photo by: Evert Nelson/The Topeka Capital-Journal via AP

Gov. Laura Kelly speaks after taking the oath of office during the inauguration Monday afternoon, Jan. 9, 2023, at the Statehouse in Topeka.

TOPEKA — Gov. Laura Kelly’s new budget presented to legislators Thursday would end the state sales tax on groceries in April, provide a 5% raise to qualified state workers and expand eligibility for Medicaid while adding $500 million to the state’s rainy-day fund.

Adam Proffitt, the governor’s budget director, told House and Senate appropriations committee members Kelly’s objective was to craft a budget that had revenues exceeding expenditures in anticipation the economy faltered in the next couple years. The plan recommended by the governor would increase spending 3.2% over the budget adopted by lawmakers in 2022 — less than half the inflation rate.

Kelly’s bout with COVID-19 led to postponement Wednesday of her State of the State address, which would have set forth fundamental parts of her budget. Instead, legislators got their first look at budget recommendations during the joint House and Senate budget committee meeting.

“My budget reflects my plan to responsibly cut taxes, continue growing our economy, fully fund education and strengthen our infrastructure and workforce,” Kelly said. “We’re building a better Kansas for working families and retirees — all while maintaining a balanced budget.”

Kelly proposed terminating the state’s food sales tax April 1 rather than continue a three-year phase down that would zero out the 4% sales tax on groceries in January 2025. Thirty-seven percent of Kansans live in a county bordering a state with a lower grocery sales tax than Kansas. Colorado and Nebraska are at zero, while Missouri sits at 1.2% and Oklahoma at 4.5%

In addition, the governor would exclude diapers and feminine hygiene products from the state’s general sales tax of 6.5%. She would establish a four-day back-to-school sales tax holiday the first weekend of August, starting in 2023, that could save families and teachers $5.5 million annually.

The governor proposed raising the state income tax exemption on Social Security benefits to $100,000, an bump from the current $75,000. If added to state law, the proposal would save retirees about $20 million annually.

Kelly said the state’s nearly $2 billion revenue surplus allowed for one-time expenditures that included increasing by $500 million the state’s budget stabilization fund. In 2022, the Legislature and Kelly agreed to deposit $1 billion in that account. She also proposed adoption of guard rails that would limit the annual maximum withdrawal and the specific purpose of withdrawals from the fund.

She proposed setting aside $220 million to meet state and local government matching-fund requires to secure federal money for infrastructure projects. She also recommended the state pay off early $53 million in debt owned on Milford and Perry reservoirs, which would save $10 million in interest payments through 2041.

As expected Medicaid expansion remained on the governor’s agenda despite fervent opposition from House Speaker Dan Hawkins and Senate President Ty Masterson, both Wichita Republicans. Kansas is among 11 states that haven’t broadened eligibility for health services through Medicaid. The states of Missouri, Oklahoma, Colorado and Nebraska previously approved expansion.

She estimated Kansas would receive $370 million to $450 million from the federal government in the initial two years after expansion of Medicaid.

Kelly would set aside funding for 5% salary raises for state employees, excluding the legislative and judicial branches. She proposed state law be amended to provide agencies flexibility to award bonuses for hiring and retaining employees. In addition, she proposed a workforce analysis of compensation to determine how far Kansas had fallen behind the private sector.

The governor’s budget would add $5 million to elevate placement rates for foster homes, launch a five-year plan to bring state spending on K-12 special education programs in line with state law and recommended $107 million in new funding for higher education statewide. Her budget featured $20 million to expand college student financial aid, $21 million to mitigate the impact of inflation on colleges and universities, and $20 million to continue a program targeting deferred building maintenance on higher education campuses.

Kansas lawmakers placed $20 million last year into a revolving loan program to incentivize construction of housing in rural parts of the state. Kelly’s budget would add $20 million to the fund while expanding eligibility to the entire state.

— Tim Carpenter is a reporter with the Kansas Reflector.