Kansas lawmakers made little progress Thursday toward resolving a stalemate over tax policy, but the House tax committee got a look at some new numbers that illustrate the depths of the state's impending budget crisis.
In short, the committee was told, they will need to raise about $1.5 billion in new revenue over the next two years if they want to fund everything currently in the House's draft budget, plus fully fund payments into the state's pension system and pay for the draft school finance plan that adds $150 million each year in base per-pupil spending.
And even with that, the state would still need to sweep nearly $300 million out of the highway program each year to balance the budget. So, put another way, that brings the full budget shortfall to a little more than $2 billion over the next two years.
"It's nice to think we could get one package that addresses this," Chairman Steven Johnson of Assaria said after the meeting. "Doing the math on how we pass a package, or multiple packages, unfortunately I think we've discovered we may have a ways to go to get to whatever that looks like."
Johnson's committee met at the end of a day in which there was virtually no progress toward finding a tax package that could get enough votes to overcome an all-but-certain veto by Gov. Sam Brownback.
On Tuesday and Wednesday, both chambers abruptly called off scheduled votes on tax proposals that only added up to about $1 billion or less over the next two years. The House-Senate conference committee that produced those bills was scheduled to meet again at 10 a.m. Thursday, but that meeting was cancelled early Thursday morning, and by the end of the day it had not been rescheduled.
Instead, the full House and Senate tax committees met separately to look over budget numbers and start discussions about other tax options.
One of the biggest stumbling blocks so far has been that Democrats, along with many moderate Republicans, don't want to vote on a tax plan until they've at least settled the issue of school finance. And their votes are needed to get a two-thirds super majority in both chambers to override a governor's veto.
But GOP leaders in both chambers appear to believe that they can exert more control over spending growth if lawmakers settle the revenue question first.
The Senate tax committee spent the day working on two different tax plans. One of those would only repeal the most controversial of the tax cuts that Brownback championed in 2012, the so-called "LLC loophole" that completely exempts certain kinds of non-wage business income from state taxes.
All of the other major tax bills lawmakers have considered have packaged that together with other kinds of tax increases that will be less popular with voters, including across-the-board increases in individual income tax rates.
Sen. Caryn Tyson, R-Parker, who chairs the Senate tax panel, said leaders in the Senate have requested that bill. It is believed that a stand-alone bill repealing the LLC exemption would be hard for anyone to vote against. But it also would only generate about $230 million a year in new taxes, and separating that issue would make it much more difficult to pass other, less popular tax measures.
That same committee also worked on cobbling together another, more comprehensive tax measure. But Sen. Tom Holland of Baldwin City, the ranking Democrat on the committee, repeated the Democrats' insistence that it is still too early to vote on a tax measure.
"I strongly believe that we need to know what our school finance program is going to cost us before we do a tax plan," Holland said.
Meanwhile, Johnson said, there are other efforts taking place behind the scenes to find a consensus on tax policy.
"I think there are some other efforts that are going on, including some efforts that the governor had had in working with a plan with some of the leadership to see what pieces we can get through," he said.
Senate President Susan Wagle, a Wichita Republican, has said she intends to bring the Senate into session both Saturday and Sunday this week if there is no progress on a tax plan by then. House leaders have not said whether they plan to work through the weekend.
TOPEKA — Gov. Sam Brownback's administration expects tax revenue gains for the month of May, according to an email inadvertently sent Friday to the Lawrence Journal-World.
The email, from Chad Bettes, who is a high-ranking official in the Kansas Department of Revenue, to Sherriene Jones-Sontag, spokeswoman for Gov. Sam Brownback, even includes a prepared comment from Kansas Secretary of Revenue Nick Jordan. The actual revenue numbers were to be filled in later Friday.
Earlier Friday, Jordan urged House Republicans to break an impasse during the current overtime legislative session and approve measures that increase the sales tax but lower income tax rates. He said lowering income taxes would stimulate the economy. While higher sales taxes hit the poor hardest, he said the state spends $3.5 billion a year on safety-net programs for low-income Kansans.
Here is the email from Bettes to Jones-Sontag. The subject heading said, "Please advise of changes and/or approval":
Planning to send the numbers out between 4 and 4:30 p.m. -- State Tax Receipts Total $XX.X Million in May TOPEKA – May tax receipts exceeded estimates by $XX million, or XX percent, buoyed by one-time revenue attributed to taxpayers who accelerated income in advance of federal tax increases enacted earlier this year. Individual income receipts were $XX million more than anticipated, or XX percent, for the month. The increase over the estimate was due in part to balance due payments for 2012 income taxes, which were processed in late April and early May following the annual tax filing deadline. “It is important to be cautious when looking at these numbers because federal tax hikes proposed at the end of last year and passed in January likely influenced taxpayer behavior as people worked to ensure that income would be taxed at 2012 rates,” said Revenue Secretary Nick Jordan. “We have reaped the benefit of that at the state level in April and May, and now we expect things to return to more normal levels.”
Topeka — State tax revenue is expected to decline more over the next fiscal year than it decreased during the three years of the Great Recession, according to new state fiscal estimates.
New revenue figures show that the state will receive $5.454 billion in tax revenue for the fiscal year that starts July 1— a decrease of $745 million from the estimated $6.199 billion in revenue during the current fiscal year, which ends June 30.
During the recession, tax receipts fell to $5.191 billion in fiscal year 2010 from $5.809 billion in fiscal year 2007. That's a decline of $618 million over a three-year period.
The bulk of the $745 million reduction in receipts over the next fiscal year includes $450 million less in income tax and $270 million fewer dollars in state sales tax.
The revenue estimates are compiled by the Consensus Revenue Estimating Group, which includes the state Division of the Budget, Legislative Research Department and three consulting economists from state universities.
Last year, Gov. Sam Brownback signed into law cuts in income tax rates, including exemptions from state income taxes on non-wage income for 190,000 businesses, and eliminating tax credits for low-income Kansans.
In 2010, facing record revenue declines, the Legislature approved raising the state sales tax from to 6.3 percent from 5.3 percent, and then allowing that rate to fall back to 5.7 percent after three years.
Saying he wants to avoid cuts to higher education, Brownback is now pushing to make the 6.3 percent sales tax permanent. Democrats say the tax plan signed by Brownback has produced a fiscal crisis.
Topeka — Last week's revenue projections by state fiscal officials showed little change in Kansas' revenue forecast. But budgetary storm clouds are right over the horizon.
The new numbers highlighted that next year state revenue will drop precipitously as the income tax cuts signed into law last year by Gov. Sam Brownback kick in.
The state will receive $6.2 billion in revenue during the current fiscal year that ends June 30. For the fiscal year 2014, which starts July 1, revenue drops to $5.45 billion, a 12 percent or $750 million decrease.
Brownback has stated that income tax cuts will boost the economy.
But House Democratic Leader Paul Davis of Lawrence said the revenue figures show the income tax cuts approved by Republicans aren't working.
"It shifts the tax burden almost entirely to the middle class and requires cuts to the public services that help the middle class thrive. The Brownback tax plan isn't working, and these negative projections are further evidence that it is not going to work in the future," Davis said.
The income tax cuts will reduce revenue to the state by $450 million in fiscal year 2014, which is a 15.8 percent decrease. The state sales tax, which is scheduled to fall from 6.3 percent to 5.7 percent on July 1, will produce $270 million less than the current year, which is a 12.3 percent decrease. Brownback has proposed keeping the sales tax rate at 6.3 percent.
It's amazing how much of the political fighting in Kansas is wrapped up in one penny that most Kansans pay every day without a fuss. Of course, the penny adds up to approximately $300 million a year, and is key to state budget and tax policy.
During the Great Recession, Kansas saw historic drops in tax revenue that resulted in cuts to higher education, Medicaid and public schools.
In 2010, to avoid even deeper cuts, a slim majority of Democrats and moderate Republicans in the Legislature approved a temporary one-cent sales tax increase to shore up the state budget.
Under the plan, the state sales tax went from 5.3 cents per dollar to 6.3 cents per dollar, and on July 1, 2013, the sales tax rate would then decrease to 5.7 cents per dollar with 0.4 cents going to transportation.
The Kansas Chamber of Commerce had vehemently opposed the tax increase, and after the Legislature approved it the chamber worked hard during the campaign season to defeat those who voted for it.
When the smoke cleared after the November 2010 elections, conservative Republican Sam Brownback was elected governor by a large margin and the moderate coalition in the House was crushed.
As the 2011 legislative session started, many conservative Republicans said they wanted to repeal the increased sales tax. But Brownback didn't; the state budget was still struggling and he needed the revenue.
And the Kansas Chamber of Commerce adopted a new strategy, arguing against repeal by saying the revenue from the increase should be used to offset the loss of revenue from what it wanted: elimination of the state corporate income tax.
In 2012, Brownback called for making the increased sales tax permanent to help pay for income tax cuts. He later signed into law cuts in income tax rates, elimination of income taxes for the owners of nearly 200,000 businesses, and removal of tax credits for the poor. But nothing was done on the sales tax issue.
In 2013, the Legislature is still arguing about the temporary sales tax increase, which is scheduled to decrease in a little over two months.
Again, Brownback wants to make the 6.3 percent rate permanent, saying it is necessary to balance the budget and avoid cuts to higher education. Democrats want to protect funding for education, but say Brownback really wants to keep the sales tax higher to cover deficits created by his income tax cuts and to help pay for more income tax cuts in the future to benefit the wealthy. Meanwhile, conservatives in the House also said they want the sales tax to decrease and that the budget can be cut more. Conservatives in the Senate have gone along with Brownback's plan on the sales tax issue, saying it is key to start drawing down the income tax. In fact, many of those Senate conservatives who voted against the temporary sales increase, recently voted to make it permanent.
So, the penny has come full circle. It started as a temporary Band-Aid approved by a moderate coalition to avoid drastic budget cuts.
Now, it is being pushed by a conservative governor, who wants to make it permanent to be used for either propping up the budget that was undercut by large income tax cuts, or to pay for future income tax cuts, or both.
When the Legislature returns, the fight over one penny will be front and center again.