Topeka Kansas legislators adjourned their contentious annual session Sunday with Gov. Sam Brownback’s conservative Republican allies crowing that they’ve set the state on a new and prosperous economic course with a coming wave of income tax cuts.
Critics, including Democratic and moderate Republicans, were equally certain that Kansas faces years of budget problems. They predicted the state will slash spending on schools, social services and other programs because of the aggressive tax cuts that Brownback is preparing to sign into law this week.
The income tax cuts, along with an already scheduled sales tax reduction, will provide $231 million in tax relief for the fiscal year beginning July 1, with the annual figure growing to $934 million after six years. The bill on Brownback’s desk would cut top individual income tax rates for 2013 and eliminate income taxes for the owners of 191,000 businesses.
Those tax reductions overshadowed the last piece of important business Sunday, final passage of a $14.3 billion state budget for the next fiscal year. The budget trims overall spending by 3 percent and leaves healthy cash reserves at the end of June 2013, even with the tax cuts.
“We are living in historic times, and Kansas — the world is looking at us right now,” said House Speaker Mike O’Neal, a conservative Hutchinson Republican. “Everybody’s just going to be amazed, and your constituents will be very proud of you.”
Brownback declared that Kansas will become “the best place in America to start and grow a small business.”
“The 2012 Legislative session came down to a simple question: Do we want to grow the government or grow the economy?” he said in a statement. “The resounding answer: We’re going to grow the economy.”
Though Brownback and his allies predicted Sunday that the aggressive income tax cuts will provide a jobs-creating boost to the economy, they’d been worried enough about future budgets problems to look for less aggressive alternatives, some phasing in the same cuts over six years. The effort faltered amid recriminations over whether Brownback and his allies, or moderate GOP senators and theirs, were inflexible.
The Legislature’s research staff has projected that the combination of income and sales tax cuts will spawn a budget shortfall that would balloon to nearly $2.5 billion by July 2018 if left unchecked.
“If we can’t rectify some of the issues with that when we come back next year, there will be huge problems,” said Senate President Steve Morris, a moderate Hugoton Republican who also was skeptical of even alternative proposals to phase the same cuts in over six years.
Sunday was the 99th day of the Legislature’s session — nine days longer than scheduled. The record is 107 days in 2002. The only scheduled business remaining this year is a brief, formal adjournment ceremony June 1.
Lawmakers left one big task — redrawing political boundaries to reflect population shifts over the past decade — to a federal court. A bitter feud between GOP factions, anticipating primary elections that will determine which camp controls the Senate next year, prevented passage of any redistricting proposals. The acrimony spilled over into most other big issues, including taxes.
OK for this year
The Senate approved the proposed budget on a 22-13 vote just hours after the House passed it, 80-35. The measure was a compromise drafted by negotiators for the two chambers.
The spending plan didn’t need much more tightening once lawmakers settled tax issues, because the state expects to have adequate cash reserves to cover the tax cuts and still have a $464 million surplus at the end of June 2013.
The forecast surplus for June 2013 is in sharp contrast to the projected shortfall Brownback faced when he took office early last year. And the proposed budget would boost base aid to public schools by $60 per pupil, or about 1.6 percent, offsetting a small portion of earlier reductions in aid prompted by the Great Recession.
O’Neal called it “a healthy budget.” House Majority Leader Arlen Siegfreid, a conservative Olathe Republican, said, “We found that by making bold moves, that we could change direction of Kansas.”
However, many critics of the tax cuts doubted the spending in the budget can be sustained into the future.
“This session is the beginning of devastating school cuts, social services cuts and critical government services that are not going to be able to be delivered in the same capacity,” said House Minority Leader Paul Davis, a Lawrence Democrat.
Under the tax bill, the state’s top individual income tax rate would drop to 4.9 percent from 6.45 percent for 2013. The business tax break is targeted at the owners of partnerships, sole proprietorships and other small businesses, though critics believe large companies will change their legal structures to take advantage.
The sales tax will drop to 5.7 percent from 6.3 percent in July 2013. Lawmakers promised the reduction two years ago when they boosted the rate to close a budget shortfall, before Brownback took office.