Legislative Update – April 4, 2017
Medicaid Expansion Fails
Last year at this time, most legislative observers would have told you that passing a Medicaid Expansion bill in both the House and the Senate was about as likely as Gonzaga playing for a national title. And yet that is exactly what has happened. The bill called Bridge to a Healthy Kansas was vetoed by the Governor but on Monday, following a bruising weekend of phone calls, e-mails and bare-knuckled lobbying, the House debated whether to override his veto.
Those not inclined to favor Medicaid Expansion have expressed deep concerns over the fiscal ramifications of expanding an entitlement program in the midst of one the most persistent and, as yet, unresolved budget crises in recent memory. They point to uncertainty in Washington DC as justification for their reluctance to take on coverage of 150,000 Kansans without being sure where the money to pay for their coverage will come from. Advocates of expansion, including the Chamber, have pointed out that Obamacare remains the law of the land and the federal government is obligated to reimburse states 90% of their costs of expansion They also argue an expanded Medicaid program will ultimately produce savings in excess of the new costs as Kansans who previously only encountered the medical system at its most expensive point, the emergency room, will begin seeking routine medical care once they know they are covered and will be in a much better position to address issues early on before they became acute, and expensive, medical emergencies.
By noon on Monday, the Medicaid Expansion bill was dead: 81 House members cast their Aye vote to override the veto but they needed 84. The Chamber appreciates the courage and leadership shown by those members of the Shawnee County delegation who voted in favor of overriding the veto: John Alcala, Brenda Dietrich, Jim Gartner, Annie Kuether, Vic Miller, Fred Patton and Virgil Weigel.
Paying this Year’s Bills
The House and Senate have finalized negotiations of a spending bill for the remainder of this fiscal year. The compromise package should be voted into law this week. Lawmakers found most of the aprx. $280 million needed to close out the books this year by borrowing against the state’s so-called idle funds and delaying payments to KPERS. No one considers these measures to be sound long-term solutions but they seem to get the job done for this fiscal year and inflict relatively little pain on state agencies or the Kansans they serve.
Planning for Next Year’s Bills
The Senate last week passed its version of a budget bill for the next two fiscal years. It is admittedly incomplete because it says nothing about school funding and it is premised on the state raising roughly $400 million in new revenues in each year. The House’s budget bill is headed to the floor for debate this week. Both chambers understand a truly final budget won’t be possible until May when legislators come back for the so-called “Veto Session.” By then a new school formula and, presumably, a veto-proof plan for raising taxes will have been put together. At that point, it will be possible to sew all the components of a balanced budget into one Omnibus spending bill.
Legislators on both sides of the Statehouse are essentially waiting for the Senate Assessment and Taxation committee to hammer out its tax plan and send it to the floor of the Senate this week. Earlier in the session, the House had taken the lead on taxes but its package was vetoed. The House Tax Committee did pass out a bill last week which would do away with all income tax brackets and simply impose a flat 5% tax no matter how much the individual taxpayer earns. The bill does some other things, including repeal the LLC exemption, but even the members of the committee do not seem all that fond of their work product. This bill seems to have been a way for the House to keep the discussion going on tax policy until the Senate produces its tax bill.
The House passed the bill which gives cities the right to designate certain areas where adults could stroll down the sidewalk with a beer or wine in their hands. The legislation allowing for the creation of “common consumption areas” could give Topeka a new tool to help continue the revitalization of areas such as NOTO and Downtown Topeka. The goal this week is to persuade Senate leaders to quickly take up the bill and get it passed before the final buzzer on April 7.
The Topeka Chamber, along with many others across the state, had been watching wearily as bills were introduced in the Senate to eliminate or drastically reduce the scope of the important jobs incentive programs called HPIP and PEAK. The Chamber testified against the legislation. As none of those bills has made progress in committee, supporters of those programs are cautiously optimistic the bills will not move forward to passage this session. More likely the legislature will ask that the effectiveness of these programs be studied this summer. That is when economic developers in Kansas will need to make their case. That being said, vigilance will be required to ensure these concepts are not revived in the dark hours of the final days of the session.
The House K-12 Education Budget Committee worked late into the night last week trying to put the finishing touches on its new school finance formula. The details and the impact of the formula on school districts remain obscure at this point except that the new formula apparently bears a resemblance to the old one. It would result in some school districts receiving less from the state than they were under the current block grant system and many receiving more. Whatever the details, the point is that the House formula is being built methodically by legislators who understand school finance. Some would note that is a marked distinction from the unnuanced system of block grants which the legislature hurriedly put in place two years ago after it had scrapped the old formula.
Legislative Update – March 28, 2017
As they head for the first adjournment on April 7, lawmakers are working to bring a number of important issues to a head, including legislation to pay the state’s bills through June 30. House and Senate negotiators moved closer last week to finalizing the spending bill for the remainder of this fiscal year but they are still ironing out differences. They will find most of the $280 million by borrowing against the state’s so-called idle funds account and by delaying payments to KPERS. That latter point seems to be where the hitch lies. The Senate is also working on a budget bill for the following two fiscal years. Funding for public schools is conspicuously absent from that bill because lawmakers assume there is considerably more work to be done on taxes and a new school formula. The impact of all that work can be accounted for in the budget a little bit later in the process.
The Senate Assessment and Taxation Committee is writing a tax reform bill. Recall the House Taxation Committee did most of the heavy lifting on this issue earlier in the session but that package was vetoed by the Governor. The Senate tax bill will presumably contain an increase in income tax rates, if not a new third tax bracket and a repeal of the LLC exemption. Senators are wrestling mightily with the question of whether to make such tax increases effective retroactively to January 1 of this year or to write the bill so the increases kick in next year.
Meanwhile, the House Tax Committee has been hearing about a variety of other tax ideas, including a flat tax of about 5%, a sales tax on various personal services, such as haircuts and towing and an 11-cent per gallon increase in the motor fuels tax.
Last Thursday, the Senate Public Health and Welfare Committee quickly passed out a bill that expands Medicaid. The Bridge to a Healthy Kansas, which has already passed the House, now advances to a debate on the floor of the Senate where supporters are cautiously optimistic it stands a chance of passing. Governor Brownback remains adamantly opposed to expanding Medicaid and taking on what he sees as a massive new financial obligation. Even though the federal government is bound by current law to reimburse states for 90% of the cost of their expanded Medicaid programs, the Governor openly worries that Kansas could get stuck with paying a much bigger portion if the Affordable Care Act changes. Medicaid Expansion passed the House with 85 votes, one more than is needed to override a gubernatorial veto. Whether the same bill can garner the necessary 27 votes in the Senate is not known.
A long-awaited school finance bill was unveiled last week in a House Committee. The bill sets forth a school funding formula which bears a strong resemblance to the formula lawmakers threw out two years ago. The new formula is intended to target the 25% of pupils who, since they are underperforming, were the focus of the supreme court’s recent school finance ruling. It calls for an increase of about $72 million in state aid over what schools are receiving under the current block grant system. That number is considerably lower than many analysts estimate will be necessary for the state to comply the supreme court’s ruling but the chair of the committee was careful to note the bill represents a starting point for discussions.
Under the bill, 107 of the 286 school districts will receive less money than they do now, mainly because of declining enrollment. According to a very preliminary calculation performed by the state department of education, the Seaman school district would receive about $915,000 less under this new formula than it would under the block grant system. Auburn-Washburn and Topeka 501 would both receive well over $2 million more. Those number will change as the bill gets worked. The new formula relies more heavily on local property taxes and, in fact, gives school districts the right to raise property taxes for extracurricular activities and enhancements.
The goal is to work the bill and get it to the full House this week so it can be voted upon and sent to the Senate before the legislature goes on break starting April 7.
A House Committee has sent to the full House a bill which extends STAR Bond financing until 2022. 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. Without such legislation, STAR Bonds will sunset and could no longer be used as an economic development tool in Kansas.
Bills diminishing or eliminating the jobs incentive programs called HPIP and PEAK have been introduced but have not been scheduled for committee work. No news is good news. There is a sense that, barring a major blow-up over the budget, these bills will probably not advance and the programs should be safe for now. Economic developers across the state, though, will not take anything for granted and will continue to watch closely for signs that this legislation may be moving.
The bill to give cities like Topeka a way to reclaim long-abandoned houses and put them into the hands of non-profits to restore them endured a lively debate on the floor of the Senate last week. It was ultimately sent back to a committee for more work. The same bill received a hearing in the House Local Government committee last week. The Chamber testified in favor of the bill.
Legislative Update – March 21, 2017
The Kansas Senate beat back their leader’s effort to cut the spending, including spending for public schools, on their way to passing legislation to pay the state’s bills through June 30. The spending package which passed the Senate resembles the bill the House passed in mid-February. They both find the roughly $280 million needed to close the budget by delaying payments to KPERS and borrowing against the state’s unused funds. Senate President Susan Wagle attempted to introduce a two percent across the board budget cut into the bill but only six of her colleagues supported that. Now the House and Senate will conference and send a final spending bill to the Governor, presumably this week. That’s just the first part of the puzzle.
New Tax Proposals
Now that a way has been found to pay the bills for this Fiscal Year, lawmakers will turn their sites again to the task of reforming the tax code, state spending or a combination of both to develop budgets for the next two years. The legislature already tried to build a tax package but the Governor rejected it. So they are back to the drawing board considering proposals ranging from a 3.9% flat tax, which every Kansan would pay regardless of their income level, to raising the gas tax as much as $.11 to imposing sales tax on car towing, security guards, barbershops, beauty salons and dating services, among sundry other types of businesses. (Not necessarily sundry businesses, mind you.)
Their task is certainly not made any easier by the supreme court’s school finance ruling. Committees in the House and Senate are developing a new school finance formula they hope will address the court’s ruling that some Kansas pupils are not receiving an adequate education without breaking the bank.
A House committee has advanced legislation which would give cities, like Topeka, the ability to designate certain areas within which adults could carry wine and beer down the sidewalk. Current law requires licensed bars and restaurants to stop any patron from carrying their Pinot Grigio out the door. Any reader of this update with a penchant for beverages stronger than Pepsi will presumably have encountered this somewhat archaic-feeling legality. The new legislation would permit the creation of “common consumption areas.” As long as the adult drink was purchased from a licensed vendor and sold in a marked cup, patrons would now be able to stroll from their favorite restaurant or microbrewery to their favorite art gallery without being forced to dump their favorite lager on the way out. The bill advances to the floor of the House. There is still a lot of work to be done but this is good progress on a law which would clear the way for Topeka, and other Kansas cities, to choose for themselves whether and where to develop socially dynamic entertainment districts.
HPIP & PEAK
Two bills introduced in the Senate last week continue the ominous scrutiny being paid to two important tools for attracting employers to Kansas. The bills would place a 3-year moratorium on the jobs incentive programs called High-Performance Incentive Program (HPIP) and Promoting Employment Across Kansas (PEAK). Matt Pivarnik testified earlier in the month against two similar bills. He argued such incentive programs are exactly what the state should be encouraging at a time when Kansas is seeking to diversify its jobs base. Pivarnik also noted that employers watch closely what goes on in the Statehouse and could well interpret legislation like this as a signal that Kansas is no longer serious about attracting business. The Chamber will join forces with the Coalition of Local Chambers, the state chamber of commerce and others to continue to voice its strong opposition to bills which diminish or eliminate these important tools of economic development.
Legislative Update – March 14, 2017
Nobody said it was going to be pretty. Last week, the Senate debated, dismembered and killed the governor’s tax plan. In the process, they sent their clearest message yet that they intend to pass lasting tax and budget reforms. The governor’s plan, it will be recalled, entailed a $1 per pack cigarette tax hike, doubling the tax on liquor, taxing passive income including rents and royalties, increasing the annual reporting fee for nonprofits and LLCs and freezing the bottom income tax rate at 2.7% (it was scheduled to drop to 2.6% this year). The plan would have raised about $180 million in the fiscal year, which starts on July 1, 2017, and $198 million the year after.
It is not going to happen that way. The Senate Tax committee will be hearing this week about a new tax bill which would raise closer to $578 million next year. Also, this week Senate President Susan Wagle will be meeting with a small group of Chamber members to hear their thoughts on the best way to reform taxes without causing undue disruption to small business.
The Senate and the governor remain at odds over how to cobble together enough cash to close out the current fiscal year which ends on June 30. The House has approved the governor’s short-term plan, which involves tapping into a myriad of unused funds scattered across state government. (Despite the name, these “unused funds” are not just happy pockets of money waiting to be found and spent. These are fees and taxes which have been collected and invested for safe keeping but haven’t been expended yet. The governor essentially proposes taking a mortgage out on those funds.) Senate leadership is pressing for cuts in spending, too, as a way of getting to the end of the year; however, the recent school finance ruling makes any talk of cuts to education extremely touchy.
The Senate Committee on Assessment and Taxation held hearings last week on two bills which would eliminate or seriously lessen the usefulness of the state’s jobs incentive program called PEAK. PEAK, which stands for Promoting Employment Across Kansas, gives employers a withholdings tax rebate when they create at least 10 new jobs which pay more than the county median wage. The bills heard last week would either shut the PEAK program off for a year or limit it to companies which relocate to Kansas from at least 250 miles away; thus, cutting existing Kansas companies off from the incentives.
The Topeka Chamber, along with numerous other local chambers and the state chamber of commerce, testified that the PEAK program is a key tool used by economic developers, like Go Topeka, to attract businesses to Kansas and encourage existing ones to expand. As Matt Pivarnik testified, “A number of Topeka’s fastest-growing employers have taken advantage of these incentives. In most cases, these were companies which could have chosen to locate elsewhere.” Eliminating the program could send the message that Kansas is no longer serious about competing for jobs. The committee took no action on the bills.
Legislative leaders spent most of last week considering offline how to respond to the supreme court’s school finance ruling. The court ruled the week prior that the state is failing to fulfill its constitutional obligation to provide an adequate level of funding for public education. Some estimate the cost of fully complying with the ruling could exceed $500 million but the court did not set forth a particular dollar amount. Rather, the ruling notes that as many as 25% of Kansas pupils are not meeting math and reading standards so their education must be inadequate. The block grant system currently being used to fund schools is clearly not getting the job done. As they develop a new school finance formula, legislators may devise a strategy for targeting those at-risk students. The cost of that would not necessarily be as high as simply raising the base amount the state pays for each student.
The House K-12 Education Budget Committee has been meeting since the start of the session to devise a better school funding formula. Last week, Sen. Wagle appointed a Senate Select Committee on Education Finance to undertake the same task. It is believed she wanted to tackle the budget and taxes before taking on the school finance issue. However, since the court gave the legislature until June 30 to comply with its ruling, the Senate will apparently need to multi-task.
Both the Senate and the House are considering ways to restore funding to the state’s highway program, called T-WORKS. In recent years, the governor and legislature have repeatedly “swept” funds out of the program to pay other state bills. The Senate will consider a rise in the gas tax from $.24 to $.29. That would raise about $100 million each year. The House is looking at an 11 cent increase which would raise about $200 million annually. The idea would be that these new tax monies would be dedicated to the highway fund. In addition, last week the House Appropriations Committee gave the OK for KDOT to issue up to $400 million in bonds to raise cash for needed highway preservation projects.
Other Legislative Activities
The Chamber is closely watching legislation to:
- Expand Medicaid – passed the House, faces a tougher road in the Senate
- Streamline the process whereby cities can reclaim long-abandoned houses and put them into the hands of neighbors who will restore them – on the floor of the Senate
- Empower cities to designate certain areas where adults could carry alcoholic beverages on the sidewalk – being worked in a House committee
The Chamber’s final 2017 installment of Pie and Politics was a big success. Over 25 Chamber members attended to hear from freshman Representatives Brenda Dietrich and Virgil Weigel. Their description of a solid bi-partisan block of freshmen which has been meeting weekly to develop pragmatic solutions to the serious problems facing the state was very hopeful.
Don’t miss the Legislative Coffee at 9:00 a.m. on Saturday, April 8 at the public Library. The forum is co-sponsored by the Chamber, the Topeka & Shawnee County Public Library, the League of Women Voters, Heartland Visioning and Forge. This will be a great opportunity for members of the public to hear directly from their legislative delegation about the important issues being debated at the Statehouse.
Legislative Update – February 21, 2017
The legislature passed major tax legislation on Friday which would essentially end the March to Zero and other tax reforms initiated by Governor Brownback in 2012. On Wednesday, the House took up a package of tax reforms. The House package ends Governor Brownback’s March to Zero income taxes and, in fact, raises the rates individuals will pay. The lowest rate individuals would pay is set at 2.7%; that’s .1% higher than it was scheduled to be in 2018. For individuals with income between $30,000 and $100,000, the rate would be 5.25%, up from the current 4.6%. A new third bracket is created for those earning over $100,000; their rate would be 5.45%, up from 4.6%. The bill also allows individuals to deduct 100% of medical expenses if they itemize their deductions. The House tax plan also eliminates another signature feature of Governor Brownback’s 2012 tax reforms – the exemption for businesses organized as pass-through entities (LLCs, sub-S corporation, partnerships). All told, the bill is expected to raise roughly $590 million next year and just over $450 million the following year.
The bill passed the House preliminarily without a single legislator standing to debate its merits. That first vote was 83-39; one vote shy of the 84 votes needed to override a veto. On Thursday, the undebated tax bill came before the House for final action and, although numerous legislators rose this time to explain either their support for the bill or their adamant rejection of it, it passed by a vote of 76-48.
Across the dome, the Senate had taken up and rather ruthlessly dispatched a similar tax plan developed by Senate Democrats. The way was clear for the Senate to receive the House’s plan and take its own vote. Throughout the morning on Friday, Senators stood to deliver impassioned pleas to their colleagues. Some argued the Governor’s so-called experiment had been a failure and that the time was clearly at hand to restore balance to the state’s revenue structure. Others expressed their utter disgust with their own body’s seeming inability or unwillingness to reign in rising expenditures. They claimed a bill to raise taxes is tantamount to telling the world that Kansas is “closed for business.” At end of this very difficult discussion, 22 Senators decided to accept the House package and send it to the Governor. It takes 27 Senators to override a veto.
Now, all eyes are on the Governor. He seems most likely to veto the bill but he might also do nothing and allow it to become law without his signature. Assuming a veto, and assuming neither chamber can marshal the votes to override it, the process to develop another solution for the budget shortfall will commence again in early March after the legislators return from a short break.
Coalition of Local Chambers
On February 16, the Board of Directors of the Topeka Chamber voted to align itself wholly with the Coalition of Local Chambers, which consists of approximately 20 other local chambers of commerce from across Kansas. The Coalition supports a redesign or repeal of the LLC Exemption; preservation of important economic development programs like HPIP and PEAK; expansion of Medicaid; a fair, adequate and equitable K-12 funding formula; full funding of the T-Works highway program and no further cuts to higher education.
By aligning itself with the Coalition, the Topeka Chamber will be in the best position to participate in the debate about tax reform and advocate for a sensible redesign of the LLC exemption so that it can better achieve its stated purpose of helping small businesses grow and create jobs. Participating in the tax debate should also give the Chamber an improved opportunity to advocate for conservation of funding for various government functions which have an important impact on the community’s ability to attract and retain business and improve Kansans’ quality of life, such as high-quality public education, transportation, economic development incentives and healthcare, while at the same time driving for ever-more cost efficient government at all levels.
The Chamber testified on Monday in favor of a Senate bill which would give cities like Topeka the ability to designate certain areas where adults could carry alcoholic beverages on the sidewalk. Topeka could tout this sort of socially dynamic environment as a quality of life amenity to attract young professionals. Click here to see the Chamber’s short written testimony.
The bill which addresses blighted housing by giving cities an enhanced ability to reclaim long-abandoned homes and put them into the hands of groups who will restore them has advanced to the floor of the Senate. The Chamber supports this measure as it will give Topeka’s neighborhoods a much better chance of fighting blight and revitalizing themselves.
But Where’s the Pie?
On Monday afternoon, roughly 20 Chamber members took the opportunity to meet directly with all three of their Shawnee County Senators inside the Kansas Statehouse. Senators Anthony Hensley, Vicki Schmidt, and Laura Kelly joined the group to share their views about the recent tax debate and to field challenging questions about the best way forward. This was the Chamber’s second 2017 installment of its popular Pie and Politics series. As the event was held inside the Statehouse, neither food nor drink was allowed prompting some attendees to ask in feigned dismay, “But how can this be Pie and Politics without the pie?!” Being able to meet face to face with their elected leaders inside the state’s most magnificent building ultimately proved an ample trade-off for a slice of German apple. The final installment of Pie & Politics will be March 6 back at the Chamber Boardroom, where pie is not merely allowed, but will be encouraged. Make plans to attend!
Legislative Update – February 14, 2017
Last Thursday was supposed to be the day the Kansas Senate met in a spirit of tough but earnest compromise to finally forge a lasting solution to the toughest question they will face: how to close the looming budget shortfall.
Down! Set! Nope.
The Senate Assessment and Taxation Committee had passed out a package said to restore structural balance to the Kansas tax code. The package raises the lowest income tax rate paid by individuals from 2.6% to 3.0% and the highest rate from 4.6% to 4.9%. It also eliminates the so-called LLC exemption, the highly controversial feature of the 2012 tax package which exempts income earned by pass-through business entities from state income tax. The bill is estimated to raise about $290 million in revenue the first year and over $350 million annually after that.
At about the same time, the Senate Ways and Means Committee finished its work on the large budget cutting bill which saves roughly $343 million in state spending in large part by cutting $128 million for K-12 public education funding and just over $23 million from higher education funding. The rest of the savings comes from budget reductions to a variety of other state agencies and from delaying repayment of $90 million the state borrowed from KPERS last year.
Each of these all-important fiscal bills was cued-up for discussion on the floor of the Senate on Thursday morning. Republican leaders apparently believed they had managed the process so that enough Senators were standing at the ready to vote Yes. But no sooner had the 8:00 A.M. session been gaveled in than it was promptly adjourned so each party could huddle-up separately and double-check their numbers. Once Republican leaders figured-out they did not, in fact, have the votes to pass these tandem packages, they called the whole thing off until the following week.
The medicine which some Republicans (and presumably all the Democrats) simply could not swallow was the 5% cut in public school funding. Senate leadership attributed this apparent change of heart to a withering lobbying effort by educators but reticent senators countered that they are quite capable of thinking and speaking for themselves and they simply are not willing to take that much more money from public schools.
The same scene is set for this week but whether the wheels are any less likely to fall off this time is yet to be seen.
Meanwhile Across the Dome
The House Taxation Committee passed its own package on Thursday. The bill raises individual income tax rates and creates a third tax bracket. It also closes the LLC exemption and makes medical expenses fully deductible against income. The bill is preliminarily estimated to raise roughly $500 million and is headed for the full House for a debate which, hopefully, will not collapse before it even begins.
Other Items of Interest
On Thursday, a bill was introduced in concept in the Senate which would suspend for 3-years three of the state’s most important and impactful economic development programs: the High-Performance Incentive Program (HPIP) and Promoting Employment Across Kansas (PEAK) and STAR bonds. HPIP and PEAK have been key tools used by the Department of Commerce to help attract new and expanding employers to the state. Economic development groups across Kansas, including Go Topeka, rely on the state as a partner in the never-ending effort to draw new and higher paying jobs to the region. Suspending these programs could essentially remove the state as a resource, leaving local economic developers on their own. The Topeka Chamber will work in concert with other chambers of commerce and economic developers to strongly oppose this legislation.
The House Local Government committee held hearings on a bill which empowers cities to allow adults to carry alcoholic beverages within tightly prescribed areas immediately adjacent to buildings where the liquor was sold. Committee members seemed generally receptive but listened intently to enforcement concerns raised by the Division of Alcoholic Beverage Control, as well as questions about liability raised by bar owners. The legislature may be slowly warming to this concept, which young professionals and the young at heart consider to be thoroughly modern and long past-due in Kansas, but there is still much work to be done before a bill which satisfies various important concerns can be passed.
The House Health and Human Services Committee heard testimony from both sides of the Medicaid Expansion debate. House Bill 2064 creates the Bridge to a Healthy Kansas program. The Bridge to a Healthy Kansas would require participants to be accountable by requiring them to participate in a work referral and job training program to remain eligible for expanded Medicaid. It will be budget-neutral, as well. The cost of insuring more Kansans will be offset by new federal funding, reductions in health care spending and revenue gains that result from insuring more people. While the Affordable Care Act, as such, may be changing, most elected officials at the federal level, from President Trump through Congress, espouse the goal of insuring as many Americans as possible. However, the federal law evolves in this area, it will almost certainly continue to entail some form of federal reimbursement for those states which have taken on the additional burden of expanding their Medicaid coverage. It will be critical that Kansas expand Kancare to establish a fair baseline for federal funding, whether in the form of a block grant or otherwise. Because the Chamber supports common sense compromise on the issue of closing the Medicaid coverage gap and the Bridge to a Healthy Kansas is the right solution, the Chamber testified in favor of this program.
Legislative Update – February 7, 2017
Just over three weeks into the 2017 legislative session and there have been no major plot twists. The overarching concern of all is still the gaping difference between how much money the state is expected to bring in over the next couple of years and how much it will spend.
Another Positive Revenue Report
On a lighter note, the Department of Revenue reported that, for the third month in a row, the State of Kansas brought in just a little bit more revenue that it expected to. In January, tax receipts were almost $24 million ahead of projections. Some cite this as evidence that the Kansas economy is on the upswing. Others note the bar had already been lowered several times, so the fact the state was able to step over it proves little. Legislators gave the news a half-hearted “Huzzah,” and quickly put their heads back down to the task of finding almost 15 times that amount by June 30.
Senate Tax Bill
Senate leaders brought forth their package for reforming the state’s tax code. The Senate bill does two things. First, it raises the individual income tax rates paid by individual Kansans. (The lowest rate would go up from 2.6% to 3.0% and the highest rate would go up from 4.6% to 4.9%.) Second, it eliminates the so-called LLC Exemption. All told, the bill would raise an estimated $288 million in the year beginning July 1, 2017 and closer to $372 million the following year. This package is said to have a good deal of support amongst Republicans in the Senate and is expected to move quickly, though the Governor quickly scolded the Senators publicly for announcing a plan which he says punishes the middle class and job creators.
Arguments for and against the bill were heard in committee yesterday. These are more or less the same themes explored by more or less the same people who appeared last week before the House Taxation Committee, which has been debating the same issues, though in the form of multiple bills rather than a single package. Those favoring the bill contend the LLC Exemption and the other tax cuts passed in 2012 have not achieved job growth as promised. Opponents hold the Kansas economy and jobs picture is actually better than it would have been without the tax cuts and that most of the blame for revenue shortfalls lies in falling oil and commodities prices. They urged committee members not to risk damaging the Kansas economy by raising taxes but rather to redouble their efforts to curb spending and make the government more efficient. The tax package is expected to head to the full Senate in very short order. (In fact, just seconds before this update was sent to press, the Senate Assessment and Taxation Committee was on the verge of passing the bill and sending it to the Senate floor.)
Following hearings teeming with some Kansans worried by the prospect of strolling across campus next to a gun-toting classmate and other Kansans worried about running into that classmate without being armed to defend themselves, the Senate Federal and State Affairs Committee killed a bill which would have exempted college campuses from the requirement that they allow concealed carry as of July 1, 2017. A number of other bills in the House designed to accomplish the same thing are still being considered. So this issue is far from over.
Other Bills of Interest
The Senate Committee on Ethics, Elections and Local Government completed its hearings on a bill to streamline the process cities use to recover abandoned houses and put them into the hands of organizations which will rehabilitate them. Cities like Topeka are advocating for this change in the law and the Chamber expressed its support. Click here to read the Chamber’s testimony. The bill balances the individual rights of property owners against the rights of neighbors and municipalities trying to address the pervasive problem of blight.
The House Health and Human Services Committee will hold hearings this week on the Kancare Bridge to a Healthy Kansas program. This program could be Kansas’ response to the problem of 150,000 Kansans who make too much money to qualify for Medicaid but not enough to afford private insurance. The bill makes those individuals eligible for coverage under Kancare, the state’s Medicaid program, and takes advantage of the federal government’s obligation under the Affordable Care Act to reimburse 90% of the cost. Even though the future of the ACA is uncertain, Kancare should be expanded to ensure the State of Kansas is in the best position possible to benefit from whatever system Congress develops in lieu of Obamacare. Click here to read the Chamber’s testimony.
Legislative Update – January 31, 2017
The House Taxation Committee finished its second day of hearings on a bill which would eliminate the income tax exemption for pass-through business entities. Removing the pass-through exemption would bring in something in the neighborhood of $180 – $200 million in revenues. Opponents of the bill argued the tax exemption has helped small business in Kansas and has led to job growth. Those arguing to eliminate the exemption disputed those claims and contended job growth has actually shrunk in the years since the exemption took effect. Others conceded the time may have come to remove the exemption, but expressed concern that the House bill would take effect as of January 1, 2017. They contend this retroactive change in the tax law would be disruptive to the tens of thousands of Kansas businesses which have planned their tax year around the exemption.
An increasing number of legislators acknowledge they think the LLC exemption will be going away. It’s just a matter of handling it in the least disruptive way and of packaging this change in the tax law with a comprehensive long-term set of solutions to the state’s revenue problem.
The Senate is said to be building just such a package. Leadership in that chamber is floating a number of ideas across the Republican caucus in hopes of identifying those ideas which are least objectionable and could form the basis for a passable tax reform package.
Balancing the Budget
The House Appropriations Committee held hearings on the Governor’s plan to borrow about $317 million from the state’s idle funds. They have not yet decided they think that is a good idea; it may be among their only palatable options for obtaining the quick cash needed by June 30. Various budget subcommittees also set to work dissecting the Governor’s budget plan and collecting their own ideas as to which agency budgets can withstand further reductions between now and the end of the fiscal year. On Wednesday, the state will issue its January revenue report and that will give lawmakers a clue as to whether the $350 million shortfall projected for the end of this fiscal year is close to accurate or whether they may be looking at even deeper cuts.
A bill to finally expand the state’s Medicaid program, called Kancare, and take advantage of the federal government’s commitment under the Affordable Care Act to foot 90% of the bill will come on for hearings next week. The Topeka Chamber plans to submit testimony in favor the bill, the Kansas Bridge to a Healthy Kansas Program. Granted, the ACA is headed for major change, if not repeal, now that Republicans dominate both houses of Congress and President Trump is in the White House. Even if “Obamacare” as such is dismantled, most observers agree Congress will develop some type of program for helping states insure the underprivileged. It makes sense to get in the program now to ensure Kansas’ share of that new program is as high as possible. The Bridge to a Healthy Kansas is good for Kansans, good for Kansas’ healthcare providers and good for the state’s economy.
A good candidate for Most Dramatic Moment of the Session So Far was the hearing last week before the Senate Federal and State Affairs Committee of a bill regarding concealed carry on college campuses. The hearing room was full to overflowing last week, with more than one hundred concerned citizens pouring into the hallway outside.
Under the current Personal and Family Protection Act, public buildings cannot bar people from coming inside with concealed weapons unless the building has been set-up with security to ensure that NOBODY can come in with a gun. That law has a section which allows colleges and mental health clinics, among others, to apply for an exemption. But they can only be exempt until July 1, 2017, after which date even colleges and mental health clinics will have to allow people to bring in concealed guns. The Senate bill being considered this year takes that section about colleges and mental health clinics and deletes the line, “until July 1, 2017.” If it passes, those kinds of institutions will have an ongoing ability to exempt themselves from the Personal and Family Protection Act and bar concealed guns from their premises permanently.
Those arguing for the bill contend college campuses are meant to be learning environments. College is stressful enough without the added worry that a fellow student might be armed. Others held the decision whether to allow concealed weapons on a campus or elsewhere is a matter for local government officials, not the state to decide. Finally, the argument was made that the original Personal and Family Protection Act was passed in a time when Kansas still required individuals to obtain training and permits before they could carry a hidden gun. As that is no longer the case, simply allowing anyone who wishes to take arms and roam our campuses is antithetical to the vision of college as a safe place where young adults can be explore a multitude of new ideas and experiences.
Those opposing the bill defended gunowners’ Second Amendment rights. They also argued that guns already pervade our nation’s college campuses. Laws banning them only have the effect of preventing law-abiding students and faculty from preparing to defend themselves. They recall that the original Personal and Family Protection Act was something of a compromise. Any public building which undertook to install enough security apparatus to ensure that all guns were kept out can lawfully ban concealed guns. The compromise was that colleges and universities were given four years to secure themselves. The Senate committee will presumably work on the bill this week. It is difficult to judge whether it has enough supporters to a pass out of committee.
Legislative Update – January 24, 2017
METL: Stronger Together
On Tuesday, January 17, representatives from chambers of commerce for Manhattan, Emporia, Topeka and Lawrence gathered at the historic Dillon House for the first ever METL: Stronger Together reception. These business groups have been discussing for some time the value of working together as a region. The reception was designed to bring together the 28 state legislators who represent that region and give them a sense of the influence they could have in the legislature if they coordinated their efforts and spoke with one voice. As many as 50 business leaders and chamber executives from these communities traveled to Topeka for the event and over half of the legislators were able to slip away from the Statehouse to chat with this very engaged group about how bright our collective future could be. Stay tuned as METL charts the course for subsequent activities. Thanks to the Dillon House for providing an unequaled venue for this gathering, directly across the street from the Statehouse. Thanks also to Aboud’s and Palace Liquor for making sure the guests were well-fed and refreshed.
The Governor’s Plan
Legislators learned more this week about how Governor Brownback would like to balance the budget. They are solving two puzzles. The first is how to find the roughly $350 million the state needs to pay its bills until June 30 of this year. The second is how to construct a two-year budget that will balance from July 1, 2017 to June 30, 2019. The Governor proposes to borrow about $318 million from a state entity called the Pooled Money Investment Board, where hundreds of miscellaneous state funds are kept until the money in them needs to be spent. The state would agree to pay itself back over seven years. The average Kansan will be relieved to know members of the House Appropriations Committee seemed just as perplexed by the detailed explanation they received this week as, well, the average Kansan would have been. The state does occasionally borrow from itself as a way of managing cash flow (because bills come due throughout the year and many taxes flow in around April). The proposed 7-year mortgage against these idle funds is unprecedented, though, and it is definitely a one-shot proposition; there won’t be any way to take-out a second mortgage on those funds. Aside from confusion, some legislators also expressed disappointment that this is far from the sort of long-term structural fiscal reform their voters sent them to Topeka to enact. The state needs cash, though, and this plan would provide it. So this part of the Governor’s plan seems relatively easy to swallow.
The Governor has also suggested the state sell its right to receive close to $50 million each year from the tobacco settlement fund in exchange for roughly $500 million in cash now. Legislators have, thus far, not been receptive to this idea. Increased taxes on cigarettes and liquor are also on the table, as well as, returning passive income (like rents and royalties) to the tax rolls and cancelling a scheduled reduction in the lowest income tax rate Kansans pay from 2.7% to 2.6%. The Governor agrees that rate should stay at 2.7% for now.
While lawmakers, especially conservative ones, have very little desire to vote for tax increases, many of them appear to recognize that the state’s current budgetary shortfall may require some form of what is now euphemistically called “revenue enhancement.” If they are going to have to raise taxes, no one in the legislature, particularly House members who face their constituents again in just two years, is at all fond of the idea of voting more than once to do so. Most legislators favor a comprehensive approach; a major bill which has been very carefully put together, which solves the problem once and for all and which gathers all the painful decisions in one place where they can be dispatched with a single uncomfortable vote. (Just such a “Mega Bill” is said to be under construction as this legislative update went to press.) The problem is the state needs money now and it will take time to draw-up a comprehensive long-term solution. This tension between the need for immediate cash and the desire to really work this through and get it done right the first time creates one of the key dynamics this legislative session. The other key is still waiting restlessly across the street in the Judicial Center: the yet to be announced supreme court ruling on school finance.
Last week, the House Taxation Committee heard testimony on HB 2023, the bill which would repeal the income tax exemption for pass-through business entities. As many as fifty people came to Topeka to make their case before the committee and they represented all sides of the issue. Some were small businesses testifying the small-business tax break had enabled them to grow their businesses. Others noted that, while they appreciated the special tax treatment which has been accorded businesses like theirs, they’ve always made hiring decisions based on whether their business needed the help; not on taxes. Besides, some of them said, the amount they’ve saved in taxes has never been enough to pay for even a single new full-time employee. The Governor’s Administration, for its part, contended the pass-through exemption has fulfilled its purpose of creating news businesses and jobs in Kansas, though, some of the legislators questioned aloud whether jobs numbers could legitimately be attributed to the 2012 tax law or are really the result of localized efforts and conditions, such as the huge, some might say Legendary, growth which has taken place recently in western Wyandotte County.
While the arguments for and against continuation of the pass-through exemption followed well-trodden ground, one comment in particular was distracting in its candor. Recently-appointed Secretary of Revenue, Sam Williams, kicked-off the long hearing by admitting to material flaws in the analysis his office had done of how much revenue would flow into the state’s budget if the exemption were repealed. People in the Statehouse call these kinds of analyses “Fiscal Notes.” The Department of Revenue’s initial Fiscal Note on HB 2023 suggested the bill would raise about $178.3 million. However, Secretary Williams confessed he had just been informed the Fiscal Note has some mistakes and he expects the actual number to be higher; probably over $200 million. While that is nowhere near enough to close the budget gap, legislators understandably need to have solid facts as they assess all of their unpleasant options. Williams pledged to work over the weekend to deliver a fresh accurate Fiscal Note this week.
Legislative Update – January 17, 2017
Kansas lawmakers returned to Topeka last week and wasted no time in training their sites on one of the most controversial issues they will face: whether to close the tax exemption for pass-through business entities. On the first full day of the 2017 session, a bill which would repeal that exemption was introduced in the House Tax Committee. A hearing on the bill is scheduled for Thursday, January 19. The urgency seems to stem from two sources. First, since the bill is retroactive to January 1, tax committee members acknowledge that, if the exemption is to be repealed, it needs to be done quickly to minimize disruption for affected businesses. Some argue the exemption should be closed next January instead to give businesses time to plan for the change. Second and probably more fundamentally, many of the legislators had their ears filled during the campaign by voters demanding the so-called “LLC Loophole” be closed. Optimistic estimates are that the bill would raise roughly $200-$250 million. By June 30, 2018, the state is projected to be somewhere between $750 million and one billion dollars underwater absent substantial changes in revenue and spending. So, repealing the exemption does not represent, in itself, a solution to the state’s budget woes. It is really more a response to the perceived unfairness of the exemption. If it is done at all, the repeal needs to be handled very carefully. One missed proviso in a hastily written law could have costly unintended consequences. Suffice it to say, businesses owners and their Chambers all across the State will be watching this bill closely.
Brownback Budget Plan
Governor Brownback delivered his State of the State address on January 10, renewing his commitment to the tax plan he helped engineer in 2012 to stimulate job growth and signaling that he remains firmly opposed to expanding the state’s Medicaid program called KanCare. The following morning, the Governor’s staff briefed legislators on his budget plan for the remainder of this year and for 2018 and 2019. To close the $350 million budget shortfall this fiscal year, the Governor mainly proposes to borrow about $317 million from various state agencies’ idle funds and pay them back over the next seven years. He also plans to take money from the unclaimed property fund, complete the sale of the Kansas Bioscience Authority and cut roughly $86 million from payments to the state’s retirement system. The Governor’s budget would also hold-off on paying about $86 million to schools until July; thus pushing that expenditure into the next fiscal year.
For Fiscal Years 2018 and 2019 (i.e. starting on July 1, 2017), the Governor proposes to sell Kansas’ right to receive annual payments from the tobacco settlement fund for the next 30 years in exchange for about $530 million now. He also plans to tax passive income (for example on rents and royalties), to raise the annual filing fee for business owners from $40 to $200 and to impose a $1.00 per pack tax on cigarette sales. He would double the tax on other tobacco products and alcohol, too. The Governor would also hold the lowest Kansas income tax rate at 2.7% instead it allowing it to slip down to 2.6% as it is currently scheduled to do. To reduce government spending, the Governor plans to require all of the state’s school districts to join a single health insurance plan, among various other efforts to make state government more efficient. The budget includes shifting a total of about $580 million of motor fuels sales tax revenues over the next two years from the Kansas Department of Transportation to the state’s general fund. Brownback does propose some spending increases, importantly including restoration of the 4% cut to providers of health care to the poor. He also plans to spend $9 million over the next two years on scholarships for teachers who go to work in rural areas. Now the relevant committees in the House and the Senate will get to work dissecting the Governor’s plan and trying to build a budget with which a majority of them can agree.
Other Early Legislation
The LLC bill and the budget bill are the center of attention but of additional interest is a bill to expand KanCare which was introduced last Friday. While the Governor shows no inclination to approve such legislation, hopes are high that the issue will at least receive a hearing this session. Bills to reinstate the Kansas enterprise zone act and create a joint committee on economic development are also worth watching. A big week one.