When legislators arrive in Topeka on Jan. 9 for the start of the 2017 session, “all kinds of ideas will be floated,” Rep. Kent Thompson told Allen County commissioners Tuesday, in many respects to deal with a $350 million shortfall in the current budget.
With monthly revenue being short of estimates 34 of 47 times since the 2012 tax cuts took effect, the state budget will be even more pronounced in 2017. Thompson and Rep. Adam Lusker fielded commissioners’ questions Tuesday morning. They represent Allen County, Lusker the east side, Thompson the remainder.
Sen. Caryn Tyson did not attend.
When the two House members talk about “all kinds of Ideas,” nothing is off the table, Lusker said.
An obvious target is the tax exemption currently enjoyed by 330,000 businesses and farmers. Discussions for its repeal surfaced last session when the legislature was more lopsided toward Gov. Sam Brownback and his so-called “March to Zero,” to eliminate all state income taxes.
That’s different today. Following November’s election, the House now has 40 Democrats, an increase of 11, and 37 moderate-leaning Republicans, an increase of 15. Thompson said several more Republicans, depending on the issue, could be expected to join in a non-partisan effort to pass legislation meant to right the state’s financial ship.
A two-thirds majority, 84 votes, of the 125-member House is required to override a bill’s veto by the governor.
The Senate is another matter. Democrats picked up one seat and the best split between moderate Republicans and Democrats, compared to ultra-conservative Republicans, is 20-20.
IN ADDITION to expounding on philosophies, the two legislators discussed several issues.
Online purchases and sales tax: Lusker has a masonry business in Pittsburg. “I see people walk in, look at things and then stand right there and order it online with their cell phone,” he said. The reason? Sales tax is nearly 10 percent in Pittsburg. “They’d rather save $10 (on a $100 purchase) than help keep a local store open.”
He and Thompson favor legislation to require online sales to be taxed at the same rate as in home-town purchases. It could be done easily enough with requirement of a zip code to mail what is ordered, Thompson said. As is, online purchases made from a company with a presence in Kansas, state sales tax of 6.5 percent is required to be collected, but not that for Iola (1 percent) or Allen County (1.25 percent).
Legislation specific to Kansas would be in force in states within a taxing compact of states to which Kansas belongs. Making state and local sales taxes a part of all online purchases would take an act of Congress.
Commissioner Tom Williams asked if Democrats would become contrarians, in hopes dissatisfaction with state government would give them advantage in the 2018 election, when a new governor will be elected.
“I sure won’t and I don’t think most Democrats will,” Lusker said — although he did admit some might adopt the strategy, which has been mentioned in political circles. “We have an opportunity now (with legislative changes)” to redo tax policy and otherwise get Kansas on track for the future. Lusker said.
Thompson had a similar answer, that the Legislature had been at loggerheads for three years — with three factions: Democrats, moderate Republicans and ultra-conservative Republicans — “and now we can pass some good policy. I think Kansans want Republican solutions (referring to the November election). We have to govern; we have to compromise.”
In a perfect world, Thompson surmised, Brownback’s income tax cuts and the theory of putting more money in the hands of job-creators would work. The world is far from perfect, though.
He said the property tax lid that will affect local governments in 2017 backfired somewhat on two fronts. First, “it was watered down” from what was first proposed, which opened some funds to more tax increases than generally thought.
The lid means to limit property tax rates to no more than the rate of inflation without a referendum. The federal cost-of-living index was announced earlier at .3 of 1 percent, or next to nothing.
The second provision legislators who pushed for the lid overlooked was local reaction. Many governing bodies increased taxes more than they otherwise would have, to provide a cushion when the lid took effect.
Allen County had the benefit of adding Enbridge Pipeline’s valuation a year ago, increasing assessed valuation (the number used to figure tax rates and revenue) to about $140 million. Commissioners kept the property tax rate stable, but, they admitted, if it weren’t for the looming tax lid they could have lowered rates.
“Lots of counties, cities and school districts” increased taxes, Thompson said.
Resolving state budget issues, and companion taxes, won’t occur immediately, Lusker said. With more receptive legislators “we can make strides forward but you’re going to have to be patient,” he said. Going about change too quickly would be to risk angering many taxpayers and “we could be back to the same people (philosophically) that were replaced in the (Nov. 8) election” — ultra-conservatives who embraced Brownback’s tax policies.
“You also have the man on the second floor (Brownback’s office location),” Thompson added, in reference to veto override opportunities existing in the House, but more than likely not in the Senate, where about half of office holders remain strong supporters of the governor’s policies.
Changing tax structure to enhance state revenue includes a myriad of things, Thompson said. “I’ve heard talk of restoring sales tax on farm equipment,” changing the way agricultural land is assessed, even increasing the statewide property tax levy that generates much of the money to support public education. Today it is 20. At the start it was 35, went to 37, and then gradually dropped to 20 during the dot.com boom.
Lusker illuminated the farm equipment issue by pointing out that some observers suggest sales tax is collected as an end-of-market tax, i.e. the 6.5 percent sales tax on food.
Aid to education will be a hot topic for most legislators.
Thompson anticipates the Supreme Court will announce early in the session, perhaps even before it starts, whether justices think schools are adequately and equitably funded. If the order is for more funding, more pressure will be on legislators to arrive at a taxing scheme not only to deal with barren state coffers but also send more money to schools. “Money isn’t there,” without some drastic changes, Lusker said.
A new school funding formula will be mentioned often. Lusker thinks a new configuration may not vary much from the one that had been in place for more 20 years before Brownback found support for its dissolution, and replaced it with block grant funding.
As much as anything, Thompson and Lusker think the 2017 session will be highlighted by progress on several fronts, including a gradual uptick in highway construction and repairs that have been stymied by funds being swept from KDOT.
Lusker said a hearing to consider expansion of Medicaid would occur — last year’s was window dressing — but he is unsure whether any action will come. Kansas has left about $1 billion of federal money on the table, at Brownback’s insistence, that would have helped a multitude of needy Kansans — and would have been a godsend for rural hospitals such as Allen County’s. Kansas not accepting Medicaid revenue has shorted ACRH about a $1 million a year.
