The tax committees in both House and Senate have finally started meeting this week to come up with a revenue proposal to fund the budget. Neither has produced a bill or even solid support for components of a package.
Lobbyist for business organizations opposed all attempts to raise revenue, instead saying the legislature should cut spending by eliminating inefficiencies.. Some committee members pressed hard against the lobbyist for the Kansas Chamber to identify any cuts saying, “Are there really $400 million in efficiencies?” He declined to answer.
Rep. Mark Hutton, R-Wichita supported legislation that would strike most of the original income tax exemptions granted to owners of 333,000 limited liability companies, sole proprietorships and subchapter S corporations. Hutton said there was no evidence to support the Brownback administration’s claims that this policy had promoted growth in Kansas.
In fact, he had obtained information from the Department of Revenue that 5.3 percent of businesses who claimed the exemption received $171 million in tax breaks out of the $205 million that the state lost. The remaining $33 million in lost revenue went to the other 94.7 percent of companies claiming the exemption.
This is the first really hard evidence of how much money has been redirected to wealthier taxpayers by this exemption.
On the Senate side about the only thing that got any traction was the Governor’s amnesty proposal which would raise about $30 million. The last time Kansas offered a taxpayer amnesty was in 2003 when Sebelius was Governor. It raised about $56 million. In the years that followed KDOR aggressively pursued tax collections. Unless the more recent cutbacks in revenue personnel have hampered collection efforts, this amnesty is not likely to raise even the proposed $30 million.
The Capital Journal reported, “Chairman Les Donovan, a Wichita Republican, bounced from idea to idea during the committee meeting like a driver in a demolition derby. He sought traction for nearly a dozen ideas for bringing cash into the state treasury.”
“Nobody wants to pay more taxes. Nobody,” Donovan said. “If we don’t make some progress in this direction, we’re going to be here a long, long time."
“There's no light at the end of the tunnel,” said Senate Minority Leader Anthony Hensley, D-Topeka.
The quest by the House and Senate is to cobble together a package of tax increases or spending reductions that erases a projected deficit of $420 million in the upcoming fiscal year. The gap between revenues and expenditures stands at $800 million, but action previously taken by lawmakers could address half of the shortfall.
The Senate tax committee had previously endorsed repeal of the $20,000 residential exemption from the statewide 20-mill property tax levy for public schools. That would bring in $45 million yearly to the state. In addition, the committee agreed to make changes to state motor vehicle taxation to generate $13 million each year for the state.
SCHOOL FUNDING LAWSUIT
The real news this past week occurred on yesterday and continues today when a three-judge panel heard testimony about the impact of the block grant system for funding schools which the Governor signed into law earlier this year.
This issue alone has the greatest potential to throw the legislature into a tailspin –or as some have opined, a constitutional crisis.
Numerous news reports from across the state have documented school districts’ attempts to cut or balance their budgets by closing schools early, foregoing maintenance, cutting programs. Yesterday, Cynthia Lane, superintendent for USD 500 in Kansas City testified before the judicial panel how the newly-enacted block grant funding is impeding her ability to educate the students. Funds for USD 500 will decrease by at least $2.6 million.
Deputy Commissioner Dale Dennis also testified as a witness for the state. Newspapers reported that Dennis refused to say the new law would boost funding to poor districts, although the state’s attorney had tried unsuccessfully to get him to say poor districts will receive more funds under Senate Bill 7.
The Supreme Court remanded the Gannon case back to this three-judge panel for determination as to the suitability or adequacy of school funding.
Everyone is waiting to see how the panel rules and whether they will let the block grant funding for schools stand. If that level of funding is ruled inadequate, then the Governor’s attempt to do an end run around the courts by going to block grant school funding will further pressure the legislature to raise taxes. This won’t be over until the Supreme Court rules again."
A harbinger of things to come without a school funding formula: In the K12 school block grant proposal, school districts were cut by $51 million during this 2015 school year. 10 districts so far have applied for emergency help to get through this school year. The Legislative Finance Council met to hear 8 of those requests. The 8 districts requested $1.08 million. 3 were denied any help. 5 others got help, but mostly reduced from their request. Louisburg schools got their full request, as their Representative sits on that committee and voted for full funding for them. How equitable is that?