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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Supreme Court: Schools May Open Under New Finance Bill

Jun 20, 2017 by

http://www.workingjournalistpress.com/articles/170302/Gannon-Case-Supreme-Court-opinion-released.php

The Kansas Supreme Court yesterday announced that Kansas public schools will be allowed to open under the finance plan passed by the Legislature in Senate Bill 19. This is not, however, to mean that they believe the new formula to be adequate or constitutional. That decision will be made later.

In making the announcement, the Court set July 18 as the hearing day for the new formula. The State will argue that SB 19 fully complies with the Gannon decision, while the plaintiffs will argue that it is inadequate in funding and contains a number of provisions that jeopardize equity. After hearing arguments from both sides, the Court will deliberate before making a ruling on the issues at hand. While the Court has said they will expedite this case, there is no telling how long their deliberations might take before a decision is reached.

Obviously, this means that there will not be a July special legislative session. If the Court rules against the State, there is still the possibility of a fall special session or the Legislature could be given the 2018 regular legislative session to address any shortcomings.

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Brownback Signs School Finance Bill

Jun 16, 2017 by

Governor Brownback took his time about it, but yesterday he finally signed SB 19, the new school finance proposal passed by the House and Senate.

Of course, in his signing statement, he had to take the opportunity to complain about the Legislature’s work product saying, “The Legislature missed an opportunity to substantially improve the K-12 funding system.” We suppose he still preferred his unconstitutional block grant system that froze funding thereby helping to pay for his tax cuts for the wealthiest Kansans.

But if Brownback won’t, we will give the Legislature credit for listening, debating, sometimes arguing and eventually coming to a consensus about this new proposed formula. House K-12 Budget Committee Chairman Larry Campbell (R-Olathe) spent the entire session with his committee researching, hearing testimony, studying data and coming to the conclusion that the “old” formula was not terribly flawed and simply needed some adjustments. The House bill was then the framework that Senate Select Committee on School Finance Chairman Jim Denning used with his committee members to guide their work.

Whether this plan fully complies with the Supreme Court order or not, we have to give kudos to the legislators of both chambers who spent the time to do this work and do it conscientiously. The Governor is flat out wrong in his assessment of this as a “missed opportunity.”

We believe that when the Supreme Court is done with their review, they will find the finance formula in SB 19 by and large to be constitutional. There are a couple of issues in the bill that might give them concern- particularly around equalization- but the bill does target funding to the students who need the most help and does so in a rational manner.

We also believe that the Supreme Court will likely rule that the funding is not adequate – particularly after the first year.

Remember when we say this that the only people who get to decide are the members of the Court! We can only speculate.


What might the Court do?

The Court could simply rule that SB 19 does not adequately address Gannon and send the Legislature back to the drawing board in a special session.

Another possibility is that the Court approves the formula, perhaps putting a stay on one or two items as “disequalizing,” but call the funding inadequate and send the Legislature back to work in a special session.

A third possibility is that the Court approves the formula, approves the first year of funding, and gives the Legislature another year to address the adequacy of funding in the out years.

What we do know is that there is June 30 deadline. The Court has said they will take this case on an expedited basis. Between now and the deadline, they will need to hear the State’s defense and the Plaintiff’s arguments. Don’t look for this process to be a couple of days and done!


Guns: Coming to a College Near You This July

The Governor also announced that he would allow the newest gun bill to become law without his signature because the Legislature did not cave to the NRA-written “compromise” on guns in state mental hospitals.

State Hospitals, the KU Medical Center, and all public colleges and universities in Kansas have until July 1, 2017, to either provide metal detectors and security personnel at all entrances or allow concealed firearms to by carried by anyone anywhere anytime – no permit or training necessary.

Several times this session legislators tried to get the law changed for colleges and universities but despite overwhelming public support for allowing colleges to restrict firearms, the NRA demanded blind obedience to their position that guns should be everywhere and the legislation never moved.

It wasn’t until Brownback – who enthusiastically signed the bill opening mental hospitals and colleges to guns – asked for $24 million to secure entrances to mental hospitals for one year that people realized the full extent of meeting the requirement. A bill was then drafted to allow hospitals to ban weapons but the NRA stepped in to fight the bill. Seeing it would likely pass, the NRA then drafted an amendment that would not make them have security but instead allow guns in reception and parking lots, but the hospital would have to provide gun lockers for anyone with a gun seeking to go into patient areas.

In fighting for this amendment, one Senator actually said: “this is the amendment the NRA will allow us to adopt.” Despite the NRA “permission,” the Legislature passed the bill giving hospitals the right to regulate guns on hospital property. This was a loss for the NRA, and this is why the Governor only reluctantly will allow the bill to become law without his signature.

And for those of you working in our technical colleges, community colleges, and universities, it looks like guns will be a reality in your classrooms starting July 1.

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The Session is Over, But the Court Must Still Rule

Jun 12, 2017 by

The 2017 Legislative session came to a close on Saturday night with the adoption by both chambers of the final budget conference committee report. There was little specific to public schools in the budget as the K-12 budget is contained in the school finance plan passed earlier (SB 19).

The worst bit of news in the budget bill is that the conferees did not agree to any provision to pay back the money deferred from KPERS. While this action does not jeopardize KPERS retiree benefits, it undoes some of the work done over the past few years to bring KPERS back into fiscal health by reducing the unfunded actuarial liability.

As we look at the work of the 2017 Legislature, it is a good exercise to measure that work against our own KNEA Legislative Agenda.

There are four components to the KNEA Legislative agenda: Taxation, School Finance, Support for Educators, and Advocating a Bright Future for All Kansans.

In the area of Taxation, under income tax we scored a major victory with the passage of SB 30 and subsequent veto override. Every goal we stated under income tax was achieved. The “march to zero” or “glide path” was repealed as was the LLC income tax loophole. The income tax has been restored as the foundation of a balanced tax system, and a new higher income tax bracket was added restoring progressivity to the system.

Our positions on sales tax (lowering the food rate and dealing with sales tax exemptions) while not achieved were included in bills and amendments to bills and all had hearings during the session. Sales tax exemptions on some services were even voted upon. We can report that progress has been made in addressing important sales tax issues.

We also support the repeal of property tax caps on local units of government, an issue that was not resolved this year.

Finally, we support a full repeal of the corporate tuition tax credit program. While this did not happen this year, we had one success as well as one loss in this program. All schools receiving scholarship students must be accredited (for the win) but the credit is now available to individuals (for the loss).

In the area of School Finance, the passage of SB 19 assures that the unconstitutional block grant system is now history. Senate bill 19, for the most part, meets the criteria for a formula that we included in our legislative agenda.While the new formula does not fully fund the excess costs of special education, it does provide additional special education funding. We are especially pleased that it funds all-day kindergarten and provides some funding for pre-school programs. And fortunately, other pre-K programs were protected with the decision to reject the securitization of the tobacco settlement money which funds those programs today.

SB 19 provides two years of funding increases to public education which must be tested by the Supreme Court for adequacy. We do not believe the funding to be adequate to the challenge of Gannon and will be anxiously awaiting the Supreme Court review.

In the area of Support for Educators, we are happy to report that for the first time in many years, there were no attacks on the teaching profession debated in this session! That in and of itself is a major victory and it is in large part thanks to the work KNEA members did in supporting the election of more moderate Republicans and Democrats to the legislature.

Our only loss in this area was the decision to not repay the funds deferred from KPERS. And while we did not manage to get due process protections restored, we did get the restoration through the House with a very strong bipartisan vote. Unfortunately, the Senate never took the issue up and our last chance was an amendment to the school finance bill brought by Rep. Jerry Stogsdill (D-Prairie Village) that was ruled to be not germane to the bill and so was not considered. The votes in the House this year give us hope for the future.

In the area of Advocating a Bright Future for All Kansans, we must report that while we have not won on our issues, we have not lost ground either.

We were delighted to see the expansion of Medicaid pass both chambers and then disheartened with the Governor’s decision to veto it. We are sorry that the Legislature was unable to muster enough votes to override the veto.

Worst of all, despite the best efforts of many legislators, parents, faculty, students, and organizations including KNEA, the Legislature bowed to the NRA and refused to restore control of firearms to our Kansas colleges and universities. Beginning on July 1, 2017, our colleges and universities must either provide metal detectors and security personnel at all entrances or allow anyone to carry a concealed firearm anywhere on campus. Despite overwhelming support from the communities, NRA money and threats continue to carry the day.

So all-in-all, when examined in light of the KNEA Legislative Agenda, this was a very good session for public schools and public school teachers.

So, It’s Over But It’s Not Over…

As we write this today, Governor Brownback has SB 19, the school finance bill, on his desk. What we don’t know is his plan for that bill. Will he sign it? Will he veto it? Will he just let it sit there for ten days until it becomes law without his signature?

Our frustration is that every day that passes is a day less the Supreme Court has for review before the June 30 deadline.

If he vetoes the bill, the Legislature will have an opportunity on June 26 during their ceremonial sine die closing to consider an override vote but by then we are only four days from the deadline.

We are working with KNEA Legal staff to examine the various scenarios that could play out depending on a signature or a veto, an adverse court ruling or a special legislative session. Stay tuned for further KNEA reports as things play out.

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Yes, Virginia, There Is An End In Sight

Jun 9, 2017 by

What’s going on, you might wonder. For example, why hasn’t Governor Brownback either signed or vetoed the school finance bill (SB 19)?

Well, we’ve learned that the school finance bill has only reached the Governor’s desk today – why, we don’t know – and he now has 10 days to either sign it or veto it or let it become law without his signature.

All of this is disappointing because every day delayed is another day that the Supreme Court no longer has to consider the bill.

As for the budget, there are very few things in there that are addressed in the KNEA legislative agenda. There are a few KPERS provisions – one to study how much KPERS has invested in “pay day lender” businesses and others dealing with paying back the funds delayed or simply not paid to KPERS by the state. The only other education provision is one requiring the School for the Deaf and the School for the Blind to each have their own superintendent with the requirement that the KSD superintendent know American Sign Language. The K-12 budget is contained in SB 19, the school finance bill.

Senate Majority Leader Jim Denning (R-Overland Park) today intimated that if the budget negotiations in conference committee were not wrapped up by noon, then the legislature would have no option but to meet on Saturday to wrap up their work. In other words, look for things to go into Saturday for the wrap up.

We are today on day 111 of the traditional 90 day session, pushing the record. The record longest session in Kansas history was in 2015 when it went for 114 days. We’re getting close. If they wrap up on day 112 tomorrow or even day 111 today, the 2017 session would be second longest in state history!

UPDATE: By 3:10 the Senate Majority Leader announced that the Senate would not take any further action today and would determine their starting time tomorrow based on the progress made by the budget conference committee. We anticipate the House will do the same when they reconvene at 4:00 this afternoon.

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