The First Two Weeks

The Kansas Legislature returned to Topeka on January 14, and conducted their first full day of work on January 15 following a hardy welcome breakfast sponsored by the Greater Topeka Partnership, the City of Topeka, Shawnee County, the Topeka Metro and the MTAA.  Since then, legislators have heard their new governor’s assessment of the State of the State and have been reviewing her proposed one-year budget.

Governor’s Budget 

Governor Laura Kelly outlined her plans for 2019 in her January 16 State of the State address to a combined session of Representatives and Senators.  The following morning, her Budget Director, former Johnson County Republican Representative Larry Campbell, began presenting the details of her budget to House and Senate committees.  The Governor is focused on stabilizing the state’s fiscal condition and putting it on a sustainable footing.  Director Campbell referred to the unusual single-year budget (they usually budget two-years at a time) as a “Triage” period during which the administration will address the most pressing problems and look constantly for ways to make the government more efficient.  Gov. Kelly proposes to add about $130 million per year to K-12 school funding, confident that this will end the decades of school finance litigation.  As expected, the Governor proposes to expand Medicaid, beef-up funding for child welfare and increase pay for most state workers.  To ease the tension at bill paying time, she recommends refinancing the massive KPERS liability, a move she believes would free-up $145 million in the first year.

While transportation does not appear at the top of Governor Kelly’s priority list, she scarcely mentioned roads in her speech, her budget does propose to stop paying for schools with highway funds and to reduce the state’s patronage of the so-called Bank of KDOT (i.e. using highway monies to pay for other parts of the state budget) to zero by 2023.

Republicans and others reacted to the Governor’s proposals with varying degrees of critique.  The idea of reamortizing KPERS debt strikes some as penny-wise, pound-foolish since it will potentially add billions to the amount the state is ultimately required to pay back.  Others remain unconvinced the legislature should give the Supreme Court what it’s demanded and more to pay for schools.  Aside from earnest calls to explore more effective ways to deliver on the state’s constitutional obligation to provide public education, resentment over the Court’s perceived intrusion into the legislature’s exclusive purview runs either on or very near the surface.

A first opportunity to see just how deep are the ideological differences between the new Governor and her former colleagues in the Senate is already at hand.

Major Tax Debate

Following three days of hearings, the Senate Select Committee on Federal Tax Code Implementation this week passed Senate Bill 22 onto the full Senate for what is likely to be a lively debate the week of February 4.  The bill changes the Kansas income tax code to take account of several important features of the 2017 Federal Tax Cuts and Jobs Act.  Now that the federal standard deduction has been nearly doubled, many filers have good reason not to itemize on their federal returns.  Under current Kansas law, that means they are required to take the Kansas standard deduction too, even though many Kansas filers would then pay considerably higher state income taxes than if they had been able to itemize on their Kansas return.  Senate Bill 22 would allow Kansas taxpayers to itemize their state income tax deductions even if they took the standard deduction on their federal return.

Supporters of the bill contend Kansans will be surprised by a tax increase unless the law is changed.  Put another way, Congress intended to lower taxes by passing the 2017 Act and the benefit of those lower taxes should be allowed to pass to the taxpayers, not partially captured because state law is out of sync.

Opponents, such as the Governor, see the matter through an almost entirely different lens.  They argue the state is in no position to be turning away any projected revenues, including those which might be coming in from filers who wish they’d been able to itemize.  The state, they say, has enjoyed some revenue surpluses in recent months but its fiscal situation remains far too tenuous to justify the incautious abandonment of something on the order of $190 to $200 million.  Accurate estimates of the true impact of the SB 22 are admittedly hard to come by.

The bill also exempts repatriated foreign earnings from state income tax.  While this is a different issue, the basic contours of the debate are the same:  return windfall v. be cautious with state revenues.

Senate President Susan Wagle is so determined to get this done and done early, she insisted the Chair of the Senate Assessment and Taxation Committee quickly introduce and pass out the bill.  When the Chair, Senator Tyson from Parker, Kansas, instead introduced a rather more complex tax bill covering a range of additional topics, President Wagle promptly formed a Select Committee on Federal Tax Code Implementation to review SB 22 and did not invite her Tax Chair to take part.

Transportation Report

On Tuesday, the Joint Legislative Transportation Vision Task Force finally published its formal report to the legislature.  The Task Force had been meeting throughout the Fall under the facilitation of Julie Lorenz, who has now been appointed Kansas Secretary of Transportation.  It heard from stakeholders across the state arguing for inclusion of their local highway projects in the next long-term transportation plan.  The City of Topeka and the Chamber testified before the Task Force urging them to include the modernization of the Polk-Quincy Viaduct in downtown Topeka in the plan.

Perhaps the most striking feature of the Task Force report is the stark difference between the total cost of all the projects requested ($7.5 billion) and the projected state revenue available for transportation in the coming years (hundreds of millions each year).  Clearly, difficult choices will have to be made and other sources of funding, such as increased utilization of toll roads, will be needed.  The Task Force’s basic recommendation is that the state should work to complete all of the projects included in the last transportation plan (T-Works) and only then consider new projects.  The Polk-Quincy Viaduct project was part of T-Works but only as a design project; it was not slated to be built.  So now the work begins persuading legislators that this important choke-point in the state’s interstate highway system, in the middle of the state’s capital, must be part of the next 10-year plan for modernizing the state’s transportation system.

Association Health Plans

Legislation was introduced in the House and the Senate to enable associations, like chambers of commerce, to offer health plans to their small business members and count all of their employees together as part of the same rating group.  Under current law, any company with fewer than 50 employees pays health insurance rates based on a Small Business Rating which is generally more expensive.  Allowing chamber members to pool their employees should give them access to much more affordable health plans, in turn allowing them to provide coverage for many more hard-working Kansans.  The Chamber testified in favor of the bills.

Medicaid Expansion

As expected, a bill to expand Medicaid was introduced this week.  It was referred to committee but no hearings on it are scheduled yet.  The Chamber has been a consistent supporter of Medicaid Expansion for years.  The new Governor believes expansion is critical to the health of local hospitals; two of which form one of Topeka’s most impactful industry sectors.  However, leadership in both chambers remain adamantly opposed to expanding Medicaid, fearful of the long-term effects of undertaking expanded fiscal responsibility for the health of 150,000 ailing Kansans.  They will not necessarily allow the bill to progress through committee in the normal way.  So supporters of Medicaid Expansion will be on a constant look-out for opportunities to bypass the committee system and fight-out Expansion on the floors of the Senate and House.

METL; Coalition of Local Chambers; Pie and Politics

The Topeka Chamber has been working in conjunction with its sister organizations in Manhattan, Emporia and Lawrence on an outstanding series of four Workforce Summits which brought together top leaders from the major universities in our respective communities with key business leaders to discuss what has emerged as the number one issue facing Kansas business: the availability of a skilled workforce.  The last summit was held at the Dillon House and was attended by over 60 engaged community leaders.  METL will be following-up on what they heard at the forums and is looking toward another series in 2019 which includes technical and community colleges in the discussion.

METL and the Coalition of Local Chambers have been meeting to formulate their 2019 legislative agendas.  Focus is on workforce development, transportation and economic development.  Once those slates are approved by the respective groups individually, each coalition will work to make sure every member of the legislature knows where they stand.

On January 28, the Topeka Chamber held its first 2019 Legislative Leadership Forum, which is more commonly know as Pie and Politics.  The forum took place inside the Statehouse.  Senators Eric Rucker and Vic Miller, both of whom are new to the Kansas Senate but are political veterans, shared their perspectives on the 2019 legislature to date and what issues are coming up, including the important tax bill, SB 22.

If you have any questions about this or any legislative updates, contact Curtis Sneden.