Brownback warns against repealing tax exemption

January 10, 2017

By Bryan Lowry and Dion Lefler

blowry@wichitaeagle.com and dlefler@wichitaeagle.com

Gov. Sam Brownback warned incoming lawmakers not to repeal his signature tax exemption for some business owners and to not even think about expanding Medicaid for the state’s working poor.

He called Kansas “the envy of the world” in his State of the State address on Tuesday, listing reasons that ranged from the state’s “incredible sunsets” to the aerospace industry.

Brownback’s celebration of Kansas’ strengths comes as the state faces a projected shortfall of more than $340 million for the current fiscal year ending in June and an additional shortfall of more than $580 million for the next year.

He said the administration would look for budget efficiencies to fix the shortfall.

The days of ‘tax first, cut never’ have come to an end,” he said.

The governor proposed several new initiatives: offering scholarships to help educate teachers who agree to stay in Kansas, starting the state’s first dental school at the University of Kansas, creating a private school of osteopathy to provide medical professionals in rural areas and challenging state universities to come up with a way to provide a four-year bachelor’s degree at a cost of $15,000.

“There is much work to be done, both in K-12 and higher education, but I am confident that by working together, we can create greater opportunity and a brighter future for our students,” Brownback said.

Democrats said the initiatives sound good but that they didn’t trust Brownback to carry through.

“Whenever I hear a Brownback proposal, I always wait for the details,” said House Minority Leader Jim Ward, D-Wichita. “ ’Cause they always sound good in the State of the State, but when you start to see details, there’s always someone else who sacrifices.”

On the budget, the governor asked lawmakers to pass a bill addressing the current year’s shortfall by the end of this month.

Senate President Susan Wagle, R-Wichita, interpreted that as the governor saying he was going to defer to lawmakers rather than offering his own solution to the current year’s shortfall.

“He’s tossed the ball to the Legislature in funding this year’s budget. … That’s the sense that I heard,” Wagle said. “That’s an awful lot for a new Legislature that has just organized.”

Brownback promised that his budget director, Shawn Sullivan, would present a plan on Wednesday to balance the budget for the next fiscal year and that the administration would focus on finding budget efficiencies. He hinted at a plan to merge the Kansas securities commissioner’s office with the state Insurance Department.

He also said the budget would include “modest, targeted revenue measures to fund essential state services.”

He told reporters after the address that he would propose some “one-time measures” to help balance the state’s current budget.

Rep. Chuck Weber, R-Wichita, applauded the mention of efficiencies, saying that was necessary “before we start attacking people’s paychecks.”

Sen. Carolyn McGinn, R-Sedgwick, the Senate budget chairwoman, said she took notes on the governor’s budget proposals, and they didn’t fill one page.

“I was disappointed that we didn’t even get into his mechanics about how to solve the problem. … I’m just not sure the direction we received tonight gets our state back on its feet,” McGinn said.

Tax exemption

Brownback made clear he would not support efforts to roll back his zero tax rate for owners of limited liability companies and other closely held businesses.

“President-elect Trump’s tax plan targets small businesses. Speaker (Paul) Ryan’s tax plan targets small businesses in much the same way we did,” Brownback said.

Lawmakers of both parties have said they want to repeal the policy, questioning its fairness and effectiveness.

“The purpose of our small business tax cut has been to increase the number of small businesses and increase private sector job growth,” Brownback said. “That policy has worked.”

The Kansas Department of Labor reported last month that Kansas lost 4,500 private-sector jobs between November 2015 and November 2016.

Democrats scoffed at the notion the tax cut has been a success for anyone but the richest Kansans.

“The top 1 percent of wealthy Kansans received an average tax cut of $25,000,” said Senate Minority Leader Anthony Hensley, D-Topeka. “The bottom 1 percent of low-income Kansans had an average tax increase of $200.”

While blaming some of that on Brownback lowering high-income tax rates, Ward said: “We must repeal the loophole that allows 330,000 Kansans not to pay income taxes.”

Rep. Melissa Rooker, R-Fairway, called the governor’s speech “extraordinary in terms of the disconnect with the reality of our state’s finances.”

Bob Beatty, a political scientist from Washburn University, said the speech elicited fewer standing ovations from lawmakers this year. “That’s the fewest number I’ve seen in 11 years.

“There’s a mismatch between the mood of the Legislature and the governor, and that showed up in the speech, the reaction to the speech,” Beatty said. “There’s a number of legislators, including Republicans, that want to get rid of that LLC exemption.”

Rep. Steve Johnson, R-Assaria, the chairman of the House Tax Committee, said the committee will study whether the exemption is spurring enough economic growth to justify the loss of roughly $250 million a year in tax revenue.

“So far, I haven’t been able to confirm that the impact has been there,” Johnson said.

House Majority Leader Don Hineman, R-Dighton, said he interpreted the governor’s comments as the opening of a negotiation and that he hoped the Legislature and governor would be able to find middle ground as the session proceeds.

Rep. John Whitmer, R-Wichita, on the other hand, was glad the governor came out strongly in defense of the tax policy and said his only disappointment was that Brownback planned to pursue other tax increases.

“I liked it up until he mentioned the word ‘revenue,’ but I told (budget director) Shawn Sullivan that I’ll support any cut, any consolidation, any efficiency,” Whitmer said. “I’m not voting for a tax increase.”

College costs

Brownback challenged the state’s universities “to provide the opportunity to earn a bachelor’s degree – in total – for $15,000 or less.” He offered 50 full scholarships to the first university or college able to do so.

Brownback cut funding for the state’s regents universities in March and May by a combined $47 million. University leaders have pointed to limited state funding as one reason for tuition increases.

Rep. Barbara Ballard, D-Kansas City and the associate director of civic engagement and outreach for the Dole Institute of Politics at KU, said Brownback’s call for a $15,000 degree is not realistic. The cost of providing a quality education has grown, she added.

Although tax-supported, low- and even free-tuition education was once common in some states, “I just don’t think people can afford to do that anymore,” Ballard said.

Lt. Gov. Jeff Colyer said the governor’s plan is modeled on successful initiatives in other states. “We’ve talked to several Kansas colleges, and they’re up for the challenge,” he said.

School finance

The Legislature faces a tight deadline to pass a new K-12 school finance formula before the end of June, when the current block grants expire. The Legislature repealed the old formula in 2015 at the governor’s urging.

“For decades, the children of Kansas suffered under an overly complicated education finance formula that lacked accountability for results, handcuffed local school boards and spent money unrelated to student achievement,” Brownback said.

This line was criticized by Kansas educators.

“The children were suffering because the old school finance formula was not funded properly,” said Mark Desetti, legislative director of the Kansas National Education Association, the state’s largest teachers union. “They wouldn’t have had to suffer because it was a good formula that worked but was underfunded.”

The governor called for innovation as lawmakers craft a new finance formula. He said he would like to shift to a system based on outcomes.

“We need to measure success not by dollars spent but the achievement of our students,” he said.

He also called for the expansion of a tax exemption for corporations that donate to private school scholarship funds and the use of merit-based raises for teachers.

Medicaid

Brownback repeated his opposition to Medicaid expansion.

The state has turned away more than $1.6 billion in federal aid since 2014 by not expanding Medicaid to provide health insurance to 150,000 uninsured Kansans. The state also rejected a $31.5 million grant to design its own health care exchange under the Affordable Care Act.

Brownback said that if Kansas had accepted this federal aid, it would have faced additional costs at the state level.

“As challenging as our current budget situation is, imagine if we had followed the siren song of the Affordable Care Act,” Brownback said.

Contributing: Associated Press


This article was originally published on The Wichita Eagle website, here.