Of Taxes, College Credits, and the Sad Case of Foreign Languages

Jan 28, 2019 by

Tax decoupling on the Senate fast track

There’s been quite a tax kerfuffle in the Senate. Tax Committee chair Caryn Tyson (R-Parker) appeared to have fast tracked a tax giveaway bill – the so-called “windfall” bill. Her intent was to decouple part of the Kansas income tax code from the federal income tax code. 

When Congress adopted the Trump tax cuts for the wealthiest Americans, the changes they made to the code would prevent many middle income Americans from itemizing deductions and instead taking a higher standard deduction. But since the state code and federal code are “coupled,” itemization would go away for most Kansans but without the benefit of a higher Kansas standard deduction. Thus some Kansans would see their state income taxes go up. 

This additional tax revenue is being portrayed as a “windfall” to the state that the state never planned on getting. Republican conservatives are crying foul and demanding that the state give this revenue back to the taxpayers (and conveniently forgetting that the entire Kansas Republican Congressional Delegation gleefully voted for the Trump tax changes). 

So here’s where things get sticky. Tyson’s bill also included a number of other tax changes not related to the income tax changes. Then Tyson invited the Kansas Chamber to present their wishlist of tax changes to benefit corporations. These are tied up largely in two complex provisions dealing with overseas earnings – the GILTI provision and the Repatriation provision. 

It was clear that Tyson intended to put the corporate tax revisions into the bill which would further clutter up the package. 

And, that’s when Senate President Susan Wagle (R-Wichita) stepped in. Wagle apparently wanted to go in a slightly different direction and so she formed a new committee to deal specifically with federal tax implications naming herself as Chair – The Senate Select Committee on Federal Tax Implementation.

Speculation is that Wagle wants the decoupling for itemized deductions and the GILTI and Repatriation provisions requested by the Chamber but doesn’t want them jumbled up with a bunch of unrelated provisions. Some say Tyson disagreed, wanting to push her bigger tax bill. 

That’s where things sit right now. And Wagle’s Select Committee will be meeting Tuesday through Thursday this week to hear SB 22, the bill decoupling from the federal tax code. The plan is to have final action by the Committee on Thursday.

The Governor is opposed to the decoupling at this time, urging the Legislature to go slowly on tax issues. No one has yet been able to accurately determine the impact of the decoupling and Kelly is suggesting that until that can be done – possibly this summer – there should be no changes as those changes could have a significantly negative impact on the state budget.

Meanwhile, the House Tax Committee, instead of rushing into the abyss, are engaged in thoughtful discussions about the actual impact of the federal tax changes on Kansas taxpayers, whether or not there is an alternative to decoupling that would accomplish the same thing, and what the fiscal impact of each option might be.

More tax issues being discussed

The House Tax Committee moved on to discussing new options on the collection of internet sales taxes.

This discussion is the result of a recent US Supreme Court decision that changes the standard for collection of sales taxes on internet sales. In the past, under a decision called the “Quill Decision,” sales taxes on internet sales were required only if the the seller had a physical presence in the state. This new decision – the “Wayfair Decision” – overturns the physical requirement and says physical presence or economic presence counts.

States are adopting a minimum sales threshold under which an internet sales provider would be required to collect destination sales taxes. Most states have adopted $100,000 in sales as the threshold; some have an either/or situation – either $100,000 in sales or 200 sales transactions in the state. Also in this discussion is how to handle the sale of digital properties like Netflix, Hulu, iTunes, etc.

The Kansas legislature will likely take this matter up.

Concurrent enrollment discussion in K-12 Budget Committee

A discussion in a meeting of the House K-12 Budget Committee focused primarily on the issue of concurrent enrollment programs for Kansas high school students.  Dr. Blake Flanders, President and CEO of the Kansas Board of Regents, joined Kansas Commissioner of Education, Randy Watson to present a plan to grow the current program.  Both presenters extolled the virtues of attainable post-secondary programs and the impact those graduates have upon the Kansas job market, salary growth and overall growth of economic prosperity.  

By growing the concurrent enrollment program, along with other pathways to post-secondary opportunities, more students in all parts of Kansas can seek certificates, undergraduate and graduate degrees.  Under this program, teachers of concurrent enrollment courses would be employed and paid by the district while the post-secondary partner institution- typically a community college- would receive funding for tuition, books and supplies for each enrolled program student.  The tuition fee- paid through an allocation of state dollars to this program- would be approximately $275 per course.  

Both the committee chairperson, Representative Kristey Williams (R-Augusta) and Vice-Chair Representative Kyle Hoffman (R-Coldwater), had questions regarding the funding amounts, who would be paid (the district or the college) and why this program would- in effect- be akin to double paying for students.  The funding amount- per enrolled student- is the median of a range of tuition amounts from ongoing programs throughout the state.  Dr. Flanders indicated that it would be the institution that would receive the funds under this program but that local agreements with districts could push portions of those funds back to the district. 

Are foreign language studies disappearing?

Last week we were sitting the House K-12 Budget Committee listening to a discussion on school performance and the Kansas school accreditation system. At one point Chairperson Kristey Williams (R-Augusta) commented on the importance of foreign language instruction. As Kansas educators know the value of studying foreign languages, we were pleased and surprised to hear a representative mention a subject other than STEM subjects.

But today we came across an article in the Chronicle of Higher Education reporting that from 2013 to 2016, colleges in the United States lost 651 foreign language programs (among those were 118 Spanish programs, 129 in French, 86 in German, and 56 in Italian). By comparison, only one program was lost between 2009 and 2013.

Given the global world in which we operate and in which today’s young people will compete, we hope this is an anomaly and not a trend but expectations are that the decline will continue into 2020.

You can read the article in the Chronicle by clicking here.

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House Saves the Day; Kills Corporate Tax Giveaway & Tax Cuts for the Rich

May 7, 2018 by

Later this week, we will provide a more comprehensive review of the 2018 Legislative Session but for today, we talk about the taxing events of Thursday and Friday, May 3 and 4.

Two highly controversial bills dominated the discussion for these two days. One was Sub for SB 284, a bill enacting the so-called “Adoption Protection Act.” (We will report on this bill later.) The other was Sub for HB 2228, the Senate’s large corporate tax giveaway and tax cut for the wealthiest Kansans.

Both were contained in Conference Committee Reports (CCR). So you understand the order of business, a conference committee report on a Senate bill goes first to the House for action while a conference committee report on a House bill goes first to the Senate. Conference committee reports cannot be amended. There is a motion to adopt the CCR which is debated and then voted on. Both chambers must adopt the report for it to go to the Governor for his signature or veto.

Because of the controversial nature of both reports and the fact that they were running almost simultaneously, it meant the atmosphere under the dome was tense.

The tax bill (Sub for HB 2228) was really the brainchild of Senate leadership, in particular, Sen. Caryn Tyson (R-Parker). The original fiscal note on the bill as it came out of the Senate and before it went to conference was a more than $500 million loss in revenue to the state. It essentially offset all of the spending increase in K-12 education.

Fiscal notes on the measure as it was debated and amended in conference changed constantly because there was no actual way to calculate the impact of changes to Kansas income taxes before the full impact of federal income tax changes were known.

The two biggest threats to the state budget included in HB 2228 were directly tied to the federal tax act passed last December.

One of these was a provision to decouple the state income tax from the federal code so that taxpayers who could no longer itemize on the federal form could still itemize on the state form. The federal code has changed so much that many filers will no longer be able to itemize. While some taxpayers may find a federal benefit (although most will not), the loss of itemization at the state level means higher revenue collections at the state level. But because those who itemize are generally the wealthiest taxpayers (Kansas estimates only about 20% of taxpayers itemize), this revenue would come from the wealthiest Kansans.

The second big item was the “repatriation” of overseas corporate earnings. Among the federal tax changes was a provision to bring the overseas earnings of multi-national corporations back to the United States for tax purposes. These corporations have long been able to essentially shelter much of their earnings overseas to avoid U.S. taxation. These earnings are now being “repatriated” – brought back to the U.S. – and taxed. Tyson wanted to block taxation of these repatriated earnings in Kansas, a measure that is essentially a big corporate tax giveaway.

So – big item number 1 cuts taxes on the wealthiest Kansans while big item number 2 allows corporations to avoid taxation in Kansas. All while providing no relief to the 80% or more of working Kansans.

On Thursday, May 3, the Senate approved the measure on the slimmest of margins 21 to 19, sending it on to the House for a vote on Friday. See how your Senator voted by clicking here.

Now our attention turned to the House where it was expected the vote would be close. As we watched discussions and followed caucus discussions, it was often unclear as to which way the vote would go.

One thing we knew for certain was that if this bill were to pass, the chances that our schools would close in August would be much greater. As it is, many people think the school funding bill passed is likely not to meet adequacy but a tax cut bill that puts the budget underwater in the second year of the school finance plan is almost certain to result in rejection of the plan. Remember the Court was clear in their earlier ruling that the state needed to demonstrate the money would be available to fulfill the promise of a phased-in funding plan.

Debate on the bill in the House began mid-afternoon on Friday. Rep. Steven Johnson (R-Assaria), as chair of the House tax committee, made the motion to adopt the report. Rep. Tom Sawyer (D-Wichita), the ranking Democrat on the committee made the arguments against the bill. Nearly every member who went to the well to speak on the bill was a conservative who supported it. They tried to persuade others that they were giving the people back what was theirs and helping the middle class. Unfortunately, the bill only provided benefits for corporations and the wealthiest Kansans, leaving most of us holding the bag for funding critical state services including schools.

With seven members out as excused absences, the vote came in at 59 to 59. It is important to know that a final action vote such as this requires 63 votes to pass and on a tie vote the bill fails. Conservatives put on a call of the House under which the doors are locked and Legislators are kept in their seats until the call is lifted. The time is then used to pressure anyone that proponents believe to be “weak” in an attempt to get the win. Often the Highway Patrol is sent out to bring absent Legislators back. A call can go on for hours.

In this case, because they were working on Sine Die, the last day, they could not go past midnight. So if people held their positions until midnight the bill would fail.

There were a number of calls to raise the call of the House but if 10 members object, it is not lifted and so the call went on and on. But no votes changed. It held at 59 to 59 until a call to raise the call was successful. Speaker Ryckman (R-Olathe) asked if there were any explanations of vote. There were none. He asked if there were any changes of vote. There were none. He closed the roll, tallied the vote, and declared the bill dead. You can see how your Representative voted by clicking here. 

Another tax conference committee report dealing with motor vehicle rebates was quickly passed and the House adjourned Sine Die.

Thanks to the failure of HB 2228, there is a greater chance that schools will be open come August and that a special session is less likely. Understand that both are still possible! We won’t know until the Court finishes its review of school finance plan but had HB 2228 passed,  a special session and closing of schools would’ve been almost assured.

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Cutting Revenue and Arming Teachers

Mar 23, 2018 by

Senate Tax Committee Once Again Cutting Revenue to the State

The Senate Tax Committee last night passed out of committee a bill that dramatically cuts revenue to the state in a new tax cutting spree.

The biggest issue in the bill is decoupling from the federal income tax code. Under the new federal tax bill, many people who currently itemize on their income tax will no  longer be able to do so. Under current Kansas law, our income tax system is coupled to the federal system meaning that if a taxpayer doesn’t itemize on their federal return, she cannot itemize on her state return. As a result income tax collections in Kansas would go up by about $135 million next year.

The bill passed by the committee yesterday will allow Kansas taxpayers to itemize on their state form even if they can’t on the federal form and so will wipe out the $135 million that would otherwise have come to the state.

Additionally, the committee also raised the deductibility of mortgage interest, property taxes paid, charitable contributions, and medical expenses to 100%. This, because of the decoupling mentioned above, will cost the state an additional $52 million in revenue.

Finally, they added in an increase in the standard deduction which will primarily help low income Kansans.

Essentially, if passed this bill will reduce revenue to the state by about  $157 million.

The committee also passed a bill lowering the food sales tax from 6.5% to 4% in 2020 and then to 2% in 2021.

Governor Colyer Meets with KNEA

KNEA met today with Governor Jeff Colyer at his invitation.

We had a productive discussion with the Governor on school redesign issues, teacher empowerment, and how schools might ensure student success and the achievement of the College and Career Ready Standards for every child.

The Governor has been holding discussions with many organizations interested in finding a resolution to the school finance issue. We thank the Governor for providing this opportunity.

Bill to Arm Teachers to Get a Hearing Next Week

The House Insurance Committee, chaired by Rep. Jene Vickrey (R-Louisburg) will  hold a hearing on HB 2789 early on Tuesday morning, March 27.

This bill would allow school districts to permit some or  all teachers to carry firearms in school.

KNEA opposes this bill and will testify in opposition before the Committee. Kansas NEA’s position is that the safest schools are gun-free schools where the only armed persons on any school campus should be trained and licensed law enforcement personnel.  Our position is an informed position having consulted with law enforcement officials who train schools, businesses and community organizations for active shooter occurrences.  Our position aligns with our long-standing core values.

Here’s a review of the bill from our report yesterday:

Enter House Bill 2789 and Senate Bill 424, both creating the so-called “SAFER Act.” In the clever “language that means the opposite of what it actually does” world of ultra-conservatives, the bill purports to create the “Kansas Staff AFirst Emergency Responders act.” In this case, the “first emergency responders” would be classroom teachers.

Under the bill, school districts can supposedly choose to arm teachers and such teachers must hold a concealed carry permit and an additional level of permit known as the SAFER permit. These teachers would then be expected to pack a weapon at school and then confront an armed assailant.  The bill makes no provision for law enforcement to determine who might be the “bad shooter(s)” and who might be the “good shooter(s)” when the SWAT team arrives to find multiple people with weapons drawn and engaged in gunfire.

But before you think this is an exercise in “local control” for school districts, a section of the bill specifically states that in schools where teachers are not armed, should an incident take place the school district is deemed to have been negligent should there be a lawsuit or other court action.

Instead of providing resources to ensure that school buildings are secure; instead of passing legislation to control the proliferation of assault rifles (the weapon of choice in mass shootings, read more here) including universal background checks; instead of providing resources for mental health providers, HB 2789 and SB 424 simply throw guns at the problem and hope Miss Smith will just go out in the hall and shoot an intruder. Problem solved.

 

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Still Gathering Info; Thinking About the Prospects

Jan 17, 2018 by

KSEdTalk- LEGISLATIVE LANDSCAPE 2018, CLICK HERE TO LISTEN

These early days of a legislative session leave us wondering what we have to report to you every day! Legislators might be thought of as “hunter/gatherers.” While hunting for ideas and solutions, the spend a lot of time gathering information.

So it has been so far this year. In the committees we follow most closely – Appropriations, Ways and Means, the Tax Committees, the Education Committees, and the Education Budget Committees – we have been treated to many of the same presentations. These include:

  • Reviews of the impact of SB 19, the tax bill passed last session. What we know- Things are looking up but it’s still early – we should know a lot by April. And the new federal tax bill is likely to help make our revenue picture a “wild ride” (legislative staff said that not us!) with the first impact being a large influx of income tax cash as taxpayers sent in their last estimated tax payments in December rather than January to ensure those payments could still be deductible on their 2017 federal income tax form.
  • Reviews of the deliberations of the Special Committee on a Comprehensive Response to the School Finance Decision. This committee assembled a collection of data but chose not to forward any recommendations to the full legislature. The most talked about part of their report is their study of the impact of an 18% cut to all state agencies except K-12 education as a means of raising the $600 million they believe is needed to meet the Court’s ruling.
  • Reviews of the evolution of the education article in the Kansas Constitution (Article VI). The current language was drafted by a legislative committee in 1965 and by the public in 1966. Prior to 1966, it was the language of the Wyandotte Constitution. A number of legislators have been floating the idea of pressing a constitutional amendment to stop the Supreme Court from determining the school funding formula to be unconstitutional on the basis of adequacy.
  • Reviews for recent changes to KPERS including the impact on the unfunded actuarial liability of withholding state KPERS contributions as part of balancing the budget.
  • Presentations by Education Commissioner Randy Watson on the state of education in Kansas today.

It’s a lot of data!

 Is $600 million the number?

It would seem that $600 million is the number under the dome. The Governor proposed $600 million, meeting the SBOE or the three-judge panel recommendations would take about $600 million, the Special Committee premised their discussion including consideration of budget cuts to raise $600 million, so it sounds a lot like consensus. (We recognize that there is a core group of legislators who don’t want to increase school funding at all.)

But of course, at the same time, the legislature has contracted for a new school funding study. That study is expected to be presented to the legislature on March 15. And that’s another problem.

The Court expects briefs to be filed on April 30. Attorney General Schmidt and the state’s attorney, Art Chalmers, both asked the legislature to finish their work by March 1 in order to meet that deadline. A few legislators have begun to float the idea of waiting until that study is complete. But to do so would jeopardize their ability to argue in the Supreme Court.

There are several things the legislature needs to do to get this task accomplished.

  • They need to deal with the four unconstitutional inequities in the new formula. This is a relatively easy task and Rep. Melissa Rooker (R-Fairway) has already filed a bill to fix those problems (HB 2445).
  • With that done, they can focus on the level of funding they need. Again, the SBOE, the three-judge panel, and the Governor have all indicated about $600 million.
  • They need to decide how to put that money into the system. The Governor suggested a five-year phase-in. We don’t know if the Court will accept a time frame of that length but most people agree there will be some kind of phase-in.
  • And finally, they need to make sure the money is available. They must show the Court that they are serious by presenting evidence that the money for a phase-in will actually be there. This might take additional revenue measures and it will certainly include evidence of increasing revenue collections.

These are the discussions we hope to see beginning very soon.

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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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