Special School Funding Committee Wraps Up Three Days of Meetings

Dec 19, 2017 by

The 2017 Special Committee on a Comprehensive Response to the School Finance Decision (hereinafter referred to as the SCCRSFD) wrapped up their third day of meetings today, ending with a presentation from Kansas Attorney General Derek Schmidt.

Schmidt spoke broadly about article VI of the Kansas Constitution and wondered generally about whether or not the Court’s interpretation of that document is congruent with the people’s. “Maybe it is; maybe it isn’t,” said Schmidt. “But maybe we should ask.” Schmidt also wondered whether “adequacy and equity” were the best way to consider what is “suitable.” In his written testimony, Schmidt said “Determining whether a law is ‘equitable’ – i.e., fair to all – is a traditional role of courts. But determining whether an amount of funding is ‘adequate’ is more traditionally a legislative function, not a judicial function.”

Most of today was consumed with constitutional studies, including a report on the history of the education article in the Kansas constitution. The 1861 Wyandotte Constitution had an education article which remained unchanged until 1966 when the legislature proposed the current language which was adopted by voters in the November 1966 general election. It has remained the same since then. But another report to the SCCRSFD noted that since the Montoy decision in 2004, the legislature had proposed 39 statutes and constitutional amendments that would stop school districts from suing or prevent the Court from issuing an enforceable remedy in a school finance lawsuit.

The Committee also looked at what the other 49 state constitutions have to say about education.

Monday was spent in a deep data dive. The Committee studied at-risk funding – how many kids are on free lunch, how many are in at-risk programs, how many are in each district, and what are the criteria used for placement in an at-risk program. They looked at special education, preschool, virtual school, and kindergarten enrollments; and they examined personnel reports.

They studied post-secondary progress, assessment scores, and graduation rates; they counted out-of-state students attending Kansas schools, and they reviewed the fees that had been charged for all-day kindergarten in some districts.

And they kept coming back to “how much?” How much money will they need to put into K-12 education to meet adequacy? If there were anything like the consensus around the room, it would probably be the belief that $600 million is the magic number. It was the only number tossed about repeatedly. Some on the committee seemed to imply that this could not be done due to a belief that it would have to be provided in one year. This was key to Rep. Larry Campbell’s (R-Olathe) repeated questions on whether or not schools could efficiently spend that much money in one year. But on the other side were legislators who promoted a phased-in approach. This was repeatedly brought up by Sen. Anthony Hensley (D-Topeka) who recounted with AG Schmidt the actions they took in 2005 and 2006 in response to the Montoy decision. Back then the Court accepted a three-year phase-in of new funding.

A big part of the funding discussion was focused on how to find $600 million. Fiscal staff presented revenue-raising ideas, showing the committee how much certain taxes would raise if the rates were raised incrementally. And representatives of other agencies (Corrections, Aging & Disability Services, Children & Families, Health & Environment, the Judiciary, and the Board of Regents) provided details on how they would absorb an 18% budget cut which would free up $600 million to be transferred to K-12.

The Committee now will forward their data and findings to the full legislature in the hope that this will jump-start the process when the 2018 session convenes on January 8.

Remember that the Court expects briefs on the solution to be filed by April 30. AG Schmidt and state’s attorney Arthur Chalmers both told the Committee that they needed a solution passed by March 1 to give enough time to prepare for the April 30 deadline. That’s a very tight timeline for a legislature used to stringing things out until the last minute!

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Talking Taxes and One Senator Wants to Block the Court

Dec 8, 2017 by

Lots to Think About Vis-a-Vis Taxes

The 2017 Joint Committee on Assessment and Taxation met for a day and a half this week to gather information that may guide the work of the 2018 Legislature as they continue to grapple with tax policy.

The Committee members are Rep. Steven Johnson, Chair (R-Assaria), Sen. Caryn Tyson, Vice-chair (R-Lousiburg), Senators Tom Holland (D-Baldwin City) and Dan Kerschen (R-Garden Plain) and Representatives Ken Corbet (R-Topeka), Tom Sawyer (D-Wichita), and Kristey Williams (R-Augusta).

They started by reviewing how tax collections have been going since the passage of SB 30, the bill rescinding the Brownback tax plan. It was noted that while things are looking better – income tax collections are trending upward as are sales tax collections – it was too early to see what the ultimate impact might be. Staff repeatedly told the committee that they would have a much better view once income taxes are filed in April.

Another issue examined was the impact of economic development incentive programs (STAR bonds, PEAK, and HPIP) and how effective Kansas is in analyzing the impact of these credits and incentives. The three eco-devo programs listed above resulted in a diversion of $121 million/year from the state general fund. A study by the Legislative Post Audit Division found that Kansas, unlike our neighbors in Oklahoma, Nebraska, Colorado, and Missouri, has no program in place for measuring the impact of such programs or ensuring that lawmakers understand and act upon the analysis of these programs. Members of the committee expressed interest in improving in this area.

The sales tax was examined for a number of issues. One is the enormous list of sales tax exemptions in state law. Many of those exemptions are required by the federal government or are there to prevent double taxation but it was noted that perhaps Kansas has been too generous in granting additional exemptions. The impact of internet sales on sales tax collections in Kansas was also studied. The US Supreme Court ruled a number of years ago that states could not impose the tax on companies that did not have a physical presence in the state. A number of states, including Kansas, have tried to persuade Congress to take action on this issue to no avail. Currently, there are efforts in other states, notably South Dakota and Massachusetts to find other ways to solve this issue. Technological advances since the initial Supreme Court ruling have made it easy for vendors to charge and remit destination based sales taxes.

The other big issue discussed was the property tax lid passed by the legislature. Under the lid, cities and counties are unable to increase property tax collections beyond the rate of inflation without a vote of the electorate. This has tied the hands of city and county commissioners as they try to deal with local needs and in particular the cost of employee health benefits. Sen. Tyson went on the offense against representatives of cities and counties alleging that they were not following the cap. A Douglas County resident had complained to her that property taxes went up by 10%.

What these legislators fail to understand is that some things are exempt under the lid (public safety) and that the lid does not apply to USD’s. Lawrence USD 497 in Douglas County, for example, passed a large bond issue and had to raise collections under their LOB based on changes in the finance formula. It makes sense that in some places property taxes would still increase overall beyond the CPI limit.

Committee staff will now prepare a report of their findings to go to the Senate and House Tax Committees as the 2018 session starts.

Senator Dennis Pyle Wants to Subvert the Court

Senator Dennis Pyle (R-Hiawatha) who is not known for supporting public education, has proposed a measure to strip the Supreme Court of any authority that would force the legislature to suitably fund public education in Kansas.

The Court, in the Gannon School Finance Decision, said they were no longer going to be party to continuing an unconstitutional system of funding. This has been widely interpreted to mean that if the legislature does not fix the school finance system such that it is both adequately and equitably financed, then the Court would prohibit distribution of funds to schools in an unconstitutional system. Schools would close until the formula was constitutional.

This threat is the only thing that will force the Legislature to move to fix the system. Without the ability to block the funding and close schools, the Legislature can feel free to ignore the Court decision.

Pyle’s proposal would be a constitutional amendment that must get a 2/3 super-majority vote in both the House and Senate and then be approved by the voters. He wants this fast-tracked so it could beat the Supreme Court’s April 30 deadline for briefs on whatever the Legislature passes this year. And if Senator Pyle remains true to form, he won’t support anything that solves the funding issue.

Click here to read the KC Star’s reporting on the Pyle proposal.

 

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School Finance and KPERS Under Discussion in the Statehouse

Dec 5, 2017 by

Rep. Blaine Finch, right, speaks during a meeting of a House-Senate committee starting work on the Legislature’s response to a court order on school funding. At left is Rep. Ed Trimmer.
CELIA LLOPIS-JEPSEN / KANSAS NEWS SERVICE

Starting to Talk About a School Finance Fix

The first meeting of the Special Committee on a Comprehensive Response to the School Finance Decision (how’s that for a committee name!) met for the first time yesterday. They will meet again for two days on December 18 and 19 in advance of the 2018 legislative session.

Committee members are Rep. Blaine Finch, Chairman (R-Ottawa), Sen. Molly Baumgardner, Vice-Chair (R-Louisburg), Senators Jim Denning (R-Overland Park), Anthony Hensley (D-Topeka), Carolyn McGinn (R-Sedgwick), and Rick Wilborn (R-McPherson) and Representatives Larry Campbell (R-Olathe), Steven Johnson (R-Assaria), Ed Trimmer (D-Winfield), Troy Waymaster (R-Bunker Hill), and Valdenia Winn (D-Kansas City). As Chairman, Finch runs a tight ship, sticking to the agenda and the timelines specified in the agenda.

Yesterday’s meeting was intended to bring everyone up to speed on the status of school finance with the passage of SB 19 (the Kansas School Equity and Enhancement Act or KSEEA) passed at the end of the 2017 session and the subsequent Supreme Court decision of October 2, 2017, in the Gannon school finance lawsuit. (Click here to see the powerpoint presentation used in the meeting.)

SB 19 created a new school finance formula that is very similar to the formula in effect prior to its repeal in favor of the Brownback block grants (the CLASS Act). It increased school funding by about $292 million. KSEEA also made several modifications to the equity provisions in the school finance law.

The Supreme Court on October 2, 2017, ruled that the KSEEA was unconstitutional both in terms of adequacy and equity. The Court noted that structurally, the bill was constitutional on adequacy but in implementation was unconstitutional. It was noted that the $292 million in new funding was an “outlier” when compared to other analyses – the Plaintiffs averaged the two cost studies done for the legislature and came up with a figure of $1.7 billion, the State Board of Education budget request was for $893 million, and the earlier 3-judge panel calculated $819 million. We should note that the original version of SB 19 as drafted by Rep. Melissa Rooker (R-Fairway) and Sen. Laura Kelly (D-Topeka) would have provided $750 million in new funding over three years.

The Court also found that four changes in the bill made funding less equitable. Specifically, they called out

  • a provision expanding the use of capital outlay funds,
  • a provision reinstating the protest petition to reach the maximum LOB,
  • a provision using the prior year’s LOB to determine equalization aid in the current year, and
  • a provision setting a 10% floor for the distribution of at-risk funds.

The Committee spent the morning reviewing all of this Court and legislative history.

In the afternoon, Finch led the committee in a discussion of what remedies might be options available to the legislature and what information the committee members would need to consider those options. Finch made it clear that nothing was off the table. Committee members should feel free to bring any ideas forward and suggesting a possible option would in no way imply an automatic endorsement of that option.

The discussion was guided by a memo from Fiscal Analyst John Hess of the Legislative Research Department (click here to read the memo). It was less about generating alternative options that it was seeking information to guide the committee. Information sought included:

  • how much of increased enrollment in our schools is due to virtual schools and students from out of state,
  • how much would need to be raised in taxes to meet the higher spending goals,
  • if new school funding was not found through revenue increases, what would across the board cuts to other programs look like, and
  • what are the implications/challenges of requiring all LOB increases to have been and continue to be subject to a protest petition?

The new data will be used in guiding discussions at the next meeting.

Challenges to KPERS Discussed in Committee

The Joint Committee on Pensions, Investments and Benefits met on Monday, November 27. On the surface, the committee’s agenda was at best perfunctory and at worse a forecast of another four or five hours listening to and digesting reports regarding Bond Proceeds and Valuation charts while sitting on wooden chairs.

But wait, there is more.

In the background of most any meeting at the Statehouse lurks the issue of school funding. Where will the legislature find the revenue to appropriately fund schools? We know some legislators have taken a stand against raising taxes to increase funding for schools and some are against complying with the Supreme Court ruling at all.  These factors leave the path to solving the school finance problem somewhat murky at best.

So, where does the legislature find additional revenue without raising taxes or cutting other vital programs?

The legislature has already used up the Bank of KDOT (the highway fund). What money could possibly be available to help solve the school finance issue? How about the bank of KPERS?

The legislature cannot legally take money from KPERS that has been deposited in the system, so that money is safe. BUT, they can reduce the funding stream to KPERS to offset money needed to fund schools appropriately. Much like robbing the armored car filled with deposits on the way to the bank, the legislature could take the money BEFORE it is deposited into the system. Appropriations to KPERS can be reduced as they have been in the past. The legislature has a history of reducing KPERS payments to fund government when revenues do not meet expectations. KPERS payments were diminished to help fund government responsibilities during the failed Brownback tax cuts.

Here is what we know from the reports submitted at the committee meeting:

  • Current KPERS retirees and actives will receive their benefits. Current earnings on KPERS accounts are equal to or greater than current payments to KPERS retirees.
  • The State/School statutory employer contribution has been below the actuarially required funding for 24 years – meaning the legislature has underfunded KPERS for 24 years.
  • The payment of the FY 2016 employer (the state) contribution reduction ($97.4 million plus promised interest) that was scheduled to be paid on June 30, 2018, was eliminated.
  • FY 2017 employer (the state) contributions were reduced by $64 million but will be repaid over 20 years starting in FY 2018. The first payment has already been made.
  • FY 2019 employer (the state) contributions are reduced by $194 million but will be repaid over 20 years starting in FY 2020.
  • The state needs to pay $623 million each year to stay even regarding their commitment to funding KPERS and not add to the underfunding of the KPERS system.

The KPERS system is currently in better shape than it has been in past years due to excellent investments and returns by the KPERS staff, the influx of bond money, and the increased contribution rates by the state and current active members.

The question posed by one of the committee members highlights the situation. “What would the legislature’s payment to KPERS be if we had paid our bill?”  Remember, it currently requires $623 million just to stay even and not put KPERS further in debt. The answer is, if the legislature had paid what was owed to KPERS, they would be making a $100 million payment each year instead of something north of $623 million.

We are already currently paying bills due for previous year’s lack of payment to KPERS. A generation is considered to be 20 years. The legislature has underfunded KPERS for the last 24 years. We are the next generation paying the bills for the last generation. We have the clear feeling that this legislature is desperate for money due to the school funding decision. If they kick the KPERS debt can further down the road, it will be our grandchildren and great-grandchildren paying the bill for the current/near future actions of the legislature. Add to that scenario the Brownback tax cuts and we can see upfront and personally the cost of those “cuts”.

Clearly, it is not appropriate for the legislature to reduce their commitment and contributions at a time when the KPERS system is just now returning to fiscal health.

 

 

 

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