Republican leaders in the Kansas Senate are forging ahead with plans to plow millions into tax relief that would largely benefit big business. Some Democrats and more moderate Republicans suspect it’s also a strategy to deprive the governor of the money to fund her priorities.
Carving out chunks of the state savings account now could send lawmakers scrambling to fund schools and other services with the cash that’s left when they’re knitting up the budget later this spring.
“When we get to the end of session, then we are stuck,” Democratic Rep. Cindy Holscher said.
Republicans say there’s urgency to tackling tax relief, and that the state can afford it.
The year started with a financial picture rosier than many forecasts in recent memory. After lawmakers in 2017 reversed the tax cuts then Gov. Sam Brownback had pushed for in 2012, Kansas has seen tax collections rebound. A revenue estimate from November showed the state would have $900 million in the bank at the end of the current fiscal year.
But, a bad monthly revenue report for January prompted Gov. Laura Kelly to reiterate her feeling that the state needs to be picky about what it spends money on.
“We must make wise, financial prudent choices to ensure the future is bright for our children,” Kelly said in a statement.
The governor said she favors investments in schools, roads, and fixing what she points to as the “damage done” during the Brownback years.
The Senate on Thursday approved a tax relief bill that the state department of revenue estimates would cost more than $400 million over three years. That includes around $190 million this year, cutting into that projected ending balance.
Democrats in the Senate, who all voted against the bill, said the state can’t give up the revenue while staring down a Kansas Supreme Court order to adequately fund schools.
“We can’t afford this unless we do something drastic to our budget,” Democratic Sen. Tom Holland said as a committee worked on the bill before it went to the full chamber. “We have to fund our schools.”
Sen. John Skubal was one of two Republicans who joined the Democrats in voting “no.” He criticized the bill for focusing too much on corporations.
“They have had tax breaks long enough,” Skubal said after the vote. “I think we need more money right now to take care of the core functions of government.”
Republican Senate President Susan Wagle said lawmakers don’t have to choose between tax relief and funding schools.
She calls the money in question a “windfall” — an unexpected boon to the state resulting from changes to the federal tax code.
“If we don’t pass this bill,” Wagle said during committee work on the plan, “Kansas individuals, families and businesses will all have a tax increase this year.
If lawmakers do nothing, the federal tax cuts passed in 2017 could result in some corporations owing more state taxes on foreign income and some individual Kansans would owe more because they would no longer be able to take itemized deductions.
Wagle said concerns about the cost of acting to let Kansas taxpayers keep that money may be overblown because staff aren’t fully confident in their estimate of the fiscal impact.
“It’s a shot in the dark,” she said.
The Senate president and other Republicans argue too that not providing the tax relief could be detrimental to Kansas if it prompts large companies to leave the state.
“Then we’re going to lose a bunch of jobs,” Sen. Julia Lynn said. “That’s my issue, pure and simple.”
Some lawmakers expect Kelly would veto the bill should it pass the House and make it to her desk. The governor has voiced strong opposition.
“I can’t imagine why anybody who was here in 2012 and lived through the Brownback tax cuts and the experiment would even consider voting for that bill,” Kelly told reporters. “It is a redo.”
At the same time Republicans are pursuing tax relief, they’re also showing little interest in a Kelly’s idea to give the state more spending flexibility.
The governor has proposed refinancing the debt of the Kansas Public Employees Retirement System. Her proposal would stretch out the payoff schedule. That would lower the annual payments and free up money for other priorities, such as education or expanding health coverage through the state’s Medicaid program.
But ultimately it would add billions of dollars to the state’s pension liabilities.
“This whole budget is built on a house of cards,” Republican Senate Majority Leader Jim Denning said of the proposal last month.
Since then, opinions from Republican leaders haven’t improved. The chairman of the House pension committee, Steven Johnson, believes the plan is likely dead in the water for this session.
Democrats agreed to spend $115 million to make up for a missed payment to KPERS. That legislation, passed with a unanimous vote in the Senate, is heading to the House.
The governor said Kansas can afford that payment now, but insists the state has to refinance its pension debt to keep the payoff schedule manageable in the long term.
“It really is a fiscally sound thing to do,” Kelly said.
Stephen Koranda is Statehouse reporter for the Kansas News Service, a collaboration of KCUR, Kansas Public Radio, KMUW and High Plains Public Radio covering health, education and politics. Follow him on Twitter @kprkoranda.
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