Senate committee forwards two tax proposals

Two tax increase measures on Tuesday were forwarded to the full Senate for consideration.

Senate Bill 147 would increase state income tax rates and repeal the so-called LLC loophole. As amended, the measure would raise approximately $288 million the first year and $372 million the year after that.

Senate Bill 97 is a bill that deals with vehicle cash rebates but was drastically amended to set a flat income tax rate of 3.9 percent while lowering the state sales tax on food to 5.5 percent. It would also eliminate the tax exemption for certain business owners on pass-through income and it would allow a deduction for medical expenses. Preliminary estimates indicate the income tax changes would raise approximately $270 million per year, but the medical deduction and reduction in food sales tax could reduce net revenue to about $200 million per year.

The bill would also provide an automatic reduction in the state food sales tax in future years when state tax growth exceeds 1 percent. Current law contains a similar provision that automatically cuts income tax rates if state revenue exceeds certain targets.

Senate Assessment and Taxation Committee Chair Caryn Tyson, R-Parker, described SB 147 as the Senate leadership plan and SB 97 as an option. Consideration of the measures by the full Senate could occur this week.

The proposals have been floated as a way for the Legislature to address a $325 million revenue shortfall in the current fiscal year and a nearly $600 million shortfall in the next fiscal year, which starts July 1.

Republicans on the panel said the bills represented the start of discussions on fixing the state’s budget problems, while Democrats said the measures didn’t go far enough in raising the revenue necessary to structurally fix the budget.

The measures also represented a reversal of significant portion of Gov. Sam Brownback’s tax cuts of 2012, which many blame for the continual budget problems. After a hearing Monday on SB 147, Brownback issued a statement criticizing the proposal. KASB testified in favor of SB 147, saying it represented a positive step in trying to avoid harmful cuts to schools.

Possible Mid-year Cuts to Schools Again: A KASB Blog

Senate committee recommends 5 percent school aid cut as starting point

School districts would lose 5 percent of general state aid in this year's block grants under a bill advanced today by the Senate Ways and Means Committee.

As amended by the committee, SB 27 would cut school district aid by $127.9 million. The bill would also create a $15 million new fund to replace the extraordinary needs fund, and could help districts that do not have enough money in cash reserves to absorb the 5 percent reduction.

The amended budget plan reduces higher education by 3 percent, or 22.9 million, and other state agencies by zero to 2.5 percent, reducing state spending by about $3 million.

In addition, the bill would reduce KPERS payments this year by $90 million, but require repayment over the next 10 years.

The committee also amended and recommended SB 115, the Governor's proposal to borrow from state idle funds under the Pooled Money Investment Board, but reduced the amount borrowed from $317 million recommended by the Governor to $100 million.

Essentially, the $153.9 million in spending cuts offset the reduced borrowing of idle funds. The Governor did not propose major spending cuts in his budget.

Several committee members stressed this was a preliminary "starting point," and the level of cuts and borrowing were likely to be adjusted. Republican Carolyn McGinn, Rick Billinger, Larry Alley, Ed Berger, Jim Denning, John Doll, Dan Goddard, Dan Kerschen and John Skubal supported the bill. Democrats Tom Hawk, Anthony Hensley, and Laura Kelly, and Republican Vicky Schmidt vote against the bill.

Some legislators appear to believe that school districts can absorb cuts in the current year by using cash reserves. Reports from the Legislative Research Department suggested that most districts have more cash in contingency reserves and other "flexible" funds than the proposed level of reductions.

A spreadsheet on the impact of 5 percent can be found here. The reduction does not apply to cost-of-living, declining enrollment, ancillary weighting or KPERS contributions. General state aid does not include special education aid, local option budget aid, capital outlay aid or bond and interest aid.

SB 27 does not make appropriations for the next two years, and the Senate Ways and Means Committee has not made recommendations for future school funding levels. The Governor's budget did not reduce general state aid in the current year, but proposed reducing aid next year by $47 million and the following year by $97 million based on suggested savings through a consolidated school district insurance program and joint school district purchasing in certain areas through the State Department of Administration.