April 29, 2015
By Natalie Bright, Olathe Chamber of Commerce
Legislators return today for their annual Veto Session to wrap up their business for the year. The top two priorities are to balance a budget, and close a $422 million shortfall for Fiscal Year 2016 (which begins July 1). The shortfall will be closed by either budget cuts, fees, transfers, or a tax package. Wednesday will be the 73rd day of the annual session, out of 90 scheduled. The 90th day would be May 16.
Consensus Revenue Estimates
Last week, on April 20, the Consensus Revenue Estimating Group met for the first time this year and announced significant revenue shortfalls for the upcoming fiscal year. The last time they met was in November, which was the basis for the Governor’s two-year budget. For the current fiscal year (FY 2015), the state will be $87 million less than predicted at $5.926 billion; for upcoming Fiscal Year 2016 revenue will decrease by $98.2 million at $5.713 billion and for out-year Fiscal 2017 a drop of $108 million to $5.775 billion. This means a $422 million shortfall for FY 2016.
Budget Director Shawn Sullivan said the state can make it through the last months of the current fiscal year without significant budget/tax activity, even with the projected $87.5 million shortfall. It was noted by the economists the real problem is that Kansans haven’t taken their income tax savings from the individual income tax cuts and spent it on discretionary items which generate sales tax. Sullivan said there are “positive” signs in low unemployment, but they aren’t showing up in state revenues. Many have asked what is contributing to the significant shortfalls searching to see and a recent analysis showed indicates the following are also contributing factors:
• Severance tax down $25M & expected to yield $42M less
• Sales tax revenues $30M less
• Corporate income tax receipts down $30M
• Income tax reductions equal $18M less tax revenue per month
• Passive income changes total $160M more than expected
FY 2016 Budget
How does this impact the budget? Estimators announced there is a $422 million shortfall for FY 2015. Now that the school finance bill, the K-12 block grant, is completed, the budget legislators are working on currently only includes half of the state budget, and that narrows the opportunities to cut spending. The House Appropriations Committee met last week and approved the Governor’s Budget Amendment (GBA). The GBA will likely be included in the year’s final Omnibus appropriations bill. The GBA proposed about $28 million in spending cuts for the upcoming Fiscal Year 2016 and about $46.5 million for the following year. However, there has been no budget passed, and thus there is no substantial estimate of the amount of taxes—or more spending cuts—needed to finance the upcoming years of the new two-year budget.
Taxes
House and Senate tax committees have already held hearings on most tax proposals and revenue enhancements. They will spend Veto Session determining a tax plan that balances the budget. The Governor’s administration renewed his proposed tax plans, which would boost state tax revenues by $211 million for Fiscal Year 2016 and $212 million for FY ‘17. The tax bills have not been passed by either chamber, and are going to be subject to debate.
House Tax Chair Marvin Kleeb, who chairs the committee to determine a tax plan to balance the budget, said, “We will take a balanced and thorough approach to filling the budget hole. Republicans are committed to holding schools harmless with stable funding through the K-12 education block grants. We also will continue to meet our pension and social service obligations and leave a prudent ending balance. To accomplish all of that, we are going to look at all revenue options and pursue the fairest and least harmful route that will accomplish the goals and meet the needs of the citizens of our state.” Below is a list of some of the tax increases being considered:
- Sin taxes (tobacco & alcohal)
Repeal “pass thru” income tax ($100-$160M)
- Raises sales tax 6.15% to 6.3%
- Raise tax on business income to nonresidents
- Raise tax on MCO’s (tax on already struggling Kancare providers)
- Reduce income tax deductions further
- Raise gasoline tax 5 cents (raises $530M for transportation program and allows an equal amount of general sales tax to be transferred from the transportation fund to the general fund. However, this would put Kansas fuel tax 12 cents higher than Missouri.)
It is uncertain which tax has the most support amongst legislators returning to complete the budget puzzle, however, it is likely part of the tax package will include some sort of consumption tax as revenue needs to be raised immediately. While there is a growing momentum amongst legislators to reverse or “tweek” certain provisions of the recent income tax reductions, such changes provide no relief for the 2016 budget, which begins July 1, 2015 and the Governor has stated he is not interested in repealing any provisions of his income tax plan. So, tomorrow leadership will begin the task of sorting thru which proposals garner the 63 and 21 votes needed to pass a budget and a tax plan to pay for it.
Uber bill
In other news, the Governor vetoed the bill that would put new regulations dealing with insurance and driver background checks on Internet-dispatched transportation companies. It is his first veto of the session, calling the bill premature. The Governor urged ride-sharing companies, insurers, banks and credit unions to continue to work with the Legislature on a new bill.
House Select Investigating Committee
Finally, the House Select Investigating Committee has postponed a scheduled Thursday hearing on a complaint against Rep. Valdenia Winn, who nine House Education Committee members asserted used “inflammatory language and inferences” during a March 19 committee hearing on in-state tuition for non-citizens. No new date has been set for the hearing that could, should the committee find the allegations actionable, result in reprimand, censure or expulsion of Winn by the House.
Conclusion
Expect the Veto Session to be focused on budget and tax bills. There are still a few outstanding issues, including an elections bill and unemployment insurance reform bill that will also be taken up