3.18.2011 Newsletter
March 18, 2011
The tenth week of the 2011 legislative session was the last full week that most House committees had to consider legislation. Friday was the deadline for bills to be passed out of committee. Thursday and Friday were the days that major provisions of tax bills were debated on the floor of the House. House leadership made the decision that the bill to repeal the 1 cent tax increase made sense to be the first bill debated. HB 2091 would have taken the state portion of the sales tax back to 5.3 % this July and would have added an additional $344 million to the $497 million budget hole for the state budget. The reason that the repeal bill was brought up first was that we knew that if it was not it would have been attempted as an amendment on one of the other tax bills that we had planned to debate. That was because a large number of our members had expressed they had a desire to accomplish the tax repeal. In fact at the beginning of session it was speculated that the repeal would most likely pass the House. But after the struggle to achieve passage of the Governors “Freeze” bill that would reduce the 2011 budget and help with the 2012 budget hole by saving $35 million toward the 2012 budget hole, the effects of reductions on budgets required to make these cuts have been tough to achieve. HB 2091 failed to pass. The vote was 39 to 80
Next week we will be on the Floor of the House to debate and vote on over 60 bills. The House Appropriations Committee should have their work done on the House version of the 2012 budget. Both the House and Senate will then spend a few days in conference committees negotiating over the differences to bring these various issues back to each body to attempt to reach approval. This is always difficult to do with the differences in the budget from each body and especially when we have another year where the economy is down and cuts will have to be made. This year we have worked to condense the regular portion of the legislative session and save extra days for Veto Session which will be at the beginning of May.
Governors Goal - Reduce Income Tax Rates (H. Sub SB 1)
In the State of the State Address, Governor Brownback explained that his goal is to reduce the state’s income tax rate as a long term policy that would help grow our state’s economy. The “March to Economic Growth Act” (MEGA), contained in House substitute for SB 1, would use any future increases in revenue to begin reducing income tax rates. The House adopted a wise amendment that changed the bill to focus the largest amount of the reduction on individual income taxes. This would also retain corporate income tax receipts as the third leg of our tax policy along with sales and property taxes. Starting in FY 2011, the Director of Legislative Research would be required to certify, at the end of each fiscal year, the amount that tax receipts have grown. The bill then would apply a calculation of the percentage growth of the receipts and apply percentage of the growth to a reduction of income tax rates.
For the years in which tax receipts are down and produce less revenue than the previous year, then tax reductions just won’t happen. Following any year where tax rate deductions were not issued, the formula must be further adjusted for the next fiscal year’s receipts.
It is very evident when you compare the 10 lowest income rate states with the 10 highest, you can identify some great contrast. And that is that the 10 lower states have been able to make it through these tough budget years with much better economic growth as compared to the high tax states.
Also as a very real and positive consequence is their ability to take better care of their state’s budget priorities. One of the best examples is our neighbor Oklahoma who cut their income tax rate to 0 in 2005 and before that time had been in steady economic decline but since 2005 have been one of the faster growing economies. Another contrast is that from 2005 to 2008 Kansas experienced an out migration of $300 million of individual income from taxpayers who moved to other states.
The House passed the bill 73 to 47 on Friday, March 18.
Focus on Incentives to help Small Business (H. Sub. SB 196)
To begin to revitalize our economy, the Legislature is working on Governor Brownback’s recommended tax policy designed to encourage businesses of all sizes to invest in the state. Up to now, Kansas has enacted a variety of tax policies hoping to advance development but they have helped only a small number of businesses. Most Kansas businesses have not benefited from these tax incentives. In the 2008 tax year, a little over 14,300 of the state’s 221,000 enterprises received any tax incentive benefits. Past economic development efforts have bias toward big business and research suggests that Kansas must establish an environment that induces business creation and expansion, regardless of size, to create more jobs. The new incentive package is paid for by removing 5 current tax incentives and has a positive Fiscal Note of just under $2 million this year and in comparison to current policy is expected to create a positive Fiscal Note of $50 million for our state over the next two years. How and why this works:
• Expensing Will Encourage Business Investment – With full expensing, business of all sizes, from small to medium, will now qualify for this incentive. Their investment will create jobs and economic growth. If enacted, Kansas would be the first state in the nation to take this action which provides uniform income tax treatment for businesses of all sizes while encouraging broad-based business growth.
• Job Creation Fund to Strategically Attract and Retain Growing Companies – The current Kansas IMPACT program will be converted into a fund to help close economic development deals. The fund would complement other state incentive programs and provide the Governor and Secretary of Commerce flexibility in making the necessary decisions and offers to close deals in an incredibly competitive national marketplace without adding further debt to the state.
• Streamline Economic Incentives – The state tax code is too complicated and smart changes must be made to simplify and streamline available economic incentives. To increase the number of potential businesses that benefit from our state tax policy and to attract new business to Kansas, the threshold of the High Performance Incentive Program (HPIP) would be adjusted to require larger investment to qualify for this incentive. The state would make a transition away from these tax credits using the funding to pay for expensing, the job creation fund and rural opportunity zones. To qualify for HPIP incentives, businesses would have to have a minimum $50,000 investment threshold. Businesses residing in Douglas, Johnson, Leavenworth, Sedgwick, Shawnee and Wyandotte would be required to have a minimum $1 million investment threshold to qualify.
Rural Opportunity Zones (SB 198)
SB 198, the Rural Opportunity Zone Bill, would help 50 rural Kansas counties experiencing population double digit declines over the last ten years by providing an income tax exemption for out-of-state taxpayers who relocate to those counties. The bill also allows counties to participate in a state-matching program to repay student loans of up to $15,000 for Kansas students who move to counties designated Rural Opportunity Zones. This bill was one of Governor Brownback’s original legislative priorities and I think it is an excellent tool to help the rural areas of Kansas.
This is common sense legislation and was initially approved by the Kansas Senate 39 to 0 in February. The House passed the bill on Friday by a vote of 102 to 18. SB 198 is good for our state. A healthier economy in these 50 counties is good for our entire state’s economy. Plus, as I have said before, there is little or no cost because you aren’t losing any thing that you don’t have. I look forward to Governor Brownback signing it into law.
Kansas House of Representatives - 2011 Budget / Legislative Process Always Difficult
Earlier this week, the House brought to the House Floor the 2011 budget. It passed with 70 votes. The 2011 Budget bill contains a similar mix of amendments that the Senate had offered in conference committee. As the bill currently stands, and if it passes the Senate, it will build a $35 million budget balance toward the $497 million 2012 budget shortfall. In meetings with Senate Leadership, they have said that they will take a good look at the bill when it comes to them from the House. Throughout the process, I have doubled checked that the $179 thousand of funding for the Paola / Lakemary Attended Care is still included. This is an issue that we have been working on since the beginning of this session. The federal government had, for some time, disagreed with the way that Kansas funded this care at Lakemary and as a result they had lost funding of close to $450 thousand. Paola schools and Lakemary have worked hard to find how best to manage most of that cut and had asked that $179 thousand would be the shortfall that they would need covered. I had meetings with the Governor’s Budget Director and had been able to have the amount needed included by their recommendation in the original bill. Every other year, the prior year’s budget finalization bill is eventually passed but that may not be the case this year. We must now continue to work to find how to get this through the legislative process. If the bill does not pass, Senator Apple plans to place an amendment in the Senate Ways and Means 2012 budget. The legislative process is always difficult and designed to kill legislation. One of the first lessons you learn as a legislator is that you have to be very diligent and tenacious to get something you need for your district through this process. It is a huge benefit to have friends throughout both sides of the House and Senate. I am very grateful that we have Senator Apple who always does a great job for our area in the Senate.
Congratulations Brook Ritter !
2011 Postcard Art Contest Award – Brook Ritter, a student at Queen of the Holy Rosary – Wea in Bucyrus is the first prize winner among sixth grade students across the state. The contest was sponsored by the Kansas Foundation for Agriculture and Kansas State University College of Agriculture. I am always pleased to hear the news that one of our Miami County students has received such a distinct honor. We in Miami County can be proud of Brook and of many other students as well when they are recognized for their accomplishments.
State Workers from Home Visit
I enjoyed meeting on Wednesday of this week with several of our employees who work at Osawatomie State Hospital. They expressed their concerns about KPER’s and how tough the economy has been for them.
Contact Information
I hope you are following the legislature’s work in Topeka and, if possible, take the time to visit this Session. If you would like an individual meeting, I’d be happy to arrange one. In the meantime, I’m always anxious to hear your thoughts on how the issues discussed in Topeka affect you. Please feel free to call me at 785.291.3500 or email me at jene.vickrey@house.ks.gov and I’d be happy to discuss any topic you are interested in. Thank you for the honor of serving you.
Sincerely,
Jene Vickrey
Speaker Pro Tem