Bill author Representative Kristey Williams (R-Augusta) testified during the hearing that additional sales tax exemptions are being considered, bringing the total savings to $162 million. Kansas currently has $6.2 billion worth of sales tax exemptions on the books. Committee Chairwoman Caryn Tyson (R-Parker) has not indicated when, or if, the committee will work the bill. It passed the House by a vote of 78-42 on Monday.
House Committee Reluctantly Forwards K-12 Bill
After months of hearings and work on a new school finance formula to replace the expiring block grant on June 30, the House K-12 Budget Committee passed Substitute for House Bill 2410 on Monday. The official motion was to report the bill without recommendation and was approved by a vote of 10-6.
Originally including $150 million/year over the next five years in additional state aid toward schools, the funding was reduced at the last hour to $180 million in FY18 and $100 million in FY19. The increase in the remaining years of the five-year plan would be based on the cost of living index.
House Speaker Ron Ryckman Jr. (R-Olathe) announced on Wednesday that Sub. for HB 2410 would be subject to the “pay-go” rule, requiring any appropriation be off-set by a matching decrease in spending in the same bill. The rule can be challenged on the floor, but it appears the Speaker’s designation could have stalled debate, as the bill remains below the line on General Orders.
Senate Introduces New School Funding Formula
The Senate’s Select Committee on Education Finance introduced their own school finance formula, Senate Bill 251, on Wednesday. Key to the bill is that it includes a utility surcharge funding mechanism that raises $150 million per year dedicated to schools. The proposed fee on all utility bills (water, gas and electric) would be $2.25 for residential and $10 for commercial, effective July 1, 2017. Chairman Jim Denning (R-Overland Park) argues that the surcharge on utilities is the broadest fee in Kansas, and including specific appropriation in the bill will show the Supreme Court that the Legislature is serious about funding schools and not relying on sometimes-volatile tax revenue from the State General Fund.
Other key differences between the Senate and House plans include:
- Capital outlay levy is increased from eight to ten mills and expands approved expenditures to property and casualty insurance and computer maintenance.
- Prohibits local tax abatement of 20 mill statewide levy toward future economic development projects.
- Includes cost of living weighting but removes Local Excellence Budget option for some
- Reduces at-risk weighting to previous formula level.
- Removes funding that requires districts provide Applied Behavior Analysis treatment for students with autism.
The committee began hearings on SB 251 yesterday. The major opposition to the bill is from utility companies opposing the surcharge to their customers.
Guns at Hospitals Bill Back to Committee
After nearly two hours of debate on Tuesday, the Senate voted to send Senate Substitute for House Bill 2278 back to the Senate Ways and Means Committee for more work. The bill would exempt state or municipal-owned medical care facilities and adult care homes, community mental health centers, and all buildings associated with the University of Kansas Medical Center from impending law starting on July 1, 2017 that would allow conceal carry in all public buildings without adequate security.
Senator Ed Berger (R-Hutchinson) proposed an amendment to the bill that allows licensed conceal carry for state hospital employees only, which narrowly passed 21-19. Senator Barbara Bollier (RMission Hills) attempted to exempt state universities as well but was interrupted by a substitute motion to refer the bill back to committee for further consideration. The Kansas Department of Aging and Disability Services (KDADS) has said it will cost $12 million to hire and train armed security guards and install metal detectors at every entrance of the four state mental hospitals should this bill not pass. There is talk that the interested parties from KDADS, National Rifle Association and KU Hospital are in negotiations with Governor Brownback on a potential compromise.
Common Consumption Areas Approved by Senate
The Senate approved a bill on Tuesday by a vote of 35-5 that would allow adults to carry drinks into public common grounds and sidewalk areas. Substitute for House Bill 2277 authorizes a city or county to establish one or more “common consumption areas” by ordinance or resolution, designate the boundaries, and establish times during which alcoholic liquor can be consumed. The bill passed with two minor amendments, so a conference committee will be appointed to negotiate final differences between the House and Senate positions. The House passed the bill by a vote of 114-11 last month.
Josh Svaty Announces Democratic Run for Governor
Josh Svaty (D-Ellsworth) announced his 2018 candidacy for governor on Tuesday. Svaty, 37, was former Kansas Secretary of Agriculture under Governor Mark Parkinson and a House Representative from 2003-2009. Most recently, he served as a senior advisor for the Environmental Protection Agency and vice president of the Land Institute. He also owns and operates a family farm in Ellsworth County.
The Senate gaveled in Friday at 8:00 a.m. and quickly broke for the Select Committee on Education Finance to continue hearing testimony on their K-12 funding bill. There is a chance they will work the bill over the weekend. The House considered one item on General Orders Friday but adjourned for the weekend before noon.
Kansas lawmakers wrapped up the first part of the 2017 legislative session on April 7 and returned to TopekaMay 1 after a three-week spring break. Heading into Veto Session, Legislators still faced the same dominant issues since January – budget, taxes and school finance.
With one week down and no still no tax plan, budget, or K-12 formula, there is much speculation about how long this wrap-up session will last. Legislators have already approved extending the statutorily-approved 90-day session by 10 days in anticipation of the hard work in front of them this year.
First Item of Business? Taxes
The Consensus Revenue Estimating Group, made up of university economists and state budget officials, met on April 20 to revise the November 2016 State General Fund (SGF) forecast revenues. They announced at a joint meeting of the House Appropriations and Senate Ways and Means Committees last week that the state is expected to see increased tax revenues of $156.4 million over November’s projections. Receipts are expected to be up $62.5 million for the remainder of FY17, up $42.9 million in FY18, and up $51 million in FY19. These new estimates bring the expected budget shortfall to $889 million over the next two years.
After several efforts to pass a “flat” income tax bill during the regular session failed, legislators spent the week taking a second look at several three-bracket plans that would also repeal the small business tax exemption and eliminate the March to Zero trigger on reducing future income taxes.
Last Monday, the House and Senate Tax Conference Committee met and agreed to a plan similar to the bill vetoed by the Governor earlier this year that fell three votes short of an override in the Senate. The new plan phased in the higher rates making them effective July 1, 2017 in hopes that removing full retroactivity back toJanuary 1 could be the key to gaining a veto-proof majority this time around.
Despite the adjustment, opponents argued the bill didn’t raise enough money to fill the budget gap and fund schools. Debate was quickly called off Tuesday morning when Senate leaders realized they did not have enough votes to pass it over to the House. The bill was expected to raise $425 million in FY18 and $454 million in FY19.
On Tuesday, tax negotiators met again and agreed to an identical plan to Monday’s, only with higher rates for each bracket. Once more, floor debate was called off on Wednesday in the House due to lack of support. Major opposition this time was over passing a tax package before lawmakers know exactly how much money is needed for K-12 schools. Tuesday’s tax bill would have raised $514 million in FY18 and $548 in FY19.
The latest tax proposal on the table, House Bill 2228, was passed by the Senate Tax committee. It only has two brackets: joint filers under $12,600 would be at 0%, everyone else at 4.4% (essentially a flat tax). It closes the LLC loophole but removes all retroactivity making the new rates effective January 1, 2018. The bill also reduces the sales tax on food from 6.5% to 5.5%. The fiscal impact was unknown at the time of this writing, so it’s still unclear if this plan raises enough money or has enough support to bring it to the floor for debate.
Once a tax bill passes and appropriators have firm projected revenue numbers, the biennial budgets for FY18 and FY19 should move quickly. The Senate passed their mega spending bill before the April break, while the House’s budget is still awaiting debate and vote on the floor.
Meanwhile, both the House Appropriations and Senate Ways and Means Committees have assembled their “Omnibus” or catch-all budget bills that typically close out the legislative session.
House Bill 2002 passed the Senate Ways and Means Committee. A few key spending items include: restoration of previous cuts to higher education and Medicaid providers, full payments to the Kansas Public Employee Retirement System (KPERS) in both FY18 and FY19, and allowing the Kansas Department of Transportation bonding authority for an additional $400 million toward preservation and maintenance TWORKS projects.
The House Appropriations Committee met Friday morning to finish up their Omnibus work.
School Finance Formula
The House K-12 Budget Committee finished their work on a new school finance formula before first adjournment. House Bill 2410 is to replace the expiring two-year block grant funding system that’s been found unconstitutional by the Kansas Supreme Court. Closely resembling the old formula, the new plan targets more at-risk, low achieving students and increases funding by $150 million per year over the next five years.
The Legislative Coordinating Council hired attorney and former Senator Jeff King (R-Independence) before leaving for spring break to review the bill and create a record of evidence for the courts as lawmakers finalize the legislation. King presented his initial report to the K-12 Budget Committee, advising them to take a second look at targeting funds to the 25% of underperforming students ensuring they’ve addressed the key part of the Supreme Court’s ruling.
HB 2410 may see some tweaks early this week before being debated by the full House.
Guns at State Hospitals
During a joint meeting of the House Appropriations and Senate Ways and Means Committees last week, Governor Brownback’s budget staff presented the Governor’s Budget Amendments (GBAs) to his proposed budgets for FY18 and FY19. Included was an amendment requesting $12.5 million in FY18 and $11.7 million in FY19 for security enhancements at the four state mental hospitals. The exemption for state hospitals from requiring conceal carry of weapons expires on July 1, 2017 unless adequate security measures are in place.
The Kansas Department for Aging and Disability Services took significant heat from Legislators this week frustrated with the agency’s delay in planning for the impending change in law and requesting the needed funds so near the end of the fiscal year. In response, the Senate Ways and Means Committee yesterday passed out House Bill 2278, which would permanently prohibit guns at public hospitals and mental health centers. An amendment was offered but voted down to add college campuses to the bill. As of now, Regents universities are still required to allow conceal carry on campuses beginning this summer.
The House passed House Bill 2148 by a vote of 112-1. Set to expire on July 1 of this year, the bill extends the sunset of the Sales Tax As Revenue (STAR) Bond program to July 1, 2022. It also eliminates language allowing a county commission or school board to object to a STAR bond district if it’s determined to have an adverse effect on local property taxes, and no longer requires the Secretary of Commerce to approve a city/county option to use transient guest taxes for bond payments.
HB 2148 moves to the Senate Commerce Committee for consideration. However, since it’s passed one Chamber the bill can be taken up in a conference committee.
The House Appropriations Committee passed House Bill 2419. The bill establishes the framework and guidelines around the newly-formed Budget Stabilization Fund.
HB 2419 authorizes the Budget Director to transfer the amount of actual estimated tax revenue receipts in excess of the average estimated tax revenue receipts for the preceding three fiscal years. It also outlines three criteria required for expenditures out of the rainy-day fund. HB 2419 goes into effect in FY2020 and is awaiting consideration by the full House.
State Employee Health Clinics
House Bill 2418 passed the House Appropriations Committee and appropriates $2.7 million in FY18 to the Department of Administration (DOA) to establish and operate an on-site state employee health clinic. The state is expected to see savings in health care premiums after five years.
The bill was amended in committee to: give the DOA authority to lease space near the Statehouse should no state-owned building be available, address the RFP and bidding process, and expand definitions to encompass all health care providers allowed to provide services at the clinic. The House is expected to consider HB 2418 sometime during the Veto Session.
With the “big three” issues remaining, we expect at the very least another week or two of the Veto Session. Today marks the 82nd day of the legislative session.
The Kansas Legislature adjourned the regular session before noon Friday and will return on May 1 for the veto session. The final week of the regular session was spent mostly in conference committees, where negotiators ironed out House and Senate positions on many bills. We also saw floor action on a few major issues…here are some highlights.
Rescission Bill to the Governor
Senate Substitute for Substitute for House Bill2052 is on its way to the Governor’s desk. The bill makes several adjustments to the FY17 budget based on actual revenues to ensure the state closes its books in the black on June 30. After March revenues came in $12.8 million less than estimated, the projected shortfall for this fiscal year is $290 million.
The meat of Senate Sub for HB 2052 is the authorization for Budget Director Shawn Sullivan to borrow from idle state funds to ensure a $50 million ending balance. An initial agreement between the House and Senate returned to conference committee Thursday over the fourth quarter $85.9 million payment to the Kansas Public Retirement Savings (KPERS) program. Senate negotiators quickly accepted the House’s position to appropriate the funds.
The Senate approved the final rescission bill 30-10 Thursday. The House voted 108-15.
Senate Kills Flat Tax Plan
The Senate essentially squashed any “flat” income tax idea for this year when they overwhelmingly killed Senate Bill 214 by a vote of 37-3 Thursday. The bill proposed a single bracket, 4.6% income tax rate effective January 1, 2018. The ever-popular repeal of the 2012 small business tax cuts was not enough to make Senators vote for a tax increase on low income Kansans. The current rate for filers making under $30,000 is 2.6%.
Earlier in the week Governor Brownback announced that he would sign SB 214, or something similar, so the nearly unanimous rejection of the bill carried a strong message with it. It appears that most lawmakers in both Chambers are holding firm on a multi-tier tax bracket plan like the one the Governor vetoed earlier this year.
New Budget Stabilization Bill Heard
The House Appropriations Committee held a hearing on House Bill 2419 on Wednesday. This new bill establishes the framework and guidelines around the newly-formed Budget Stabilization Fund. PEW Charitable Trusts testified during the hearing that states should save above-average collections of estimated payments on personal income tax rather than relying on this volatile and unreliable revenue to fund the general budget.
The FY17 rescission bill includes a provision that instructs the Budget Director to transfer 10% of any remaining balance in the State General Fund from the previous fiscal year into a rainy-day fund beginning in FY2020.
The FY17 rescission bill was the key to adjourning the main portion of the 2017 Legislative Session. The Senate has passed their FY18-FY19 mega budget, but the House’s measure has yet to be considered by the full body. The House Appropriations and Senate Ways and Means Committees have scheduled joint meetings onApril 27 and 28 to review the consensus revenue estimates to be released on April 20 and begin discussions on the “omnibus” budget bill.
Now that Legislators have generally taken a position on where they stand on taxes, we expect that to be the first issue taken up when they return on May 1.
Kansas lawmakers are beginning to gain traction on some key policies as they approach first adjournment on April 7. While budget and school finance dominated the week, some are saying that any real movement on a tax revenue package is expected to hold off until Veto Session.
Rescission Bill in Conference
The first conference committee of the year began meeting Thursday on Senate Substitute for Substitute for House Bill 2052, the rescission bill, which reconciles this fiscal year’s budget in the black. The Chair, Vice Chair and Ranking Minority Member from both the Senate and House budget committees began ironing out differences between their proposals with little contention thus far.
Negotiators have agreed on the key measure of the bill, which borrows just enough from the state’s long-term investment fund to leave an ending balance of $50 million on June 30, 2017 with the six-year repayment beginning in FY19. One remaining item of difference surrounding repayment to the Kansas Public Retirement System (KPERS) may be saved for Omnibus, the catch-all spending bill at the end of session.
Senate Advances Biennial Mega Budget
The Senate Ways and Means Committee kicked out their biennial budget for FY18 and FY19 Thursday. Substitute for Senate Bill 189 looks little like what the Governor proposed in January and rejects some of the major provisions in his plan including: securitizing future tobacco settlement revenue, freezing state contributions to KPERS at FY16 levels, requiring joint procurement on goods and services, consolidating school health benefit plans, creating a rural teacher scholarship program, creating a KU Med Dental School, and merging some state agencies.
The key addition was combining with the judicial branch’s budget – which had been separated from the state’s mega budget in recent years – and using their requested enhancement for salaries and giving a 2% raise across the board to all state employees, totaling $22 million.
House Committee Approves Renewal of STAR Bonds
The Sales Tax As Revenue (STAR) Bond program received initial approval from the House Appropriations committee on Wednesday and is now headed to the full House.
House Bill 2184 renews the program until July 1, 2022 and eliminates language allowing a county commission or school board to protest a proposed STAR Bond project if determined to negatively impact property tax revenues. The bill also no longer requires the Secretary of Commerce to approve a city or county to use transient guest tax toward bond payments.
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. We are supportive of the STAR Bond initiative and look forward to bringing projects like this to southeast Kansas.
Legislators will be on the floor all this week debating bills, while conference committees are scheduled to meet next week. First adjournment is currently set for April 7, but statehouse buzz is that the Legislature could break a few days early. Without many bills passed and in conference yet, leaders might prefer saving some days for the hard work that’s expected during the Veto Session.
It was a pivotal week in the 2017 Kansas Legislative Session, getting the state one step closer to filling the $1 billion expected budget shortfall over the next few years. The Senate passed their rescission bill last Thursday, which makes adjustments to the FY17 budget and fills the $281 million hole. Lawmakers now have the green light to turn their attention toward the next biennial budget for FY18 and FY19.
FY17 Budget Rescission Bill
The Senate passed their rescission package at 9:15 p.m. last Thursday evening, Senate Substitute for House Bill 2052, by a vote of 27-13. The bill leaves the state $50 million in the black on June 30.
Key to the debate was the Senate’s rejection to again cut spending. In an attempt to reduce impending tax increases, Senate President Susan Wagle (R-Wichita) proposed a 2%, or $104 million, across-the-board cut to all state agencies retroactive to January 1, 2017. K-12 education would have seen a $65 million cut, and Senators showed little interest in light of the Kansas Supreme Court’s recent ruling that Kansas is not funding schools adequately. Wagle’s proposal – and subsequent spending cut amendments – failed by large margins.
The Senate’s rescission bill does the following:
- Borrows from the state’s long-term investments at the end of the fiscal year to leave a $50 million ending balance. The remaining funds in the Pooled Money Investment Board are saved for FY18.
- Delays and layers $150 million in FY17 payments to KPERS. The re-amortized repayment will begin in FY18 to still meet actuarial target dates.
- Repays the $115 million eliminated KPERS payment from FY16 back with interest in FY18.
- Delays a $75 million payment to K-12 education by one day, into the next fiscal year.
- Deletes $40 million for Medicaid waiver services. The funds are expected to be included in the FY18-19 mega budget bill.
- Transfers 10% of the State General Fund ending balance to the Budget Stabilization Fund on August 15, 2019.
The House passed their rescission bill last month, and a conference committee is expected to meet as early as this week to negotiate a final package.
Budget Stabilization Fund Implementation
The House Appropriations Committee heard testimony Thursday on Kansas’ newly- formed Budget Stabilization Fund. House Bill 2340 would authorize the transfer of State General Fund revenue in excess of the most recent consensus revenue estimates at the end of each fiscal year into this rainy day account. The bill also restricts fund expenditures to KPERS unfunded liability and debt service payments only.
The House has already included a trigger rule in their rescission bill that 10% of the State General Fund’s ending balance – after KPERS repayments are made – be transferred into the Budget Stabilization Fund starting in FY17. The Senate passed the same provision, except to not start until FY19.
With the passage of the FY17 budget fix, things are finally starting to speed up. Next week is already packed with a number of hearings or expected committee action on key bills. Here are a few we’re watching closely:
- Mega Budget for FY18 and FY19 – Senate Ways and Means is beginning work on SB 189 and expected to finish up on Monday. HB 2364 will be worked in House Appropriations on Tuesday and Wednesday.
- Flat Income Tax – House Taxation will hold hearings on HB 2385 (3.9%) and HB 2395 (5%) on Monday.
- Motor Fuel Tax Increase – Senate Assessment and Taxation heard SB 224 (five cent increase) this morning. House Taxation will hear HB 2382 (eleven cent increase) on Thursday.
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.
In 1932 Supreme Court Justice Louis Brandeis suggested, in the federal system, states could serve as laboratories of democracy and “ try novel social and economic experiments without risk to the rest of the country.” This notion has been popularized over the intervening 80 years as a metaphor for federalism and the role of states in “experimenting” with public policy which may then find broader application throughout the rest of the country. Over the past few weeks the national media spotlight has turned to Kansas as one such “laboratory of democracy” with particular focus on Gov. Brownbacks’s proposed “glide path” to zero state income taxes.
This morning NPR’s Morning Edition spend some time on the Governor’s tax policy proposal, asking “Will it Work?” The NPR piece follows on the heals of an “above the fold” front page story in the Wall Street Journal – “Party Eyes ‘ Red-State Model’ to Drive Republican Revival” – focused on the role state public policy proposals in Kansas could play in the future of the GOP nationally. While debate and discussion continues within the state, it is interesting to see how changes within our state are being viewed by the rest of the nation.
This weekend legislators from across Kansas will be packing up and preparing to head to Topeka on Monday for the start of the 2013 legislative session. The legislature will officially “gavel in” at 2 p.m. on Monday January 14th marking the official start of the session. On Tuesday January 15th Governor Brownback will present his annual State of the State address, outlining his policy vision for the state and the items he would like to see the legislature address during their 90 days of work in the Capitol.
After a very contentious and hard fought campaign season the first clear observations of the 2013 legislature are the number of new faces and the significant shift in leadership (specifically in the Senate). On Monday, 55 new representatives (the largest number of new members in 42 years) will report for duty in the House and 16 new senators (the most new members since 1993) will report to the upper chamber. Some of these 71 members have served previously or served in the House before being elected to the Senate, but the majority will be serving their first day as a legislator. The learning curve will be steep for these new legislators, as they will be faced with a set of significant challenges for our state, chiefly the budgetary and fiscal challenges we now face.
Fiscal and Budgetary Issues Likely To Dominate
According to January estimates from Legislative Research the projected budget shortfall legislators must address is $267 million. The fact of this projected deficit will loom over all other discussions during the session. Obviously this shortfall must be addressed through revenue enhancements (via sales or income tax increases or changes), spending cuts, or some combination of the same.
One possible consideration will be extension of the six tenths statewide sales tax set to expire at the end of June. Extension of this sales tax would add around $250 million in revenue. Securing the votes to extend this tax may be difficult though given that a number of legislators campaigned against the sales tax (either in this or previous election cycles). Another possible consideration may be an effort to “broaden” the tax base through elimination of certain deductions and credits. Success for this option is even more questionable given the fact that the deductions which would provide the most significant impact on deficit reduction are also the most popular – namely the mortgage and charitable deductions. The final issue, on the revenue side, is the option of tweaking or reconsidering certain aspects and implementation of the income tax reform passed last session.
We’ll know quite a bit more about the direction of fiscal and budget discussions after Governor Brownback’s State of the State Address on Tuesday evening and the release of his budget report the next morning. You’ll be able to access the Governor’s full budget proposal after 8 a.m. on Wednesday January 16th at the Kansas Division of Budget website.
PSU’s 2013 Legislative Advocacy Priorities
Our advocacy agenda for 2013 is essentially threefold:
• Preserve base funding to Pittsburg State University.
• Secure second year funding of our new Polymer Chemistry degree program.
• Build support for the establishment of the Kansas Center for Career Technical Education Instructor Development and Innovation at the KTC.