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Kansas Senate Committee Advances Bill Repealing Business Tax Exemption

Stephen Koranda
Kansas News Service
A Kansas Senate committee has advanced a bill that would repeal an income tax exemption for more than 300,000 business owners.

A Senate committee advanced a bill Tuesday that would repeal an income tax exemption for more than 300,000 business owners. The bill, which could go before the full Senate on Thursday, also would increase income tax rates overall.

Sen. Julia Lynn, an Olathe Republican, said she supported the measure because the Legislature needs to make some progress on tax issues.

“This is a situation that has been floundering for four years,” she said. “Although it might not be the best bill that’s put forward, it’s the beginning of a process.” 

The bill would raise almost $300 million in taxes next fiscal year, but it appears that wouldn’t be enough to eliminate a budget deficit.

Sen. Marci Francisco, a Lawrence Democrat, opposed the bill, saying legislators can’t know if it raises enough revenue because they haven’t finalized a budget yet.

“I’d rather say, ‘What do we as a Legislature believe are the appropriate expenditures? How do we raise those funds to balance that budget?’” she said.

Republican Gov. Sam Brownback already has voiced opposition to the bill, saying it would hurt “job creators” and families. He pushed for the tax cuts in 2012 and has strongly defended them.

‘Strong opposition’ to tobacco securitization

Among members of a House budget committee, the only debate Monday about selling Kansas’ share of a tobacco lawsuit was how strongly to say they oppose it.

Brownback’s proposed budget would “securitize” the state’s share of a legal settlement with large tobacco companies, which have to compensate states for the costs of smoking.

Kansas puts most of its tobacco money into the Children’s Initiatives Fund to pay for education and health programs aimed at children up to age 5. Lawmakers have periodically taken money from the fund to plug budget holes, however.

Selling bonds backed by the tobacco money would secure a large upfront payment, but Kansas would have to divert some or all of its future funds from the settlement to repay investors who purchased the bonds. That would require lawmakers to find money in the state general fund to support children’s programs — or cut them.

Legislators on the House Social Services Budget Committee took up the question of securitizing the tobacco funds Monday, but their debate largely consisted of whether they should tell other legislative committees they were “concerned,” “opposed” or “adamantly opposed” to the idea. They settled on noting “strong opposition.”

Rep. Stephanie Clayton, an Overland Park Republican and vice chairwoman of the committee, said it was important to send the message that a state budget relying on tobacco securitization won’t go far in the House.

“We’re signaling to them: Have fun with this on the floor,” she said.

Back into the red?

If other lawmakers agree with the committee members, the governor’s budget proposal may need serious modifications. It includes $265 million in one-time revenue from securitization in the fiscal year starting July 1 and another $265 million the following fiscal year.

Removing that much money without replacing it would push the state back into the red in the coming fiscal year and cut the expected ending balance roughly in half in fiscal year 2019.

Annie McKay, president and CEO of Kansas Action for Children, said securitizing the tobacco funds would leave children’s programs vulnerable to budget cuts as they compete with other priorities.

“We all know what’s happened in terms of the state’s finances,” she said.

Melika Willoughby, communications director for Brownback’s office, said in a Tuesday email that securitization actually would protect children’s programs in Kansas.

“The securitization option could help the Legislature avoid cuts to other government services while still fully funding all of the children’s programs for the next two years,” she said.

Stephen Koranda is Statehouse reporter for Kansas Public Radio, a partner in the Kansas News Service. Meg Wingerter is a reporter for KCUR’s Kansas News Service, a collaboration of KCUR, Kansas Public Radio and KMUW covering health, education and politics in Kansas.

As the Kansas News Service managing editor, I help our statewide team of reporters find the important issues and breaking news that impact people statewide. We refine our daily stories to illustrate the issues and events that affect the health, well-being and economic stability of the people of Kansas. Email me at skoranda@kcur.org.
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