Kansas lawmakers hold ‘last train out’ debate on taxes

Lawmakers argued late into the night Wednesday with the intention of passing a tax plan to avoid massive budgets and end the longest Kansas legislative session in history.

Negotiators from the House and Senate struck a compromise plan Wednesday afternoon to fill the state’s $400 million budget hole. The House began debate Wednesday with assurances from House leaders that if it passed, the record 111-day legislative would finally come to an end.

“This is the last train out of here,” House Speaker Ray Merrick, a Stilwell Republican, told the GOP caucus. “There’s not another bill coming. This is it.”

The compromise plan would raise the sales tax to 6.55 percent from 6.15 percent on July 1 and then cut the sales tax rate on food to 4.95 percent on July 1, 2016. Kansas is one of few states that tax food at the same rate as other purchases.

However, House negotiators insisted on protecting a food sales tax credit that benefits low-income families, which would have been eliminated under the Senate’s plan.

Removing this tax credit — to save $15 million — would be an unfair burden to the most vulnerable Kansans, said Rep. Marvin Kleeb, an Overland Park Republican who is the tax committee chairman.

The Senate’s plan would have ended most sales tax exemptions, including those for schools and hospitals, in four years unless lawmakers act to keep them. The House insisted that exemptions for schools, hospitals and local governments stay protected.

In a complicated process, lawmakers planned to spread the legislation over two bills. The House would first take up Senate Bill 270, which contained the changes to the Senate plan. If it passed it would then take up House Bill 2109, the Senate’s plan, while the Senate debated SB 270.

The Senate would not act on SB 270 until the House had passed HB 2109. If the Senate rejected SB 270, the House could make a motion to reconsider HB 2109 and reject it.

Kleeb told the GOP caucus that Gov. Sam Brownback had promised to sign both bills if they crossed his desk.

The compromise plan would loosen a restriction the Senate wanted to impose on local governments to prevent them from raising property taxes without a public vote. The House would add language to ensure that local governments could raise taxes as needed to comply with federal and state mandates and also address their infrastructure needs.

Rep. Mark Hutton, a Wichita Republican, has led a group of about 25 Republican lawmakers who would like to see 330,000 business owners currently paying no tax on their income to be put on income tax rolls. That policy was not included in the House plan, Kleeb said, because Gov. Sam Brownback has threatened to veto it.

“The governor’s indicated his desire not to have it in there. It’s a setback to sit here and have a veto,” Kleeb said. “It’s not what the state needs. The House is very interested in making sure all the schools are funded.”

Kansas schools stood to lose nearly $200 million if the Legislature fails to balance the budget by passing a tax plan.

Kleeb emphasized the impact to schools when selling the plan to the GOP caucus Wednesday evening.

“This isn’t about tax increases. This is about funding education,” Kleeb said.

“Every yes tonight is going to be a vote for the kids,” he said.

Despite his desire to see business owners pay some tax, Hutton said he could vote for the House plan and would encourage his colleagues to do the same.

“I can hold my nose and a couple of other things and vote for this bill,” Hutton said. “We’re working hard to bring everybody on board. We’re telling them this is the right thing for Kansas right now. It’s hard to take a loss. It always is. But right now this is more about taking care of the people of Kansas than it is about this issue.”

Rep. Les Osterman, a Wichita Republican and a member of Hutton’s cohort, said that he planned to vote in favor of the plan as a way of protecting people receiving disability services through the state’s Medicaid program. He said he couldn’t bear the thought of seeing those services cut.

If lawmakers failed to pass a tax plan, then the administration would have enacted a 6.2 percent across-the-board budget cut.

Cuts to state aid could could also trigger cuts to federal aid, according to the state’s budget director, because some federal funds are allocated based on the amount of state funds.

The agencies most affected by a loss of federal aid would be the Kansas Department of Health and Environment and the Kansas Department for Aging and Disability Services, which administer the state’s Medicaid program.

“The majority of their budget is tied to Medicaid funds, which is funded through a 57/43 split with the federal government,” budget director Shawn Sullivan explained in an e-mail. “So, for every $1 million of SGF (state general fund) that would be reduced in the Medicaid program, there would be an additional $1.3 million of federal funds that would be reduced for a total of $2.3 million.”

The two agencies stood to lose a combined $115 million in federal aid on top of the state cut, Brownback told reporters Wednesday afternoon.

“They need to move it on forward and they need to do it now,” he said. “Now’s the time. It needs to happen. There’s been a lot of discussion, a lot of negotiation. The Senate passed the bill. We need to get it moving on forward … both houses have passed a budget. They need to adequately fund it.”

He would not directly say whether he would accept a bill that taxes business at 1 percent, an idea that had been floated by House members.

“In my estimation, they need to just take up the Senate bill … that’s the route forward. It’s there. It’s doable, and I would just urge all of them, everybody, both parties, all factions, to do that and move forward,” Brownback said.

Senate Minority Leader Anthony Hensley, a Topeka Democrat, criticized the governor for refusing to compromise on the business income tax.

“The recurring theme that I hear from my constituents is, why should business pay nothing when I have to continue to pay taxes on my wages?” Hensley said. “It’s the inherent unfairness of it that I think has people really upset … we are raising taxes on working class, low-income people to protect the governor’s political supporters, the business community.”

The House and Senate’s compromise tax plan would impose a tax on guaranteed payment to partners in limited liability companies, but several lawmakers have said it would be easy for LLCs to dodge the tax by restructuring their payment systems.

It takes 63 votes to pass a bill in the Kansas House. Previous attempts to pass a tax bill in the House this year have fallen far short of that.

“Get the numbers. People need to start working and pushing,” Brownback said. “That’s what needs to happen.”

This story was originally published June 10, 2015 at 4:54 PM with the headline "Kansas lawmakers hold ‘last train out’ debate on taxes."