TOPEKA — Republican Gov. Sam Brownback surprised some fellow conservatives Wednesday by reviving a failed proposal to eliminate Kansas’ popular deduction for interest paid on home mortgages to help close a budget shortfall while further reducing state income tax rates.
The governor had promised legislators that the state could keep moving toward eliminating income taxes while preserving aid to public schools and spending on core government services. He outlined budget proposals for the two years beginning in July to meet those goals while closing the budget gap caused by last year’s aggressive income tax cuts. His proposals also would leave the state with healthy cash reserves at the end of June 2015.
Brownback disclosed in his State of the State address Tuesday evening that he wants to keep the state’s sales tax at its current rate, instead of letting it drop in July, as called for by law. But he didn’t say in his speech that he would resurrect the proposal to eliminate the mortgage interest deduction, a move lawmakers rejected last year.
The governor also disclosed Wednesday that he’s proposing to phase in the next round of income tax cuts over three years, waiting until 2017 to drop the top rate from its current 4.9 percent to 3.5 percent.
His proposals would raise an additional $541 million in new revenues for the fiscal year that begins in July, more than enough to cover the projected $267 million gap between anticipated revenues and existing spending commitments for the same period. His plans also would allow a slight boost in the state’s per-pupil aid for its public schools, although it would still be far short of what a three-judge panel ordered in a ruling last week.
“What the governor presented was a very balanced budget,” Steve Anderson, Brownback’s budget director, said during a briefing for reporters. “I would be surprised if the Legislature ends up very far away from us.”
But Brownback already was likely to face criticism from Democrats and more liberal Republicans who want the state to ramp up spending on public schools more aggressively now that Kansas’ economy is emerging from the Great Recession.
In the ruling last week in Shawnee County, the three-judge panel sided with school districts and parents who say the state isn’t spending enough money to meet its responsibility under the state constitution to provide a suitable education for every child. The judges ordered the state to restore its base aid to its 2008 level of $4,492 per pupil.
The current figure is $3,838 per student. Brownback proposes to keep it constant for the next fiscal year and increase it by $14 per student the following fiscal year, to $3,852. He’s seeking to phase in a $76 million increase in overall aid to schools, but the court ordered the state to increase spending by at least $440 million next year.
“I don’t think they have any intent of responding to the court’s direction in terms of the level of funding,” said Rep. Nile Dillmore, a Wichita Democrat who serves on the House Appropriations Committee.
Brownback’s proposals would moderately increase overall spending next fiscal year before dropping it back to its current level of $14.4 billion in the second. Flat spending after two years wouldn’t keep up with inflation and could force agencies to tighten their belts; Brownback also is not proposing across-the-board pay raises for state workers.
But some conservatives want to aggressively shrink state government while Republicans have supermajorities in both chambers. While they wouldn’t openly criticize Brownback, they were wary of his proposals.
Senate Ways and Means Committee Chairman Ty Masterson, a conservative Andover Republican, said the governor produced solid budget proposals but he saw potential for “some heartburn” over taxes.
Lawmakers raised the sales tax to 6.3 percent in 2010 at the urging of Brownback’s Democratic predecessor to close a previous budget shortfall but promised in state law that the tax would drop to 5.7 percent in July. Last year, Brownback proposed keeping the tax at 6.3 percent and eliminating the mortgage interest deduction to lessen the budget effects of tax cuts he wanted, but lawmakers rejected those offsets — and he ultimately signed deeper overall reductions than he had sought.
“The mortgage deduction is a revelation,” said freshman Sen. Michael O’Donnell, a conservative Wichita Republican who serves on the budget committee. “Obviously, extending the sales tax is a huge issue.”