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.

 

 

 

read more

Supreme Court Rules!

May 27, 2016 by

The Supreme Court of Kansas has issued a ruling in the Gannon school finance lawsuit late this afternoon. Usually rulings are released by about 9:30 on Friday mornings.

The ruling, which we are still reviewing, finds that the equity bill passed by the Kansas Legislature during this year’s legislative session meets the requirement for providing equity within capital outlay but does not meet the equity requirement within the local option budget (LOB) and supplemental general state aid.

The Court also finds that the LOB and supplemental general state aid are not severable from the block grant funding bill known as the Classroom Learning Assuring Student Success Act (CLASS Act). For this reason, the CLASS Act block grant funding scheme is effectively unconstitutional.

It does not appear that the Court is giving the state any time beyond the June 30 deadline to solve the problem.

It is most certain that this will be a focus of legislators under the dome during the sine die session which is normally just a ceremonial event.

KNEA has long held that it is the responsibility of the Kansas Legislature to fulfill its constitutional obligation to fund public schools equitably and adequately.  We continue to call on the Kansas Legislature to meet its constitutional obligation so that public schools will be open as expected this coming fall.

KNEA’s Governmental Relations and Legal staff are reviewing the decision and will have a more comprehensive update next week.

In the meantime, watch your local press reports, look for more information from KNEA, and read the opinion for yourself at http://www.kscourts.org/Cases-and-Opinions/opinions/SupCt/2016/20160527/113267.pdf 

read more

Court Arguments and Tax Discussions

Nov 6, 2015 by

School Finance Equity Hearing in Supreme Court

The Kansas Supreme Court heard from the state and from the plaintiffs in the equity portion of the Gannon School Finance lawsuit today. The hearing took about 2 ½ hours.

Attorneys for the state were questioned first. They defended the block grant funding scheme passed by the legislature (SB 7) and asserted that the money the legislature had appropriated for the equity resolution last year was appropriate to meet the requirement.

The money that had been appropriated was about $138 million but the final cost was closer to $200 million. The state argued that the money appropriated was based on what they were told by the State Department of Education. KSDE had provided an estimate of the amount that would be needed based on the prior year’s data – the only data available at that time.

Attorneys for the plaintiffs maintained that it was long past time to resolve the issue and that the repeal of a constitutionally sound but underfunded school finance formula was an inappropriate action by the legislature.

Questioning of both sides by the justices was pointed but it was difficult to tell with any certainty what position they might be forming.

We don’t know when they will make their ruling but most expect it to come early in the session.

The issue of adequacy is still to be resolved.

Special Tax Committee considers sales tax exemptions, tax credits

A special Joint Committee on Taxation spent the last two days learning about the challenges of sales tax policy and tax credits.

The committee studied the history of the sales tax in Kansas and reviewed Legislative Post Audit studies that have been conducted on sales tax exemptions, tax credits, and economic development incentives.

They took public testimony today. Shawnee Mission Superintendent Jim Hinson gave them much food for thought regarding Tax Increment Financing Districts (TIFs) which have the potential to stress the budgets of school districts – particularly growing districts like Shawnee Mission.

KNEA lobbyist Mark Desetti testified, urging the committee to reign in the granting of sales tax exemptions by developing guidelines under which an organization would be eligible for such an exemption. Today these exemptions are generally granted every time an organization comes before the committee with a pitch leading to an enormous laundry list of individually named organizations with exemptions.

A coalition of non-profit organizations urged the committee to proceed cautiously while the Sisters of Charity made a plea for the preservation of the Earned Income Tax Credit which applies to the lowest income Kansans.

The Kansas Livestock Association and Farm Bureau both spoke on behalf of rural and agricultural interests in the state.

read more

The Longest Ever Session is Finally Over

Jun 15, 2015 by

What is the sign of good policy?

A number of years ago, there was a bill proposed that would require a 2/3 majority vote for the legislature to approve any tax increase. During the debate way back then, Rep. John Edmonds (R-Great Bend) took to the floor with an amendment. He told his fellow legislators that this would be such a good idea, he wanted to apply the rule to all votes – nothing could become law without a 2/3 majority. Edmonds argued that if something was a really good policy, it ought to be easy to get 2/3 of one’s colleagues to agree.

The 2/3 majority bill did not pass. And Rep. Edmonds made some very good points that should speak to us as we watch this legislature, the 2014 legislature and future legislatures.

In 2014, the school finance bill that eliminated due process for teachers and enacted a $10 million corporate give away voucher program was passed by 63 votes in the wee hours of the morning after a long call of the House. Just like the tax bill in the 2015 session.

If one’s policy can only garner the minimum 63 votes after 3:00 am when legislators have been locked in the chamber, bullied, threatened, and sleep deprived, does one really think it’s a good policy?

We do not advocate for a 2/3 majority rule. But we question the benefit of policies that can only get to the minimum vote necessary after bully tactics are implemented. If the Legislature can’t get to a majority on the merits of the argument, then perhaps they shouldn’t.

Tax Policy

Majority rules.

That’s true. And in the House a majority is 63; in the Senate it is 21. Often under the dome people speculate on “what will get 63 and 21.”

That was certainly the way things worked with tax policy this year.

What was known coming into the session last January and became more clear with every revenue report moving forward was that the state was in dire straits when it came to revenue.

The tax plan passed in 2012 at the command of Governor Brownback – his “real live experiment” – three years later has proven to be a failed experiment. And yet the Governor and his cronies hold on to it with a death grip.

Both chambers split into multiple camps when it came to tax policy changes. Democrats and moderate Republicans saw no benefit to helping pass a plan that balanced the budget on the backs of working people and left the worst parts of the Brownback plan in place. Center-right Republicans wanted to spread the pain of a tax increase, bringing businesses back on the tax rolls and increasing consumption taxes. Brownback supporters opposed bringing businesses back on the tax rolls but were happy to enact a large increase in sales and other consumption taxes like cigarettes, gasoline, and liquor. And then there was the hard core right. This group opposes all tax increases all the time and insists that the budget should just be cut.

The governor vowed to veto any bill that imposed taxes on the 330,000 Kansas businesses that his 2012 plan exempted or rolled back his “glide path to zero” plan to end the income tax entirely. He and his budget director Shawn Sullivan threatened to strike out post-secondary education funding, cut nearly $200 million from K-12, reduce social services, and lay off public safety personnel if the legislature did not balance the budget with consumption taxes only.

The legislature repeatedly fought back, bringing plan after plan to the floor and watching them go down in defeat. As the governor and House leadership tried to force legislators to adopt bad tax policies, they even suspended a call of the House for eight hours, keeping a vote in limbo over night.

As the session dragged on, more and more legislators checked out. Whether for vacations or returning to work, attending weddings, or dealing with family emergencies, numbers thinned out over the last couple of weeks.

In the end, as the last tax plan came to the House floor, it appeared to fail having gained only 61 votes. And that’s when the doors were locked, House members forced to sit in their seats, and the brow-beating, fear-mongering, and threats began in earnest. At about 4:00 am a 63rd vote was secured, the call was lifted and the bill passed.

It also received the minimum votes necessary in the Senate.

The bill raises the state sales tax in Kansas to 6.5%. Some parts of the state will see their sales tax as high as 10% when the state rate is combined with the local rate. The bill also raises cigarette taxes by 50 cents/pack. Kansas will now have one of the highest food sales tax rates in the nation. And 330,000 Kansas businesses still pay no income tax at all.

Collective Bargaining

Collective bargaining for public employees in Kansas is contained in two statutes – the Professional Negotiations Act (PNA) for K-12, community college and technical college professional employees and the Public Employer Employee Relations Act (PEERA) applying to all other public employees including education support personnel in public schools.

There were legislative attacks on both the PNA and PEERA during this legislative session as conservatives sought to severely restrict or even deny collective bargaining rights for public employees.

For the PNA, there were bills to abolish exclusive representation and allow every employee to bargain a contract individually. There were proposals to restrict negotiations to only minimum salaries. But there was also a bill crafted by consensus of KNEA, KASB, USA/KS, and KSSA at the request of the 2013 legislature.

The consensus bill was introduced but ignored by the House Education Committee in favor of a proposal by a minority of the School Efficiency Commission (Dave Trabert, Mike O’Neal, Sam Williams, and Dennis DePew). The same thing happened in the Senate Education Committee where they worked anti-collective bargaining proposals from Senator Jeff Melcher (R-Leawood).

When those proposals hit the floor of each chamber, there was a move to gut them and replace the contents with the education community’s consensus plan. In the House, on a motion by Rep. Sue Boldra (R-Hays), the consensus bill was adopted in its entirety. Over in the Senate, on a motion by Sen. Tom Arpke (R-Salina) with support from Sen. Caryn Tyson (R-Parker) and Sen. Molly Baumgardner (R-Lousiburg), a bill almost identical to that in the House was approved. Both bills were then supported by KNEA, KASB, USA/KS, and KSSA.

There things sat for some time with neither chamber taking up the other’s bill.

Late in the session, the legislature was considering some necessary amendments to Senate Bill 7, the school finance bill passed earlier. These changes were put into HB 2353 and, during debate on the Senate floor, Senator Steve Abrams (R-Arkansas City) amended in the language that the Senate had passed earlier.

HB 2353 was eventually passed by both chambers and so beginning on July 1, 2015 the following changes to the PNA will take effect:

  • The notice date is changed from Feb. 1 to March 31,
  • The impasse date is changed from June 1 to July 31,
  • Each year the parties shall negotiate “compensation of professional employees and hours and amounts of work,”
  • In addition, “each party may select not more than three additional terms and conditions of professional service from the list” in current law.
  • “All other terms and conditions of professional service” in the current list “shall be deemed permissive topics for negotiation and shall only be negotiated upon the mutual agreement of the parties,” and
  • Both parties to the negotiation shall be required to receive training on conducting negotiations.

Senator Melcher’s proposal on PEERA (SB 179) would have essentially ended collective bargaining for state and municipal employees and school district personnel other than teachers. The Senate Commerce Committee coupled SB 179 with SB 212 and rolled them both together into HB 2096.

SB 212 would prohibit public employee organizations from using any money to participate in partisan or political activities and prohibit public employers from using payroll deduction to collect union dues. It was amended such that payroll deduction could not be used for any contribution that was not required as part of an employee benefits program.

When HB 2096 went to the Senate floor, Sen. Garrett Love (R-Montezuma) offered an amendment that would allow all payroll deductions except union dues. Love’s amendment failed and Senate leadership pulled the bill and sent it back to the Ways and Means Committee. That’s where the bill spent the rest of the session. It will be available to legislators in the 2016 session.

Use of Payroll Deduction

Senate Bill 212 which banned the use of payroll deduction for public employee union dues was rolled into HB 2096 and, after a brief floor debate, was sent back to committee where it sat for the remainder of the session. It will be available to legislators in the 2016 session. (See our write-up on collective bargaining to learn more about what happened to SB 212.)

School Finance

Yes, the legislature repealed the school finance formula that has been in place since 1992.

Why was this done? Well, one can only speculate on the rationale. Here are a few reasons that have been floated under the dome:

  • The 1992 formula is too complicated for legislators to understand (although SB 7, the block grant replacement, is equally complicated).
  • Many legislators believed that if the 1992 formula went away, so would the Gannon lawsuit. The thinking is that the lawsuit is over the 1992 formula and that’s gone so the lawsuit can’t continue.
  • A large percentage of legislators don’t support public education and this was a way out of giving any consideration for additional funding.

But whatever the rationale is, the 1992 formula is gone and has been replaced by a “block grant” proposal under which school districts for three years will get an amount of dollars roughly equal to what they got before it started. But the plain truth is that most school districts are getting less.

We are now waiting to see what the court has to say about this move. Some people believe they will stay SB 7 and keep the old formula in place until the dust settles on the lawsuit. Only time will tell.

The block grant has a number of serious flaws. Probably the most important is that it does not adjust for any enrollment changes from increases in enrollment to increased poverty, increases in ELL students, etc. With funding frozen for three years, we are certain to see some seriously negative consequences in the future.

KPERS Working After Retirement

The Legislature agreed on a bill amending the working after retirement rules governing KPERS retirees who return to work in a KPERS-covered position.

Changes adopted include:

  • Raising the earnings cap to $25,000,
  • Enacting restrictions on who can work after retirement in the schools.
  • Hiring retirees to work in KPERS covered professional positions will be allowed in special education and up to five areas identified as shortage areas by the State Board of Education and allow for special “hardship” positions identified by school districts that have tried to find new employees but cannot.
  • Current retirees working after retirement are grandfathered until 2017 when all retirees will be under the new rules.

The changes were in reaction to information that KPERS was taking a loss for every retiree between the ages of 55 and 62 who returns to work and that pre-arranged agreements jeopardized the tax status of KPERS. There was no appetite to simply lift the sunset on current rules and extend them.

.

 

read more

Senate Passes Repeal of School Finance Formula

Mar 16, 2015 by

The Senate has just passed the block grant bill that repeals the current school finance formula. The biggest decision of the session – the funding of our public education system – was ramrodded through the legislative process in just seven legislative days. The process denied Senators the opportunity to offer amendments; they could only debate and question.

The vote was 25 to 14. Senators Pyle and Knox had initially passed but changed their votes to YES. Senator O’Donnell is out of state.

The bill now goes to the Governor for his consideration. No one doubts that he will sign it.

We will report the actual voting record when it becomes available tomorrow.

read more