Brownback’s Proposal and its Impact on KPERS *Spoiler Alert*: It’s not pretty.

Jan 23, 2017 by

Post Highlights

  • KPERS officials explain the “what ifs” of Brownback’s irresponsible budget.  Short version:  DISASTER for KPERS.
  • Brownback’s Budget proposal would reduce KPERS contributions by a total of $600 million, extend the time to pay down KPERS’ existing unfunded actuarial liability by 10 years, and add $6.5 billion to the State’s contributions over the long term to pay for it.
  • The full breakdown of the effects of Brownback’s proposal on KPERS is included in today’s Under the Dome.
  • Brownback’s plan mortgages the future to pay for the $350 million budget hole which remains through the end of this fiscal year.
  • There are solid and sensible solutions which take a comprehensive approach to dealing with the Governor’s failed experiment.
  • It is important that we all educate ourselves on the nature of the problem and the solutions so that we can encourage our legislators to take the bold steps necessary to achieve long-term results (those solutions are outlined in today’s under the dome and in more detail RIGHT HERE).
  • Governor recommends bills for health benefit consolidation.

KPERS explains the disaster in Brownback’s budget recommendation

The best explanation of the mess that would be created if Governor Brownback’s irresponsible budget recommendations on KPERS were to be enacted was presented to the House Pensions Committee today. We can’t explain it better so here is the document given to the committee this morning:

Governor’s Budget Proposal

$600 Million Shortfall Over Next 3 Years

With the start of the new legislative session, the Governor has announced his budget recommendation for Fiscal Year 17 (current revised), 18 and 19. In short, the proposal would reduce KPERS contributions by a total of $600 million, extend the time to pay down KPERS’ existing unfunded actuarial liability by 10 years, and add $6.5 billion to the State’s contributions over the long term to pay for it. What we don’t pay for now costs more later.

The Breakdown

  1. In FY 2016, the Sate delayed its fourth quarter payment for State/School employer contributions with a promise to pay it in FY2018 with interest.

Governor’s Recommendation: do not pay

  1. Governor’s Recommendation: freeze contributions in FY2017, 2018 and 2019 to the reduced amount paid in FY2016.
  2. Governor’s Recommendation: Pay off the existing unfunded actuarial liability over an additional 10 years.

The Result

  • 4 missing State quarterly payments and a total shortfall of $600 million
  • Eventual State/School employer contribution rate of 12% to 13% through FY 2045*
  • Long-term additional cost of $6.5 billion
  • Funded ration stays in the 60% “cautionary” range for an additional eight years or through 2030
  • Unfunded liability increases by about $1.3 billion, and it will take 20 years to get back to where we are now

*Doesn’t affect Local employer contribution rates.

Most Important

It’s most important to remember that this does not affect benefits for current retirees, or even for those thinking about retiring. KPERS has $17 billion in assets to pay benefits for many years. The funding shortfall is a long-term funding issue. However, underfunding continues to add to the unfunded liability and undermines KPERS’ long-term strength.

The State’s recent $1 billion pension obligation bond was a significant step in the right direction. But it’s consistent and full employer contributions over time that will make the most difference in having a sound and sustainable retirement system.

What’s Next?

We are at the beginning of the session. And budget legislation will wind its way through the usual process. The Governor’s proposal is a starting point for discussion.

We’ll keep you posted as things affecting KPERS develop in the months to come.

So far the Governor’s proposal is getting a cold reception under the dome. As we reported last week, the K-12 Education Budget Committee has recommended to the full Appropriations Committee that they reject the Governor’s KPERS proposal.

Mortgaging the Future; Cutting the Present; Solving the Problem

You might be wondering what the H-E-double hockey sticks is going on up here in Topeka. You know that there’s a big problem facing Kansas and that problem has been caused by the reckless and irresponsible tax policy proposed by Governor Sam Brownback and passed with great joy by his legislative allies.

That’s true. And here, after four years, Kansans learned the lessons of trickle down economics/tax policy and have thrown many of those responsible out of office, replacing them with new moderate Republicans and Democrats. So this should be the right time to put the brakes on the Brownback disaster and reverse course. It should be easy, you’re thinking.

Oh, that it were so simple!

Brownback issued his “balanced” budget and it’s a doozy! Essentially, Brownback achieves “balance” by mortgaging the future. He robs from the highway plan, he sells off our tobacco settlement money turning this long-term asset into long-term debt, and he steals from KPERS reversing all the hard work done by previous legislatures to stabilize and secure the system.

That’s one way to take care of the issue but let’s take a look at the deeper problem.

First, we are dealing wth three years. Problem one is to find about $350 million to fill the hole in the last six months of fiscal year 2017. The next problem is to solve the revenue decline so as to fix the holes in future budgets – notably fiscal years 2018 and 2019.

Then there is the problem of a Governor who continues to believe his plan is working despite all the evidence to the contrary.

Next, we have a legislature with an enormous number of freshmen, many of whom are just getting their feet on the ground and beginning to understand the process. Remember, we are only 10 days into the 2017 session!

And finally, we are faced with two separate and individual committees in each chamber tasked with the hard work – House Appropriations and Senate Ways and Means that craft budgets (spending) and House Taxation and Senate Assessment and Taxation that craft tax policy (revenue). Somehow, we need to get a revenue plan that corresponds with our budget or spending plan. Not so easily done!

So far – 10 days in – we have only ideas. Okay, we have one bill, HB 2023 that repeals the LLC tax exemption; but really, that’s it.

One idea is the Governor’s: Let’s just mortgage the future, increase the state’s debt, and click our heals while repeating “His tax plan will work, his tax plan will work.”

Another idea is to fix the revenue by reversing the Governor’s policies. The LLC repeal is part of that. The Rise Up plan is another way to do that.

And a third idea – if you don’t like mortgaging the future or reversing the tax cuts – is to cut spending. There is no bill out there proposing that we cut spending.

But things do need to be talked about. And some ideas can be floated to get people thinking about other ideas.

No legislator likes to cut spending or raise revenue (aka raise taxes). And right now there is little interest in mortgaging the future. In order to get people to think that raising revenue needs to be on the table, we have to get them to see what happens if we do not raise that revenue.

This is why leaders will ask what spending cuts look like. Legislators are always reluctant to raise taxes and you can be sure that those who support the Governor will all any reversal of his tax policies an increase. Understanding what the alternative looks like – ruined highways, compromised public safety, stripping seniors and those with disabilities of service, and even cutting public school funding – will help legislators understand the importance of passing a revenue plan that supports vital government functions.

So, it’s early. The new leaders in the House and Senate are not showing support for cutting services more. But the discussion is important. Unless all legislators understand the depth of the problem and the ramifications of taking one path or another, they won’t be ready to make the hard decisions that are yet to come.

Don’t panic yet. But do continue to communicate with your legislators. Let them know that you expect them to deal responsibly with the failed tax policy of Governor Brownback. Make sure all Kansans expect the legislature to reverse course on revenue and support quality state services across the board.

Health Benefit Consolidation, Procurement Bills Introduced

Two bills recommended by the Governor have been introduced. One would enact the consolidated health insurance plan for all school districts while the other would establish a centralized procurement program for school districts.

Both bills were introduced as committee bills in the House K-12 Budget Committee in order to have the discussion on these issues.

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We’ve Grown Accustomed to this Pace…

May 2, 2016 by

Pothole

In Now Typical Fashion, Session Ends in the Wee Hours with Minimum of Votes Needed

In these days of a legislature and Governor who seem to be determined to run Kansas into the ground – or simply shrink it to a size that can be drown in a bathtub – the 2016 legislative session came to an end in the wee hours of this morning with the Senate on a vote of 22 to18 passed a budget conference committee report that the House had earlier passed on a vote of 63 to 59.

In both chambers it took a call of the body to persuade the last few people to move to the YES column in order to pass the bill. In the House it takes 63 votes to pass, 21 in the Senate.

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Governor Sam Brownback

The budget bill contained in the conference committee report on SB 249, marks the second year running that the legislature failed to balance the budget, instead punting to the Governor to make cuts of his choosing.

Here’s what the bill does:

Gives the Governor permission to take most of the sales tax dedicated to the highway program and move it into the state general fund (aka “robbing the bank of KDOT”).

Gives the Governor permission to delay KPERS contributions and then indefinitely delay paying KPERS back. In an earlier version, the legislature had directed that delayed KPERS payments would have to be paid back in the first quarter of the next fiscal year with 8% interest. Under this bill, KPERS gets paid back with any revenue that comes in above estimates and any tobacco settlement money that comes in above what has already been allocated for children’s programs. Bear in mind that revenue has exceeded estimates only one time in the last 12 months. There is also a proviso that says the revenue from the sale of state properties will go to the agency that owns the property and not to KPERS as was under current law.

Gives the Governor permission to cut most state agencies by 3 to 5%. It specifically directs that he may not cut K-12 education.

Gives the Governor permission to cut universities by another $17 million but kindly repeals the cap on tuition increases passed last year so that students and their families can make up the difference in higher tuition and increased student debt.

Gives the Governor permission to issue an RFP for the privatization of Osawatomie and Larned State Hospitals. Reverses permission to actually privatize with the legislature.

Contains provisos to protect Juvenile Justice Reform funding and Domestic Violence program funding.

Contains a proviso that the Docking State Office Building cannot be demolished without legislative permission.

There are a number of other provisos as well covering everything from Parks and Wildlife to K-State land sales.

NO votes for the bill, based on the statements made during discussion, include the belief by some extreme conservatives that K-12 education should not be spared from further cuts. Others argued that they could not support the bill because it could have a potentially devastating impact on KPERS. Still others argued that it was the equivalent of “dereliction of duty” in that the one task given to the legislature each year is to pass a balanced budget – it’s not balanced if it is dependent on the Governor making cuts to budgets at his discretion.

House Speaker Ray Merrick

House Speaker Ray Merrick

And the YES votes? We’re not sure about those. Maybe it was the late hour and the belief that things would only get worse if they stuck around town. Whatever the reason, the bill in the House was initially at 61 to 60. Rep. Suellentrop (R-Wichita), who was out of the chamber when the vote was initially taken, came in and voted YES, making it 62 to 60. That’s when Rep. Todd (R-Overland Park) changed his vote from NO to YES, securing the 63rd vote for leadership and passing the bill.  The final vote follows.

 

Final Vote Roster

 

In the House:

YES: Alford, Anthimides, Barker, Barton, Boldra, Bradford, Campbell, B. Carpenter, W. Carpenter, Claeys, Corbet, Davis, Dove, Esau, Estes, Goico, Gonzalez, Grosserode, Hawkins, Hedke, Hemsley, Highland, Hildabrand, Hoffman, Houser, Huebert, Hutchins, Jennings, D. Jones, K. Jones, Kahrs, Helley, Kelly KIegerl, Kleeb, Lunn, Macheers, Mason, Mast, McPherson, Merrick, O’Brien, Osterman, Pauls, Powell, Proehl, Rahnes, Read, Rhoades, Ryckman, Ryckman Sr, Scapa, Schwab, Schwartz, Seiwert, Smith, Suellentrop, Sutton, Todd, Vickrey, Waymaster, Weber, and Whitmer

NO: Alcala, Ballard, Becker, Billinger, Bollier, Bruchman, Burroughs, Carlin, Carmichael, Clark, Clayton, Concannon, Curtis, DeGraaf, Dierks, Doll, Finch, Finney, Francis, Frownfelter, Gallagher, Garber, Helgerson, Henderson, Henry, Hibbard, Highberger, Hill, Hineman, Houston, Hutton, Johnson, Kuether, Lewis, Lusk, Lusker, Moxley, Ousley, Patton, Peck, Phillips, Rooker, Rubin, Ruiz, Sawyer, Scott, Sloan, Swanson, Thimesch, Thompson, Tietze, Trimmer, Victors, Ward, Whipple, Williams, Wilson, Winn, Wolfe Moore

Absent and not voting: Edmonds, Ewy, Schroeder

In the Senate:

YES: Abrams, Arpke, Bruce, Denning, Donovan, Fitzgerald, Holmes, Kerschen, LaTurner, Longbine, Love, Lynn, Masterson, Melcher, O’Donnell, Olson, Ostmeyer, Petersen, Pilcher-Cook, Powell, Wagle, Wilborn

NO: Baumgardner, Bowers, Faust-Goudeau, Francisco, Haley, Hawk, Hensley, Holland, Kelly, King, Knox, McGinn, Pettey, Pyle, Schmidt, Smith, Tyson, Wolf


Please Explain the Business Income Tax Exemption Mess

Everybody knows (well, everybody except the Kansas Chamber, the Kansas Policy Institute, and Americans for Prosperity) that the income tax exemption for LLCs which has resulted in more than 330,000 Kansas business owners paying no income tax whatsoever in both unfair and bad fiscal policy. KNEA has been one of the many voices calling for the repeal of this exemption.

Yet, the repeal bill failed. And frankly we think that’s a not a bad outcome. Here’s why.

The LLC exemption is just one small part of the state’s revenue collapse. If the exemption is the only part of the 2012-13 tax plan to be repealed, it will not bring nearly enough revenue to solve the revenue crisis. In fact, this bill (SB 63) would have brought in no new money now, a very small amount next year and would only fully kick in in 2018.

The repeal of the LLC exemption is important but needs to be part of a complete repeal or comprehensive reform of the tax system such that revenue stability and adequacy is returned. We know that the Chamber, AFP and KPI would call a yes vote on this bill a tax increase and use the vote in the next election to attack moderate Republicans and Democrats.

What moderates and Democrats all want is to fix our tax system so that we can once again fund our highways, schools, public safety, and other vital state services. They know that if this bill passed, it would solve almost nothing and reduce the willingness of all legislators to consider more tax reform in the future. Think of it like pulling a bandaid off your arm – especially if you’ve got a hairy arm! Most of us would rather rip it off and get the pain over with rather than take incremental equally painful little tugs.

What the state needs – and what moderate Republican and Democrats understand – is fiscal responsibility. We are all better served if we bite the bullet, admit the “experiment” is a failure, and take real action to reverse course.


Last Few Days Were Conference Committee Reports

What we were watching over the last few days were not amendable bills being debated but conference committee reports.

There is a big difference between bills and conference committee reports. Conference committee reports are agreements worked out by small teams to get deals on the various versions of bills passed. This is important in the process because if a bill has not passed either chamber, it cannot be taken up in conference. While bills that have only passed one chamber can be added to a conference committee report, it is not often done because legislators like to have had their own hearing on the bill and a chance to amend it.

In the education realm, several bills were rolled together in conference committee reports.

In CCR SB 323, three K-12 bills were rolled together. The first bill, the Jason Flatt Act, requires 1 hour of annual suicide prevention training for school employees. The second bill establishes a program to track the language development of deaf and hearing impaired students. The third bill changes the rules for capital improvement state aid, establishing a 6 year rolling average cap on expenditures and allowing the State Board of Education to prioritize projects based on certain criteria. This CCR was adopted unanimously in both chambers.

A post-secondary CCR, HB 2622, holds four items:

  • The degree prospectus program under which institutions would provide prospective students with data on graduation rates and performance,
  • The CLEP provision that standardizes the use of CLEP examines for earning college credit,
  • The performance based funding incentives for career and technical education, and
  • Adjustments to some fees charged by the Board of Regents.

This CCR was adopted in the Senate on a vote of 34 to 6 and in the House 109 to 8.

Some other bills we were following this session did not move forward during the veto session. They were not put into conference committee reports and, since conference committee reports cannot be amended, they were not added in as floor amendments.

These include, SB 56, the repeal of the affirmative defense for K-12 teachers; HB 2199, the opt-in human sexuality education bill; HB 2531/SB 136, the repeal of due process for post-secondary instructors; and SB 469, the recertification of representative organizations for teachers.


The Waiting Game

Now everyone who lives under the dome goes into a waiting game. At issue is the Supreme Court ruling on whether or not the school funding equity bill passed by the legislature will meet constitutional muster. Arguments are scheduled for May 10.

The Court has suggested that if the legislature does not meet its constitutional obligation by June 30, schools will not open in August. People on the plaintiff’s side think the bill will not satisfy the court while those who wrote the bill believe just as strongly that it will.

With Sine Die (the largely ceremonial last day of the legislative session) scheduled for June 1, it would be a stretch for the court to rule prior to then. If the court rules early in June and rules against the state, we would expect a special session to be called in order to resolve the issue before the scheduled opening of schools in August.

Whatever we find out, we will report right here!

With the session over, Under the Dome will go into sporadic hibernation. Rather than daily updates, you will receive occasional updates as the need arises.

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Could this be it?

May 1, 2016 by

Both chambers wrapped up just before midnight without having tackled the biggest thing out there – the budget.

We are back right now and the House has just broken to go caucus (presumably on the budget). They will reconvene at 1:00.

There are a few other conference committees that need to be disposed of and we assume they will tackle those before the budget.

If the House passes this budget bill, it will need to be voted on by the Senate. Two chances to pass it, but two chances to kill it as well.

Most people under the dome believe this will be the last day. Many of us are hoping it will also be over quickly.  Of course, there is this from House Speaker Ray Merrick to a press pool reporter:

Screen Shot 2016-05-01 at 12.53.24 PM

You can keep up by following us on Twitter @desettiks. We would also suggest following some of the statehouse reporters: @BryanLowry3 (Wichita Eagle), @kprkoranda (Kansas Public Radio), @jshormanCJ (Topeka Capitol-Journal), @LJWpqhancock (Lawrence Journal-World).

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What’s Going On?

Apr 30, 2016 by

We’ve been here in the statehouse since 8:30 this morning and we’re approaching dinner time now. And we have nearly nothing to report.

There had been hopes that this would be the last day of the session but that is looking less likely as the minutes roll by.

The budget committee has been meeting on and off all day and much of the debate in there has been over education.

First, they are adjusting the cuts to universities such that KU and KSU will get larger cuts; PSU and ESU get smaller cuts and WSU stays about the same. This issue was pressed by Senator LaTurner (R-Pittsburg), a strong supporter of the Governor’s tax plans that have moved the state to near-bankruptcy and caused several highway projects in his district to be delayed or cancelled. LaTurner has sent a letter to the Governor begging him to let the transportation projects in his district go forward. LaTurner is also the brains behind a bill capping the ability of local units of government to raise tax dollars that could be used to offset state losses. His avid support of Brownback is costing his district plenty and he faces a strong challenge in his re-election bid this fall. So far he has only managed to get PSU’s cut down to about $750,000 instead of $1 million.

The next debate on the bill is over K-12 education. House members want to “put a fence” around K-12 funding, prohibiting the Governor from cutting K-12 funding going forward. Senate negotiators don’t want to protect K-12. At this time it looks as if the report will go to the House floor with the K-12 protection.

Of course, the bill also contains the delay in KPERS payments as well as the delay in paying KPERS back. The state would be off the hook for the delayed KPERS payments until 2018. The bill contains a provision that calls for KPERS to be given any money that comes in above the revenue estimates. Since the estimates have not been hit 11 of the last 12 months, it is unlikely that KPERS will get any payments any time soon.

The Senate is now out until 8:00 pm at which time they will consider some conference committee reports but not the budget report. That has to go through the House first. The House is not expected to have the budget report ready until around 11:00 pm.

A budget debate could take them past midnight and going past midnight requires a special vote. Additionally, there is some thought that the budget might not have the votes to pass.

All of this means that ending the session tonight is looking more challenging. We anticipate being back tomorrow or maybe moving into next week.

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Option 4: On the Table! (at least it should be)

Apr 27, 2016 by

Legislature Returns

The so-called “Veto Session” of the Kansas Legislature got underway this morning with both chambers gaveling in about 10:00 a.m.

Today was a very slow day. The Senate announced early that they would not be taking any votes today and the House dispensed with a couple of conference committee reports before calling it a day.

The conference committee report on SB 387 (making the Pooled Money Investment Board a separate state agency) was adopted on a vote of 119 to 0 and the conference committee report on SB 373 (dealing with toll evasion) was adopted on a vote of 82 to 39.

And that was about it for today.

Having just returned following the dismal revenue estimates and the release of Governor Brownback’s three devastating budget options, folks need a little time to meet quietly with their colleagues and figure out what they want to do and who is going to propose what. We would expect that things will begin to get pretty quickly since they seem to be anxious to finish everything up as quickly as possible.

Rumor has it that the House would like a three or four day veto session; the Senate may be thinking a little longer.

With no clear and immediate consensus that one of Brownback’s plans might be good, there would seem to be little chance of moving as fast as they might like.


Screen Shot 2016-04-27 at 3.23.34 PMOption Four Proposed

The Governor gave three options for solving the budget gap, all of which would be quite harmful to Kansas and Kansans. His proposals are various combinations of quick fixes and one-time savings but all of them include robbing still more money from the transportation plan and changing road maintenance from once every 12 years for a road to once every 50 years.

Another option is to sell off the tobacco settlement money for a quick influx of cash. This option jeopardizes early childhood programs for infants and toddlers. Brownback also proposed delaying nearly $100 million in payments to KPERS and delaying the payback due date by a year.

His option three includes cutting $57 million from K-12 education (so much for those stabilizing block grants).

Five groups came together in a press conference this morning to call upon the legislature to consider an Option Four – repealing the Brownback income tax cuts. The Kansas Center for Economic Growth organized the event during which Kansas Action for Children, the Kansas Contractors Association, the Kansas Organization of State Employees, and Kansas NEA all said that the three options from the Governor were unacceptable and that it was time to restore common sense to Kansas tax policy.

Remarks from KNEA were given by KNEA Lobbyist Mark Desetti:

In repealing the school finance formula and replacing it with the block grant system, Governor Brownback and legislative leaders promised that our K-12 schools would have – if not better funding – at least stable funding. It was to be funding schools could count on.

Now we are on the edge of another broken promise to our children and teachers.

The loss of funding that was provided in response to the Montoy decision was the result not of legislative action but was a legislative response to the great recession. We were sorry to see it happen, but we expected it to be temporary; fixed when the economy recovered.

Instead of restoring recession era cuts, Governor Brownback and his legislative allies implemented a plan that has turned out, in effect, to be a self-inflicted recession when it comes to generating necessary revenue for state services.

While every indicator tells us the experiment is a failure, the legislature continues on the same dangerous path, even doubling down.

Now they propose to sell off a program that has been providing quality early childhood programs for Kansas children, they continue to drain funds from important highway projects jeopardizing our safety, they turn their backs on hardworking Kansans putting their retirement security in jeopardy, they propose driving up the cost of higher education with extended cuts. And now they threaten to slash funding to our K-12 schools.

As our schools drop days from their calendars, reduce to a four day week, and eliminate valuable programs and staff positions, we cannot be more certain that there must be an option four – an option our governor continues to sidestep. It’s time to return to a stable, dependable, and fair tax system. It’s time to put option four on the table.

The definition of insanity, it is said, is to continue doing the same thing and expecting different results. It’s time to step away from the Kansas tax insanity.

The press conference was not long and you can listen to all of it by clicking here.

You can read coverage from today’s press conference on CJOnline by clicking here.


Topeka Capital-Journal Reporters Tour the State to Ask Everyday Kansans What They Think of the Governor and Kansas Legislature

In an extensive report published today in the Topeka Capital-Journal, Reporter Tim Carpenter writes about what he and other reporters heard while traveling the state during the five week legislative break. The reporters visited more than 40 Kansas communities from border to border to talk to homemakers, business owners, teachers, retirees, and employees (but no politicians) about the direction Governor Brownback and the legislature have moved our state.

And what was clear in everything people said? They are worried. They are frustrated with the inability of politicians to admit their mistakes and change course. They are worried about the partisan sniping and politicking while their hospitals are closing, schools are being challenged, and roads are degrading.

Carpenter highlights two prominent issues: “They’ve lost touch” and “Dysfunctionality.”

We urge our readers to take a look at the article and the accompanying videos online by clicking here.

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