Busy 3rd Week in TopekaJanuary 29, 2017
Weekly Update from the Third Week.January 29, 2017
Kansas House of Representatives
January 9 – January 13
The 2017 Kansas Legislative Session began on Monday, January 9 with the swearing in of all members. More than a third of the Kansas House will be new this year, as we welcomed an incoming class of 46 new members. Five of that group, however, have previous experience as House members and are now returning. The majority party Republicans number eighty-five and are joined by forty Democrats.
The legislature is scheduled to reach first adjournment on April 7. Veto session will convene on May 1, and the theoretical 90th day end of the session will come on Mother’s Day, May 14. Although many pundits are predicting a long and contentious legislative session which could stretch well into June, the House got out of the gates rapidly this week and passed its first piece of legislation on day four of the session. That is nearly unprecedented, and is evidence of the resolve on the part of both leadership and members to get about our business quickly and responsibly.
Governor’s State of the State Address
Governor Brownback delivered the annual State of the State address on Tuesday afternoon in the House Chambers. The governor reiterated his belief in the effectiveness of the income tax break given to small businesses in 2012. He voiced continued opposition to Medicaid expansion, especially in light of current federal efforts to repeal Obamacare.
The speech introduced some intriguing proposals, including a new dental school at the University of Kansas Medical Center, locating a private school of osteopathic medicine in Kansas, and challenging Kansas universities to offer a four-year degree for a total tuition cost of $15,000. While each proposal would bring great benefit to the people of Kansas, few details were provided, leaving some to wonder how realistic the proposals might be.
Governor’s Budget Report
On Wednesday Shawn Sullivan, Director of the Budget, released the governor’s budget report.
It contained proposals to close the projected $340 million shortfall for fiscal year 2017 (ending on June 30) as well as proposals to deal with a $580 million projected shortfall in fiscal year 2018.
FY 2017 (ending June 30):
· Liquidate long-term investment fund designed to offset the unclaimed property fund. Direct transfer of $45 million in interest earnings to State General Fund (SGF), then transfer the principal of $317 million to SGF and repay over seven years.
· Reduce payments into KPERS by $86 million.
FY 2018 and 2019:
· Securitize (sell off) the revenue stream from the tobacco master settlement in order to receive upfront payments of $265 million in both FY 2018 and 2019.
· Continue reduced payments to KPERS at the 2016 rate rather than staying the course as statutorily required. This generates SGF savings of $140 million in 2018 and $199 million in 2019 but extends the reamortization of KPERS by ten years and therefore extends the timeline before KPERS is fully funded.
· Continue to divert all sales tax revenue from KDOT to SGF. Produces $288 million for the SGF in 2018 and $293 million in 2019.
· Budget for efficiencies in K-12 school operation totaling $47 million in 2018 and $89 million in 2019. This is based upon recommendations contained in the efficiency study commissioned by the legislature in 2015. Legislative committees have already begun consideration of this proposal in order to determine if the proposals are feasible and whether the projected savings are attainable.
Governor’s Tax Proposal:
· Exclude rents and royalties from the business income tax exemption granted to small business entities in 2012.
· Freeze the bottom income tax rate at 2.7%
· Increase annual report filing fee for businesses from $40 to $200
· Increase tax on cigarettes $1 per pack
· Increase tax on other tobacco products from 10% to 20%
· Increase liquor enforcement tax from 8% to 16%
Cumulatively, these proposals would produce $179 million in 2018 and $199 million in 2019
The solutions the governor proposes have been characterized as very unpalatable by many observers. But more than anything that is a reflection of the dire fiscal circumstances the state currently faces. There is room for disagreement over how we got to this point and why. However, there is no controversy over the stark fact that the state is now broke, and that the practice of cobbling together annual budgets with unreliable and one-time funding sources cannot continue.
In the short run, our list of potential solutions is short and it will be a process of ranking a variety of undesirable options in order to find the best possible approach. Whatever the legislature settles on for a solution, it too is likely to be quite unpalatable. Longer term, the people of Kansas are asking for and deserve a long-term structural solution to the current fiscal imbalance. Finding that solution will require resolve, persistence, and cooperation on the part of all legislators.
First Bill of the Year Passes the House
On Thursday the House considered and passed an elections bill brought to the body by the Elections Committee and its Chairman Keith Esau. With the likely confirmation of 4th District Congressman Mike Pompeo as the new Director of the CIA, a special election will be necessary to pick his replacement in Congress. Inconsistencies in Kansas election law raise the prospect that the election results could later be challenged. The bill passed yesterday removes those inconsistencies and will allow for an orderly selection of Pompeo’s replacement. It is expected the bill will be quickly approved by the Senate and with the Governor’s signature the new law will be in place before the resignation of Congressman Pompeo.