Gov. Sam Brownback’s proposals to fix a $290 million Kansas budget shortfall drew reactions from lawmakers Thursday that ranged from skepticism to disdain.
Some said it was past time to consider changes to Brownback’s tax policy, which critics blame for the state’s ongoing budget troubles.
Shawn Sullivan, Brownback’s budget director, presented the governor’s budget proposals at a joint meeting of the House and Senate budget committees. Sullivan had outlined the recommendation at a news conference Wednesday after state revenue estimates were revised downward.
One proposal would sell the rights to a portion of the payments the state receives from a national tobacco settlement for a one-time infusion of $158 million.
Rep. Mark Hutton, a Wichita Republican, questioned the move, saying the bond deal would amount to borrowing money at a high rate. Sen. Laura Kelly, a Topeka Democrat, agreed.
“I don’t think incurring debt to pay bills is a good idea,” Kelly said. “All we’re going to get from that is a partial plug in a hole for one year.”
Kansas receives about $58 million from the tobacco settlement. Under the plan, the state would keep $42 million to fund early childhood programs, as it does now, and use the remaining $16 million for a long-term bond sale.
Rep. Kathy Wolfe Moore, a Kansas City, Kan., Democrat, said that would freeze spending on the programs at $42 million annually for years to come. Inflation would eat away at the money, she said.
“So children’s programs would have to be reduced over time,” she said.
Sullivan said legislators could always add funding for those programs from the state’s general fund.
As an alternative to the tobacco money plan, Sullivan said, lawmakers could delay $99 million in payments to the Kansas Public Employees Retirement System until fiscal year 2018. The delay wouldn’t affect retirees’ pension benefits, he said.
But Rep. Barbara Ballard, a Lawrence Democrat, said she already was hearing from constituents that the state was out of funds and planning to use their retirement money.
“I’m catching flak on that already,” she said.
Lawmakers asked Sullivan why Brownback refused to consider adding revenue, particularly through the repeal of a controversial income tax exemption for certain businesses such as limited liability companies.
“The short answer is that he doesn’t believe now is the right time to have a debate or discussion about raising taxes, particularly on small businesses,” Sullivan said.
The tax exemption, which eliminated income taxes for 330,000 business owners, was part of the plan to slash income taxes championed by Brownback in 2012 and 2013. He has defended the exemption, saying it brings new businesses to the state and boosts jobs.
But Sen. Jim Denning, an Overland Park Republican, told Sullivan the governor should consider a simple change to the exemption that would bring in $158 million, the same amount as the tobacco money proposal.
To receive the income tax exemption, business owners would have to file a state tax form showing they have employees and pay wages. About 85 percent of the businesses receiving the exemption have no employees, Denning said.
“I think it’s time we do something structurally” to fix the budget, Denning said. “And it’s easy to fix the tax exemption loophole.”
Another alternative, Sullivan told lawmakers, would be to cut spending 3 to 5 percent in most state operations, including K-12 and higher education funding. That would save $139 million overall. A 3 percent cut in K-12 spending would come to $57 million.
Wolfe Moore questioned how lawmakers could contemplate that option, considering the state is in a lawsuit over school funding in the state Supreme Court. Oral arguments in the school funding case, Gannon v. Kansas, are scheduled for May.
Rep. Ron Ryckman Jr., an Olathe Republican, said that while nothing was off the table, “my personal preference is that we keep our commitment to K-12 funding.”
Included in all of the governor’s options was a shift of $185 million from the state highway fund to the state’s general fund.
That move wouldn’t affect current road projects but would delay 25 projects slated to begin the next two years.
None of the projects to be delayed are in Johnson, Wyandotte or Leavenworth counties, according to the Kansas Department of Transportation. Two Miami County projects on Kansas 68 totaling $13.7 million are on the list.
The full Legislature will consider the budget proposals when it returns next week from a spring recess.