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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What about now? And what happens next?

Oct 5, 2017 by

If SB 19 is unconstitutional, what about the new funding our schools are getting?

“Within These Walls the Balance of Justice Weighs Equal.”

You may be wondering what immediate impact Monday’s Kansas Supreme Court ruling will have on your school and district. We’ll try to clear things up as much as possible.

First, you may wonder about how this impacts the new money received under SB 19 now that SB 19 has been found to not meet constitutional requirements. There should be no significant impact on funding. The Court has not stopped the state from providing the funding specified in SB 19 and schools should continue to be funded just as they have been from the start of this school year.

There will also be no impact for this school year based on the four equity issues raised as unconstitutional by the Court. For example, if your district has already shifted some insurance payments to the capital outlay fund thereby freeing up a few dollars for other purposes, that may continue until June 30, 2018. The 10% floor for at-risk funding which has been ruled unconstitutional will also continue for this school year but not into the next. This would only impact two districts in the state so will have no effect on most of you.

If your local association and board of education are still seeking a contract settlement, the funding in SB 19 should not be holding up such a settlement – your district has the funding promised in SB 19 for this school year. But since the Court has ruled the overall level of funding to be inadequate, it is safe to assume that there will be more money in the next school year than was provided in SB 19.

Was this a unanimous decision? Was there no dissent?

This was indeed a unanimous decision on both issues of adequacy and equity, however, there were dissenting opinions on the timelines within the decision.

The Court majority has determined that the Legislature will have the 2018 regular legislative session in which to resolve the issues raised in the decision. As we reported Monday, they will not allow the Legislature to drag its feet and set specific early dates for briefs to be filed and oral arguments to be presented. The Legislature will not be able to string out the process until the very end of the session.

Justices Johnson and Rosen, while agreeing with the rulings on both adequacy and equity, dissented on the timeline preferring that the Court would require a remedy by the end of 2017. Justice Biles also agreed with the rulings on both adequacy and equity but dissented on allowing the unconstitutional equity provisions to continue until the end of the school year preferring that those issues be blocked from implementation immediately.

So, what happens next?

For right now, schools can operate “business as usual.” Nothing is being stopped or taken away; the Court specifically stayed their order until June 30, 2018.

The Court has directed the Legislators and Plaintiffs in the case to submit concurrent briefs by April 30 and response briefs by May 10. This means that the legislative remedy needs to be created, passed, and signed into law in time to meet the April 30 deadline. Oral arguments in the case are scheduled for May 22, 2018, and the Court will issue a ruling on or before June 30, 2018.

The Court justified their hard deadlines by saying,

With that regrettable history in mind, [that the K-12 system has been underfunded for many years] while we stay the issuance of today’s mandate through June 30, 2018, after that date we will not allow ourselves to be placed in the position of being complicit actors in the continuing deprivation of a constitutionally adequate and equitable education owed to hundreds of thousands of Kansas school children. Cf. Campbell County School Dist., 32 P.3d at 332-33 (cited in Gannon II, 303 Kan. at 739). See Gannon IV, 305 Kan. at 919.

They are saying, in essence, that a delay that makes rendering a new decision prior to June 30 impossible, will not be tolerated. They expect to be given time to consider the new remedy, hear arguments, and deliberate and not be put in a position like this year when the bill was finished so late, they had little choice but to let it go into effect pending the Court hearing.

We would expect that between now and the start of the 2018 legislative session, legislators on all sides of the issue will take an opportunity to attack someone for the position they’ve put themselves in. Some will berate the Court for imposing its will on the Legislature; others will go after Brownback and his legislative allies for crippling the state’s revenue stream so there was no money for schools, and some will say that this is exactly what they expected.

We hope the posturing will be finished soon (you’re probably reading all about it in your local paper now) and that cooler heads will start thinking about solutions. SB 19, in the form first drafted by Rep. Melissa Rooker (R-Fairway) and Senator Laura Kelly (D-Topeka), represented a bipartisan effort and was an excellent start that was eventually whittled down and then loaded up with inequitable policy provisions. We know there are legislators on both sides of the aisle willing to meet their constitutional obligation.

It’s going to take work and courage.   We’ve stated previously that any solution would require the Legislature to address the state’s revenue crisis and that solving the school funding problem requires sensible tax policy.  While we’ve made significant strides in the right direction, we need to understand that fixing the mess left by Governor Brownback and his allies will be a marathon and not a sprint.  Yet, the framework for a solution is there and a solution can be crafted. It will take additional revenue and it will take a desire to stay away from inequitable policies. We look forward to working with legislators to get the job done. Kansas simply cannot afford to delay any longer.

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Supreme Court Ruling Issued; SB 19 Inadequate and Inequitable

Oct 2, 2017 by

The Kansas Supreme Court issued its decision in the Gannon School Finance Lawsuit dealing a blow to the State and ruling that SB 19 is both inadequate and inequitable.

“As part of today’s ruling, it was noted that generations of Kansas students have been shortchanged.  The Court has made it clear that public education funding is no-longer to be a game of political football.”  Mark Farr, Kansas NEA President.

While the issue was initially focused on adequacy (there had been a ruling on equity last year), the Legislature made changes to several parts of the school finance formula that created additional equity problems.

On equity, the court ruled against four provisions in SB 19:

  1. Changes to capital outlay that expand the use of these funds for insurance expenditures,
  2. Changes to LOB that imposed different procedures on some school districts in accessing the maximum LOB,
  3. Changes to LOB that altered the equalization formula, and
  4. Changes to at-risk funding that provided that if a district had fewer than 10% of students on free lunch, it would receive funding as if it did have 10%.

The Court also noted that “equity” does not mean “equal.” The Court said,

As our test for measuring equity under Article 6, “School districts must have reasonably equal access to substantially similar educational opportunity through similar tax effort.” Gannon I, 298 Kan. at 1175. This test does not require that wealth-based disparities between districts be measured under a zero-tolerance test or other mathematically precise standard because “equity [is] not necessarily the equivalent of equality.” Gannon II, 303 Kan. at 710; see Gannon I, 298 Kan. at 1180, 1188. Instead, “[t]o violate Article 6, the disparities . . . must be unreasonable when measured by our test.” 298 Kan. at 1180.

On adequacy the Court ruled that the overall funding in the bill was indeed inadequate. The bill provided for a base state aid amount of $4006 in 2017-18, $4128 in 2018-19, and an inflation adjustment in the out-years. The Court declined to give a dollar amount that would meet constitutional muster but did indicate that the base amount provided by the state without creating more reliance on local levies was what was important.

The Court has given the Legislature a strict timeline for devising a remedy.

The ruling does not require a special legislative session (although it would be allowed). Instead, the ruling sets this timeline:

No later than April 30, 2018, the parties’ concurrent briefs addressing any legislative remedies of constitutional infirmities will be due in this court. Response briefs will be due May 10, and oral arguments will be conducted on May 22 at 9 a.m. The court’s decision will be communicated by June 30. Exceptions to this schedule will be made to accelerate the deadlines as needed in order to consider earlier remedial legislation—created by special session or otherwise.

In other words, the State has time to work but they won’t be permitted to drag things out.

In an interesting twist, the Court also suggested that the State could help itself by “showing its work.”

The State would help its case by “showing its work.” Gannon II, 303 Kan. at 743. This exercise involves considerably more than what it presented to this court in the instant appeal and in Gannon III. See 304 Kan. at 515. The State should identify other remedies that the legislature considered but, more important to meeting its burden, explain why it made its particular choice for reaching the constitutional standards for adequacy and equity.

“Educators have been calling for the Kansas Legislature to fully fund public schools according to the state constitution.  Taking a bi-partisan approach to tax policy and school funding is the only way to achieve full constitutional funding for the future.” Mark Farr, Kansas NEA President.

READ THE FULL DECISION HERE

 

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Kansas and the DACA Reversal

Sep 13, 2017 by

President Donald Trump with Kansas’ Kris Kobach

First, as a refresher course, what is DACA?

DACA stands for “Deferred Action for Child Arrivals” and is intended to benefit children who came to the United States as children in the company of their parents who are undocumented immigrants. These children are usually referred to as “Dreamers” because of legislation known as “The Dream Act” that would allow them to attend colleges without fear of deportation.

Those who qualify under DACA are allowed work and/or study in the United States without fear of deportation. To be considered the applicant must meet all of the following requirements:

  1. Were under the age of 31 as of June 15, 2012;
  2. Came to the United States before reaching your 16th birthday;
  3. Have continuously resided in the United States since June 15, 2007, up to the present time;
  4. Were physically present in the United States on June 15, 2012, and at the time of making your request for consideration of deferred action with USCIS;
  5. Had no lawful status on June 15, 2012;
  6. Are currently in school, have graduated or obtained a certificate of completion from high school, have obtained a general education development (GED) certificate, or are an honorably discharged veteran of the Coast Guard or Armed Forces of the United States; and
  7. Have not been convicted of a felony, significant misdemeanor, or three or more other misdemeanors, and do not otherwise pose a threat to national security or public safety.

The intent is to protect children who were brought to this country illegally by their parents. For many of these children, the United States is the only country they know. DACA does not protect their parents.

With the inability of Congress to agree on the Dream Act, DACA was enacted under an executive order by President Obama.

President Trump has rescinded Obama’s executive order with a delay of six months ostensibly to give Congress time to work out a statutory solution to this issue. Should Congress fail to act, all current DACA beneficiaries would be subject to deportation – and making matters more frightening for them, the federal government holds a lot of identifying data on these young men and women due to the data collected in the application process.

Where is the Kansas Congressional Delegation on DACA?

While Governor Brownback was a supporter of the Dream Act while serving as a United States Senator, the same cannot be said of the current Kansas Congressional Delegation.

Our members of Congress can be quoted from their own press statements.

Congresswoman Lynn Jenkins (R-KS CD 2), who is not running for re-election, said, “In the coming weeks, I look forward to working with my colleagues to create a permanent solution through the legislative process with input from Kansans in the 2nd District.” Unfortunately, Jenkins was vague on what a solution might be.

Congressman Kevin Yoder (R-KS CD 3) parroted the remarks of U.S. Attorney General Jeff Sessions when he said DACA “has served as a magnet, bringing tens of thousands of new immigrants, exacerbating our illegal immigration challenges, and creating a humanitarian crisis at the border.” Nothing could be further from the truth. No one enters the United States illegally because they might get their children enrolled in the DACA program.

Congressman Ron Estes (R-KS CD 4) praised Trump’s action and said “This decision gives Congress time to fix our broken immigration system. Congress can do this by securing our borders, reviewing our immigration process, and not providing amnesty to those who disregard our nation’s laws.” DACA beneficiaries, contrary to Congressman Estes’ assertion, were brought to this country by their parents and must prove in the DACA application process that they have not broken any of our nation’s laws.

Only Congressman Roger Marshall (R-KS CD 1) indicated in his press release that it was important to protect these young people. Marshall said, “Our resources, especially as they pertain to deportation, must remain focused on getting rid of bad people who present a danger to the American citizen – not a young person who is here simply due to circumstance. To date, 787,000 young people have legally registered with the U.S. government and have shown their willingness to follow our laws. We cannot allow that information to now be used against them in reverse order.”

Senator Pat Roberts (R-KS) issued a brief statement in support of the Trump’s decision and calling on Congress to act. We cannot find any statement on the issue from Senator Jerry Moran (R-KS).

As one would expect, Kansas Secretary of State Kris Kobach (a candidate for the Republican nomination for Governor), applauded the decision and called on Congress not to act and instead move to deport all of the Dreamers. He said on “Fox and Friends” that he supported repealing DACA, and that he opposes replacing it with a congressionally enacted plan.”It’s a tough job market and those in Congress who are saying, ‘Mr. President, don’t get rid of this DACA amnesty,’ should remember, our young U.S. citizens are having a really tough time,” Kobach said. “Why would you want to give an amnesty to 1.7 million young illegal aliens to compete against them?” The evidence shows that DACA recipients are not taking jobs from citizens and actually contribute enormously to the economy of the nation.

For more information on this issue, we would suggest you read the following articles:

CNN has provided a comprehensive Q&A on DACA: http://www.cnn.com/2017/09/04/politics/daca-dreamers-immigration-program/index.html

The Washington Post addresses five myths about DACA: https://www.washingtonpost.com/outlook/five-myths/five-myths-about-daca/2017/09/07/e444675a-930c-11e7-8754-d478688d23b4_story.html?utm_term=.f417090e4571

Newsweek provides 15 points on DACA statistics: http://www.newsweek.com/dreamers-daca-statistics-trump-deadline-657201

The National Education Association statement on DACA: http://neatoday.org/2017/09/05/daca-nea-response/?_ga=2.147709247.967952866.1504886469-21933477.1504886469

The National PTA statement on DACA: https://www.pta.org/newsevents/newsdetail.cfm?ItemNumber=5363

The National School Boards Association statement on DACA: https://www.nsba.org/newsroom/nsba-statement-trump-administration%E2%80%99s-decision-rescind-deferred-action-childhood-arrivals

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