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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Court Hears Arguments in School Finance

Jul 18, 2017 by

(AP Photo/Orlin Wagner)

The Kansas Supreme Court heard arguments from the State and the Plaintiffs in the Gannon school finance lawsuit this morning. It was wrapped up before noon at which time the Court said they would take the arguments under consideration. How long that consideration will last is anyone’s guess, but they have said they will act in an expedited manner.

Most observers believe the state had the harder time before the Court. Justices pressed the attorneys for the state, Stephen McAllister and Jeff King, about why the legislature chose to base funding levels on the “successful schools model” even going so far as to suggest this was a decision based not on appropriate funding but backing into a lower cost model.

Justices also appeared skeptical about the state’s reliance on LOB (local option budget) funds as foundational funding for schools. This has been a position advocated for by Rep. Clay Aurand (R-Belleville).

Asked whether or not the Court should let the state off the hook- so to speak- King called upon the Court to allow the new law three years to see if it could do the job. The Justices appeared to have little interest in waiting three years to decide if the legislature has done the right thing.

There seemed to be little questioning on the school finance model adopted in SB 19 except for a couple of questions regarding equity. Specifically concerning the expansion of what could be paid for under capital outlay and the 10% floor for at-risk funding allowing districts with fewer than 10% free and reduced lunch students to receive at-risk funding as if they had 10%.

Now the waiting starts. We will watch for the Court’s decision over the next few weeks. For more reaction on today’s hearing, see the following news report.

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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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Session adjourned, but what have we truly accomplished?

Apr 7, 2017 by

The Legislature has adjourned the regular session and your representatives are headed for home. The House, which was last to adjourn, was out by 11:54 am. Legislators will be home the rest of April and return to Topeka for the veto session – more commonly these days called the wrap-up session.


The biggest issues of the 2017 session remain unresolved.

  • They did pass a budget but it does not balance.
  • They failed to pass tax reform that will fund our vital state services going forward.
  • They have not yet passed a new school finance formula although it is assembled and awaits a vote in committee in May to send it to the floor for consideration.
  • They failed to expand Medicaid, denying 150,000 Kansans access to health care.

Their accomplishments? They successfully defended the National Rifle Association by ensuring that come July 1, 2017, Kansas community colleges, tech colleges, and universities will be wide open for firearms. Anyone can carry a firearm on any post-secondary campus at any time unless the campus can provide metal detectors and security staff at entrances. It didn’t matter that parent organizations, student organizations, faculty and college administration – even General Richard B. Myers, the retired military hero and current president of Kansas State University – wanted the law changed to allow campuses to control weapons. It only mattered that the NRA wants our campuses to be open to all guns all the time.  

The last attempt to address the guns on campus issue happened on Tuesday, April 4, when Rep. Jim Ward (R-Wichita) made a motion to bring a related gun bill to the floor for debate. Ward’s motion failed when it only got 44 votes. All 40 Democrats voted to bring the issue to the floor for debate; they were joined by only four Republicans – Rep. Shelee Brim (R-Shawnee), Rep. Stephanie Clayton (R-Overland Park), Rep. Melissa Rooker (R-Fairway), and Rep. Tom Sloan (R-Lawrence).

They also successfully declared pornography to be a public health issue in Kansas and prohibited Kansas from doing business with any company that is boycotting Israel.

Brownback State of the State

So, despite the reality in Kansas today – a reality in which Gov. Brownback remains the most unpopular governor in the United States with overwhelming public opposition to the tax disaster he forced upon Kansas in 2012 – the legislature has been unable to muster enough votes to override his vetoes of reasonable tax reform and the expansion of Medicaid, leaving Brownback to believe his ideology and policies are invincible. He will continue to cling to his failed policies as long as the legislature remains unwilling to stand up for their constituents.

The attitude of the obstructionists in the legislature can best be seen in the comments and votes of Rep. Brenda Landwehr (R-Wichita). After voting to sustain the Governor’s veto of Medicaid expansion, she told the press that the state just did not have the money to do this. Yet earlier in the session, Landwehr voted NO on HB 2178, the first comprehensive tax reform bill that would have reversed much of the Brownback disaster. And she then voted NO on the motion to override his veto of that bill. The argument that the state does not have the money would sound more honest if she had actually joined with those who were trying to solve the money problem.

While HB 2178 would have been a great step in the right direction, with the subsequent Supreme Court ruling in the Gannon school finance case, we know now that it would not have gone far enough. Since then, the legislature has done nothing serious to return to common sense tax policy. They have sent out bills to raise cigarette and liquor taxes, they have thought about motor fuels tax increases, and yesterday after the Governor expressed support for a “flat tax” bill, the Senate defeated that bill on a vote of 3-37. KNEA opposes the flat tax bill because it radically raised taxes on low and middle-income Kansans while essentially protecting the wealthiest. The flat tax bill would have been a massive tax increase on lower income individuals and a minor tax increase on the wealthiest.

There is a way out of this disaster but it takes some courage. Some legislators are now floating the idea of repealing the 2012 tax cuts and going back to the income tax as it was before Brownback conned the legislature into passing his disastrous experiment. These legislators would end the glide path to zero, and put 330,000 businesses back on the tax rolls while reinstating their business loss deduction. They would reinstate the third tax bracket on higher income individuals while providing middle-class relief by reinstating deductions for child and dependent care, medical expenses, and home mortgage interest.

A proposal of this sort would raise enough revenue to bring our state back from the abyss and allow the legislature to stop robbing the highway fund, to respond appropriately to the Gannon decision, and even expand Medicaid.

We are well past the time for gimmicks and protecting a failed Governor. When the legislature returns on May 1 their first order of business needs to be reversing the failed tax policies of 2012 and 2013. And they need to find the resolve to stand up to the bully on the second floor in order to save this great state.

Your legislators will be back home from now until May 1. It is critical that they hear from their constituents; from Kansans who want good roads, excellent schools, and support for those facing difficult challenges. Tell your legislators that you’ve had enough of the Brownback experiment. It is a failed experiment and it is time to reverse it.

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First Legislative Day Post Gannon!

Mar 6, 2017 by

The Gannon School finance decision landed on the mid-term break while legislators were back home.

As most people expected, the decision went against the state and the Kansas Legislature is once again being called upon to step up to the plate and provide adequate financing for the educational interests of the state.

Our past experience shows us that the first week or so after such a decision is dedicated to complaining, attacking the justices, and trying to convince the voters that the state should never have lost. But our past experience appears not to be playing out as the reality of 2017.

Legislators have returned to work and, while today was a rather slow day, there was very little talk about the challenges of complying with the court.

Some – like Governor Brownback and Rep. John Whitmer – have decided that since the decision used the achievement gap as part of the justification, the solution is to drain more money out of the public school system and send it to private and religious academies. But more legislators are taking a different tack and calling for a rolling up of sleeves and getting down to work.

That was certainly the air in the House K-12 Education Budget Committee which had a meeting to discuss at-risk funding and how to best meet the needs of challenging students in the new formula. Chairman Larry Campbell (R-Olathe) seems determined to get to work at putting together the new formula as soon as possible. They’ve already had hearings on several new formula ideas and have examined all aspects of funding and student need. We expect this committee to get to work assembling a plan very soon.

But there are at least two other issues to solve before we are out of the session.

The first is what to do about revenue. Kansas is facing a nearly $300 million shortfall for the rest of this fiscal year and a shortfall of some $500 million or more in the next fiscal year. And these figures don’t account for any increase in school funding in response to the court decision. The Governor vetoed the first bill to try to responsibly deal with revenue in the out years (HB 2178) and while the House voted to override his veto the same effort in the Senate came up three votes short.

The Senate has since crafted another bill very similar to HB 2178 but not applied retroactively. Unfortunately this bill slashes the revenue produced by about $100 million so it will not solve the problem going forward.

What the Legislature simply must do now – and soon – is craft a tax bill that raises sufficient revenue to both close the current hole in the next fiscal year and provide for an increase in school funding to satisfy the Court. However they do this, three things are musts – they must repeal the “glide path to zero” formula that would end income taxes entirely, they must repeal the LLC loophole that allows 330,000 Kansas business owners to pay no income tax at all, and they must add at least one more income tax bracket at higher income levels so that all are paying their fair share. Sadly, Brownback seems determined to stick with his failed tax system and so both chambers need to be ready to override his veto.

The next challenge is how to fund the rest of this fiscal year. Again, the House is leading the way by passing a bill to liquidate the pooled money investment portfolio. While this action would create a repayment obligation for several years, it would generate enough money to get Kansas out of the current shortfall without having to make additional cuts to services. The repayment obligation can be taken into consideration in putting together the new tax plan. This bill (HB 2161) is now in Senate hands.

The challenges are tremendous but they are not insurmountable. The House has already shown a willingness to get the job done; a majority in the Senate has as well. But we need to work to get the super-majorities necessary for veto override votes if we really want to come out of mess created by Brownback and his allies in 2012-13. The voters did a lot of the heavy lifting in August and November when they ousted so many of those who supported Brownback and replaced them with common sense moderate Republicans and Democrats. Now we just need to be there to help these new folks get the job done.

As this session moves forward, we urge you to be faithful readers and stay ready to take action. We depend on you to help persuade your legislators to get on board.

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