LLC Loophole Repeal Is Just Step One

Jan 20, 2017 by

Post Highlights

  • Governor’s budget recommendations would fail special education maintenance of effort requirements resulting in loss of federal dollars to support those programs.
  • Motions by Representatives Rooker, Trimmer and Campbell were made to support full funding of KPERS.
  • KNEA supports repeal of LLC Loophole while recognizing that this is just one step in a much-needed comprehensive plan to create a fair and sensible tax code.
  • Brownback Secretary of Revenue, Sam Williams (former chair of Brownback’s K-12 Efficiency Task Force) promised to spend the weekend trying to discover why his own department’s fiscal notes were inaccurate- to the tune of hundreds of millions of dollars.
  • Kansas Policy Institute’s Dave Trabert came to the defense of the LLC loophole arguing that the state has more than enough revenue to provide for outstanding public services.
  • A federal report issues scathing criticism that Brownback’s KanCare program is “substantively out of compliance with federal law.”
  • House Education committee hears report from Kansas Commissioner of Education, Dr. Randy Watson regarding KansasCan campaign, state assessment changes and more.

House K-12 Budget Committee Considers Department of Ed, Schools for Deaf and Blind

After hearing budget appeals from the Kansas State Department of Education and the Schools for the Deaf and Blind yesterday, the committee today crafted their recommendations for the full Appropriations Committee.

It did not take long to come to an agreement. Notable in the testimony yesterday was the fact that the Governor’s recommendations, if enacted, would cause the state and the two special schools to miss special education maintenance of effort requirements and thus cause the state to lose federal special education dollars. One key to this problem is the Governor’s recommendation to freeze KPERS employer contributions at the 2016 level.

Under the Governor’s plan, the state would make KPERS contributions in 2017 and 2018 at the same level as 2016. In 2016, the state made only three of the four quarterly KPERS payments, instead using the last $96 million payment to patch the holes in the state budget. Governor Brownback has suggested reneging on a promise to pay the $96 million back with interest (total value is $115 million). The state is also required by statute to increase contributions annually to meet the actuarial requirements.

The Governor’s plan would mean that in 2017 and 2018 the state would not only ignore the statute on increasing contributions but would pay no more than was paid in 2016 entirely – this means another $96 million loss in 2017 and again in 2018.

Motions in committee from Representative Melissa Rooker (R-Leawood), Ed Trimmer (D-Winfield), and Larry Campbell (R-Olathe) that would recommend that the Appropriations Committee fully fund KPERS as per statute and ensure that special education maintenance of effort requirements be met.

Our thanks go out to Rooker, Trimmer, and Campbell as well as all the committee member who voted in favor of these motions.

House Tax Committee Hears Bill on LLC Repeal

The House Tax Committee today held a hearing on HB 2023, a bill that would repeal the so-called “LLC loophole” under which owners of businesses pay no state income tax at all.

KNEA supports the repeal of the LLC loophole but in this case, we testified as neutral. We believe that while the loophole must be repealed, it should be done within a comprehensive tax restructuring. The loophole only accounts for about 30% of the loss to the state treasury caused by the reckless Brownback tax policy.

Much more needs to be done in a comprehensive manner before Kansas is out of the woods.

We are suggesting that Legislators take a look at the Rise Up plan. It is currently the only plan out there that would actually move the state back to fiscal sanity by ending the “glide path to zero income taxes” and re-establishing fairness in the Kansas tax code.

Leading off in testimony last night was Secretary of Revenue Sam Williams. Williams held fast to the fantasy that the loophole was creating massive numbers of new jobs in Kansas and that Kansas was outperforming other states. The hottest time for Williams was when he was asked why the new fiscal note issued by the Department – the memo that indicates how much revenue would be raised if the loophole was repealed – was hundreds of millions of dollars below prior fiscal notes. Williams was unable to respond and told the committee he too was puzzled and would spend the weekend trying to find out why.

Former Representative Mark Hutton then appeared before the Committee to urge passage of the repeal. Hutton came to the committee as a businessman and former supporter of the LLC loophole. He is now a strong advocate of repeal as it has not resulted in any benefit but only contributed to the loss of revenue and collapse of the state budget. Hutton spent much of his time dismantling a misleading “report” authored by the Kansas Policy Institute (KPI).

Dave Trabert of the KPI made his first appearance of the session in defense of the LLC loophole. Trabert, as usual, insisted that the state had more than enough revenue to provide for outstanding state services. He acknowledged that it might be unfair that business owners don’t pay income tax while their lower-wage employees do but he was more than happy to accept that unfairness as long as there were other things in the tax code that were unfair. He suggested that KPERS employer contributions should be taxed and the Regent’s employees should have to pay taxes on their retirement benefits.

The committee members, with the exception of Rep. Ken Corbet (he is an LLC owner), appear to be ready to repeal the loophole. If they do, it would be a good first step in righting the ship. It would be wrong, however, to believe that this one step alone will do the job. It won’t.

Kansas needs a comprehensive tax restructuring if we are ever to reverse the Brownback disaster.

Brownback Handed Failing Grades on KanCare!

A scathing report has been uncovered that calls Gov. Brownback’s KanCare program which privatized Medicaid to be “substantively out of compliance with federal law.” Two letters to the Administration from the Centers for Medicare and Medicaid Services outlined numerous compliance issues with the program which has been highly touted by the Governor and Lieutenant Governor Colyer.

According to the Topeka Capitol-Journal, a “January 17 letter denied a request to extend a waiver – known as a section 1115 waiver — authorizing the KanCare program by a year, from the end of 2017 until the end of 2018. Kansas must formulate and implement a corrective action plan, CMS officials say.”

In typical fashion, Colyer called the letters a politically motivated attack on Governor Brownback by Obama. Yes, it’s Obama’s fault! One wonders what the excuse will be tomorrow!

Read the letters in the Topeka Capitol-Journal. http://cjonline.com/news/state-government/2017-01-19/lawmakers-furious-feel-blindsided-brownback-administration-over

House Ed Committee Hears from Dr. Watson

Dr. Randy Watson, Commissioner of Education, gave a presentation on the merits of the Kansas Department of Education campaign known as “Kansas Can.”  Citing aggregate data as well as results from the KSDE listening tour, Dr. Watson expressed to the committee a new focus on providing curriculum to students that fit within their interests and meets the needs of the future workforce. 

After his presentation, Dr. Watson stood for questions from the committee.  During this period, Representatives Crum and Stogsdill remarked that they’ve been hearing from educators and parents who are concerned about teacher shortages and the lack of respect the state has shown teachers over the last few years.  Several committee members agreed as did Dr. Watson.  KPERS stabilization, strong working conditions, and other teacher rights issues were raised as possible ways to make Kansas more attractive for teachers.  We agree too!

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