Stimulus bill a new headache in wake of $700 million shortfall

? Already reeling from its worst budget crisis in memory, the state of Kansas has another financial blow to absorb.

This time it comes in the form of a post-Sept. 11 economic stimulus bill approved by Congress and signed into law March 9 by President Bush.

The tab: From $120 million to $130 million in three fiscal years.

“The federal government dropped this on us at the worst possible time. This is a significant chunk of money,” said Senate President Dave Kerr, a Hutchinson Republican.

State lawmakers already are struggling to bridge a $700 million shortfall in a $4.4 billion budget for the fiscal year that starts in July.

The federal stimulus bill includes a provision called a “bonus depreciation” that allows businesses that buy equipment between Sept. 11, 2001, and Sept. 11, 2004, to deduct 30 percent of the equipment’s value immediately instead of following the former practice of depreciating the deduction gradually over several years.

Kansas, like 24 other states, automatically conforms its tax code to any changes in federal law.

Under the provision, states stand to lose $14 billion in tax revenue, according to the Center on Budget Policy and Priorities, a Washington, D.C., research group that has been critical of the tax cut.

And Kansas will lose as much as $130 million in three fiscal years, according to the center and state officials.

That loss of revenue could be avoided if the Legislature adopted a bill separating state tax law from the federal tax break. The businesses would still be able to receive a break on federal taxes, but not state taxes.

Kerr said lawmakers need to consider such legislation.

Legislation to separate state depreciation from federal depreciation has been introduced and referred to the House tax-writing committee. But Tax Committee Chairman John Edmonds, R-Great Bend, doesn’t like it.

Edmonds said the bill would be an accounting nightmare for companies trying to abide by different state and federal tax provisions, and for state tax officials having to check their work.

In addition, he said, the tax break will spur the economy and that will be in the long-term best interest for Kansas.

The National Governors Assn. has blasted the federal economic stimulus package, specifically the bonus depreciation provision.

Ray Scheppach, executive director of the governors association, said the measure “continues the assault on the states’ revenue base” and will force governors to make cuts in education, health care and transportation.

Gov. Bill Graves, who will leave office when his term expires for a Washington, D.C., job with a trucking association, has not weighed in on the issue. Graves’ spokesman Don Brown said the governor would not oppose an effort by the Legislature to separate the state tax law from the federal tax break, “but neither is he banking on it right now.”

Graves has proposed a $364 million tax increase, but most of his proposals have not been welcomed by lawmakers.