On March 5, Governor Kelly’s Council on Tax Reform discussed the fiscal implications of tax legislation being debated in the Kansas Statehouse and recommended caution regarding how federal COVID-19 recovery funds are earmarked and spent.

“As we continue to recover from the pandemic, the last thing Kansas needs is another fiscally irresponsible tax experiment,” said Governor Laura Kelly. “My administration continues to prioritize pragmatic, strategic solutions to reinvest in our state’s foundation and strengthen our economy statewide.”

A Division of Budget presentation showed that Governor Laura Kelly’s proposed Fiscal Year 2022 Budget featured a positive ending balance of $600 million. At Senate Minority Leader Sykes’ request, legislative research provided a State General Fund profile that showed what the current “Senate position” would do to the ending balance. This profile includes the significant negative impact of SB 22 as it passed the Senate on February 9th, along with no enactment of Governor Kelly’s recommendations closing sales tax loopholes or Kansas Public Employee Retirement System (KPERS) reamortization. Even without the spending that has been added above what was recommended in the Governor’s Budget Report, SB 22 and these other policies would put Kansas in the red ink by more than $100 million by next year. That type of structurally unbalanced budget is similar to what Kansas lawmakers grappled with during the 2012-2017 legislative sessions.

Council Actions and Recommendations

The Council unanimously voted to urge Governor Kelly and the legislature to consider a more prudent long-term fiscal strategy than that which appears to be emerging from the Kansas Senate. A motion was adopted noting that stability and consistency in the budgetary process (as opposed to wild and volatile boom-and-bust cycles) leaves policymakers not having eventually to consider a smorgasbord of unattractive choices that include painful budget cuts, back-filling tax hikes, and additional penny-wise and pound-foolish options that rob from the future.

The Council also adopted several recommendations made by its property tax subcommittee chaired by former Senate Minority Leader Anthony Hensley, including encouraging local units of government to use federal aid under the American Rescue Plan for one-time capital improvements, infrastructure investments, or for debt reduction; supporting the House Taxation Committee version of SB 13 regarding property tax transparency (as opposed to the House Committee of the Whole version, which added K-12 schools to the bill and removed an exemption for relatively small local units); amending SB 23 to provide tax relief for storm-damaged property through a refundable income tax credit as opposed to an expanded abatement authority of county commissions; and opposing SB 72, which makes unnecessary changes to education requirements and qualifications for becoming a county appraiser.

The Council adopted another motion regarding the usage of one-time federal funds from the American Rescue Plan coming directly to the state, specifically suggesting that such monies not be built into agency budgets or provide for permanent ongoing tax cuts, with the exception of a relatively small amount (approximately $46 million) that would be targeted for residential property tax relief by increasing from $20,000 to $40,000 the “homestead” exemption from the mandatory school district general fund levy. The current exemption of $20,000 was set in 1997.

The Governor’s proposal to utilize revenue from a carefully-controlled medical marijuana program to fund the state’s portion of badly needed Medicaid Expansion also was outlined at the meeting. At the direction of Co-Chairs Janis Lee and Steve Morris, the Council will be receiving additional information at its next meeting about the extent to which Medicaid Expansion can prevent additional rural facility closures and reduce long-term social costs – all of which has important implications for the health of the public sector in the future and the resumption of more equitable tax policy. The Council also plans to receive additional information on the American Rescue Plan and potential long-term budget impacts of one-time pandemic era funding and policies.