Government & Politics

Budget gap, school finance fix await returning Kansas legislators

Gov. Sam Brownback is waiting until the Kansas Legislature convenes next week to reveal his plan to mend the state’s budget.
Gov. Sam Brownback is waiting until the Kansas Legislature convenes next week to reveal his plan to mend the state’s budget.

Time’s short in Kansas to fix the state’s budget shortfall.

And while it’s still unclear exactly how lawmakers will solve the looming budget gap, it will be one of the first major challenges as the next session of the Kansas Legislature starts Monday.

Debates over tax increases and a possible rollback of parts of Gov. Sam Brownback’s landmark 2012 tax cuts are expected to begin soon after legislators return to Topeka.

A roughly $342 million shortfall already awaits lawmakers. An even larger shortfall of $582 million is on tap for the following fiscal year, which starts July 1.

Playing into those budget discussions will be what a new school finance formula will look like, and a possible answer to an upcoming decision by the Kansas Supreme Court in the Gannon v. Kansas school finance lawsuit.

“I do realize that it’s going to be an incredibly challenging session,” said Rep. Troy Waymaster, a Bunker Hill Republican who will be chairman of the House Appropriations Committee. “Many people, constituents, family or colleagues, basically say ‘congratulations and condolences’ at the same time.”

Budget gap

Incoming House Majority Leader Don Hineman said “the clock is ticking” for lawmakers to mend the 2017 budget.

“Every day that we delay makes it more difficult to responsibly institute whatever cuts have to happen,” said Hineman, a Dighton Republican. “We need to get on that just as quickly as we can.”

Several ideas have been mentioned by lawmakers in recent weeks, but one idea has caught the attention of a handful of prominent legislators as the session nears.

Incoming Senate Majority Leader Jim Denning, an Overland Park Republican, said recently that the Brownback administration was considering using money from an investment fund referred to as the Unclaimed Property Fund to help fix the gap. The fund includes idle money the state has invested.

Denning said the investment fund does not actually contain unclaimed property and using that money would not keep Kansans from claiming property from the state.

The fund has around $360 million in it, according to state figures from September 2016. But it’s still unclear how much of the money could be used for a budget fix.

Denning said he thinks a combination of that money and some budget cuts could help mend the shortfall.

“When everybody gets back, and they realize we only have a few months left in fiscal year 2017, I think the cuts are going to be too deep for anybody to stomach,” Denning said. “The body will use some of that unclaimed money so that the cuts aren’t so deep.”

Other legislators have been less enthusiastic about using the money, though they admit that there are few one-time options to fix the budget gap this year.

“It’s not something any of us would choose to do,” Hineman said. “But I would agree with Sen. Denning that we probably have to do it.”

Selling off future money from the state’s tobacco settlement to help mend budget woes has been mentioned before, but Republican leaders have said it’s unlikely to have much support this year.

Waymaster, who will be chairman of the House Appropriations Committee, said long-term fixes could be put into place in the 2018 and 2019 budgets to help bring about financial stability for the state.

“There’s obviously no long-term solution that we can put in place for 2017,” Waymaster said. “It’s going to be, again, something that I don’t think the public necessarily likes, but it’s going to be a one-time fix to get through 2017.”

Gov. Sam Brownback will not release his plan to mend the shortfall until the session starts next week. But he has emphasized that it will be a balanced budget.

Other possible fixes have been brought up by lawmakers in recent weeks, but Republican and Democratic leaders alike are waiting to see what the governor proposes when the session starts.

“We’ve looked at everything,” Brownback said. “When you’re in the budget situation we’re in, you study it all and we have studied it all and we’ve spent weeks on (it).”

Funding for schools

Time is also short for lawmakers to develop a new school finance formula.

In 2015, legislators put in place block grants that essentially froze funding for school districts. The move also threw out the old school finance formula.

But those block grants are set to expire by the end of June.

Sen. Laura Kelly, the ranking Democrat on the Senate’s budget committee, said she thinks coming up with a new funding formula “won’t be all that difficult.”

“It’s going to have to look a whole lot like what we had in place before,” Kelly said, referring to the old school finance formula. “I think it will just be a matter of taking that as a template and modifying it somewhat to deal with some of the issues that people have with it.”

Denning said recently that there’s “a huge possibility” of the block grants being extended for another year while lawmakers create a new school finance formula.

Rep. Melissa Rooker, a Fairway Republican, said she doesn’t think extending the block grants another year will be seen as acceptable by the Kansas Supreme Court.

She also said it’s not an “insurmountable problem” for lawmakers to move forward with a new funding formula this session.

“This is an opportunity to come back with a plan that looks a lot like the old formula, but does things in a new and improved way,” Rooker said.

A ruling from the Kansas Supreme Court in the school finance case could put added pressure on lawmakers as they work on the new formula.

If the justices rule in the school districts’ favor, they could also ask that millions more in funding be put into Kansas schools.

That’s money legislators will be hard pressed to find given the state’s financial constraints.

Possible rollback of Brownback era-tax cuts

Lawmakers have made it clear that they are looking for a long-term solution to the state’s budget problems.

And that could include a rollback of one of Brownback’s signature policies.

Rolling back the LLC exemption will be one of the solutions proposed this session, even though it likely wouldn’t help solve this year’s shortfall.

That 2012 move is estimated to have taken around 330,000 limited liability companies off the state’s tax rolls.

A host of new lawmakers ran campaigns targeting an end to the “LLC Loophole” and emphasized tax fairness as one of their main goals.

Brownback continued to stand by the tax cuts when he spoke to reporters this week.

“The idea of targeted small business tax cuts is growing nationally,” Brownback said. “It is working here. I think you’ll continue to see that movement nationally and a big discussion because this is a key piece of how you get America growing again is small business.”

But the LLC exemption isn’t the only part of the tax cuts that have drawn attention as the session nears.

Another part of the Brownback-era cuts also trimmed income tax rates and collapsed three tax brackets into two, a move that critics of the policy say has also hurt the state’s finances.

“I think we can solve this thing with a combination of rolling back the loophole, doing some cuts and using some of that one-time money,” Denning said. “I don’t think it’s necessary to add a third bracket.”

But Senate Minority Leader Anthony Hensley, a Topeka Democrat, said bringing in a third tax bracket, along with the LLC roll back, would help the state.

“That’s the answer to our fundamental budget instability,” he said.

But he was skeptical of the new lawmakers’ campaign goal of rolling back the LLC exemption. Given Brownback’s continued support for the policy, it could take a veto-proof majority to push it through.

“That’s Sam Brownback’s legacy,” Hensley said.

The Star’s Bryan Lowry contributed to this report.

Hunter Woodall: 785-354-1388, @HunterMw