Monday, January 14, 2013

Dealing with state tax cuts driving the 2013 legislative agenda

By SCOTT ROTHSCHILD, The Lawrence Journal-World

The state of Kansas faces its own fiscal cliff as the Legislature starts the 2013 session on Monday.

Because of tax cuts pushed through last year by Gov. Sam Brownback and conservative legislators, state revenues are shrinking. And the appetite among the growing conservative majority in the Legislature for more budget cuts is growing.

Those legislators aren't simply ready to cut state agency budgets; there are numerous proposals that would have the effect of reducing taxes or limiting spending on the local level.

City, county and school officials often complain about how the actions in the Statehouse negatively affect their ability to deliver services, just as state legislators complain about Washington.

But this year, that complaining has morphed into a outspoken concerns about Topeka among some local leaders.

"To say that local governments are worried this year is to put it lightly," Douglas County Commissioner Nancy Thellman said.

As if this wasn't enough, on Friday a three-judge panel ruled that the Legislature violated the Kansas Constitution by cutting public school funding over the past several years. It ordered a $440 million increase in funding. The state has said it will appeal the decision to the Kansas Supreme Court

While the court is unlikely to rule until after the legislative session, the decision by the three-judge panel will likely dominate public policy debate on school funding and attempts by conservatives to rein in the courts.

The budget equation

When legislators gavel in Monday, they will start working on the budget for fiscal year 2014, which starts July 1.

The effects of reducing state income tax rates and eliminating state income taxes for nearly 200,000 business owners will be part of the equation. The total amount of revenue the state is expected to collect in the fiscal year is approximately $5.5 billion. Current spending levels are at $6.2 billion.

That leaves a $700 million difference — nearly 12 percent of current spending — that has to be bridged through either budget cuts, tax increases or a combination of the two.

"No matter what solutions lawmakers choose, the fiscal year 2014 budget presents many challenges that could have a direct effect on health programs and other key services," said Duane Goosen, an analyst with the Kansas Health Institute, who served as the state's budget director under Republican Gov. Bill Graves and Democratic governors Kathleen Sebelius and Mark Parkinson.

The one-cent solution

One partial solution that Brownback has indicated support for in the past is keeping in place the 6.3 percent state sales tax.

When the state was reeling from the "Great Recession," a coalition of moderate Republicans and Democrats in 2010 approved a one-cent increase in the sales tax — raising it from 5.3 percent to the current 6.3 percent — for three years to avoid further cuts to schools, social services and public safety. The sales tax is scheduled to ratchet down to 5.7 cents per dollar on July 1, with a portion of the levy going to help fund the state's transportation program.

Conservative Republicans and the Kansas Chamber of Commerce hammered those who supported the tax increase when it passed, but now the Chamber of Commerce has pivoted, leading the charge to make the temporary increase permanent. The chamber wants more budget cuts and then the higher sales tax revenue can be used to cut income tax rates further.

The decision makers

Working on these financial problems is an inexperienced House and new ruling group in the Senate.

Partially due to court-ordered redistricting, there will be 50 rookies in the 125-member Kansas House. The 40-member Senate has 16 new members, although 14 have served in the House.

"When the court redrew maps it really caused a big change in the overall makeup of the Legislature. This is the product of it," Brownback said in an interview.

In the 2012 legislative session, a political war within the Republican Party sent the redistricting process to federal court. A three-judge panel hit the reset button and drew congressional, legislative and State Board of Education district lines.

That resulted in a frantic rush for candidates and a huge freshman class.

Now there are House members who are starting only their second terms and finding themselves chairing committees. The Senate also is under new leadership that is tightly aligned with Brownback.

But to all the new members, most of whom are solidly conservative, Brownback had some advice: "I always believe you shouldn't overplay your hand. I've been saying that for years. You do what is sensible and have a strategy for doing it and try to move that on forward. That's going to continue to be my message."