Kansas House of Representatives - District 28

Legislative Report for Salad Week, March 11, 2002, Revenue Enhancement Week

Rep. Doug Patterson – Leawood

Voter Report

Salad Week. 3/11/02

(We tried)

CONSENSUS REVENUE ESTIMATE REVISED

The Consensus Revenue Estimating Group (CREG) met on Friday, March 8th, 2002 to revise the estimates for FY 2002 and FY 2003. The group regularly meets twice a year, once in April and once in November. This year, at the request of the Senate President and Speaker of the House, the CREG met a month earlier. This action was taken in order to allow the legislature the ability to address the budget situation earlier in the session.

The new estimate by CREG decreased the November 2001 estimate for FY 2002 and FY 2003 by $253.6 million. The new estimate, added to the previous fiscal shortfall of $426 million, leaves the state with an estimated $680 million revenue shortfall for FY 2002 and FY 2003 combined. For FY 2002, the estimate was decreased by $129.1 million, or 3.0 percent. The new estimate of $4.207 billion is 4.7 percent below actual FY 2001 receipts. The estimate for FY 2003 was decreased by $124.5 million, or 2.7 percent. The revised amount of $4.464 billion is $257.3 million, or 6.1 percent, above the newly revised FY 2002 figure. Each year, the Governor and legislature craft a budget for the upcoming fiscal year based on the estimates made by the CREG.

The Governor presented the legislature with his FY 2003 Budget Report at the beginning of the 2002 Legislative Session. By law, the Governor is required to propose a budget which is financed from existing resources and leaves an ending balance of 7.5 percent of expenditures in the State General Fund (SGF). In order to fulfill his obligation, the Governor_s Budget Report for FY 2003 included $426 million in cuts. The Governor had hoped the legislature would enhance his proposed FY 2003 budget this session and reduce budget cuts. However, based on the recent revenue estimates and without new revenue enhancements, an additional $253.6 million must come out of the Governor_s original proposal. State lawmakers now have three options to fill budget gaps in FY 2002 and draft a budget for FY 2003: (1) revenue enhancements totaling at least $680 million; (2) budget reductions in the amount of $680 million; or, (3) a combination of budget reductions and revenue enhancements.

HOUSE CONSIDERS REVENUE ENHANCEMENTS AND REDUCTIONS

(Build your own revenue enhancement salad week)

This week, the Kansas House went through a process of considering different proposals for tax increases and reductions. This process established a revenue base for the budget to be built upon for FY 2003. The House Appropriations Committee intends to pass out a budget next week based on current CREG projections, current statutory requirements and the amount of revenue that was raised or lowered by the House this week.

Day 1 - Income Tax

The first type of tax considered by the House was income tax. HB 2377 provides an income tax credit of up to 30 percent for property taxes paid by homeowners age 65 or older and with a Kansas adjusted gross income of $30,000 per year or less. During House debate, several amendments were presented to the body for consideration. The first motion to amend proposed raising the first income tax bracket by .1 percent and the second and third brackets by .3 percent. This proposal would have raised approximately $93.8 million dollars, but was defeated by a vote of 7-115. The House considered a motion to amend HB 2377 that would increase the income tax credit for machinery. This measure also failed 56-66. A third amendment was proposed that would allow for a $100 income tax credit for teachers who purchase supplied for their classrooms. By a vote of 48-72, this amendment was not passed.

The House was successful in adding two amendments to HB 2377. The motions to amend were similar to the current "Chickadee Check-off" on current tax forms. The first amendment proposed an added box on the Kansas income tax form for individuals to choose to donate $2.00 to a Kansas school district of their choice. As the measure is written, an individual who checked the box could specify the money should go to a school district in another part of the state or default to their local school district. The second amendment was to add a check of for $2.00 to go to Home and Community Based Services (HCBS), which would assist Kansas seniors. The final version of HB 2377 which passed out of the House during final action included the income tax credit for seniors and the two check-offs.

Day 2 - Inheritance Tax and Property Tax

During debate on HB 2867 on Tuesday, an amendment was presented to the bill that deleted the original subject matter of the measure and amended in an inheritance tax. The amendment proposed the reinstatement of the Class C inheritance tax, which was eliminated by the Legislature in 1998. Class C is generally considered to be individuals with relationships that are removed and include nieces, nephews, aunts, uncles and friends. The inheritance tax amendment would have provided $20 million per year in revenue for the state, but was not approved by the House. An amendment was also offered that would conform state law to the recently revised federal inheritance tax law. The measure would have reduced state revenue by $6-8 million a year. The House rejected the amendment by a vote of 27-84 and passed out HB 2867 without changes.

The House also considered SB 68 on Tuesday. The bill would re-authorize the property tax homestead exemption for 2001 and 2002 and raises the exemption from $20,000 to $30,000 for these years. The first amendment offered to this measure was to raise the current property tax mill levy by five from 20 to 25. The proposal would have increased state revenue by $62.5 million the first year and by $106 million the second year. By a vote of 11-108, the amendment was not approved. Another amendment was presented on the bill that would place a cap of three percent on city and county property tax levy increases. If a city or county wanted to raise property taxes by more than three percent over the previous year_s levy, the increase would be subject to a protest petition. The amendment also deleted the bill_s original intent. The House approved the amendment, but did not report the bill out favorably for passage.

Day 3 - Sales Tax

On Wednesday, the House considered HB 2265 which provides a sales tax exemption for non-prescription hearing aids. An amendment was offered on the measure to eliminate all sales tax exemptions except for ten. Remaining exemptions would have included: property or service purchases by the State of Kansas, political subdivision, nonprofit hospital or blood/donor bank; property or services purchased and leasing by elementary or secondary schools and educational institutions; property or services purchased by contractor for building or repair of buildings for nonprofit hospital, elementary or secondary schools or nonprofit educational institutions; property or services purchases by federal government, its agencies or instrumentalities; property purchased by railroad or public utility for use in the movement of interstate commerce; sales, repair or modification of aircraft sold for interstate commerce directly through an authorized agent; property which becomes an ingredient or component party of property or services produced or manufactured for ultimate sale at retail; property consumed in the production, manufacturing, processing, mining, drilling, refining or compounding of property or irrigation of crops for ultimate sale at retail; property purchased with food stamps issued by the U.S. Department of Agriculture; and, property purchased with vouchers issued pursuant to the federal special supplemental food program for women, infants and children. The amendment would have eliminated over fifty exemptions which would bring the state an estimated $692 million in additional revenue the first year. While House debate showed support for eliminating some of the exemptions, the body did not demonstrate a desire to do away with over fifty at one time and rejected the motion. Along these lines, an amendment was presented for consideration that would have only eliminated the sales tax exemption on lottery tickets. The House also rejected this motion.

Amendments were offered on HB 2265 that would increase sales tax. The first amendment proposed a .6 percent increase in sales tax, which would increase the Kansas sales tax from 4.9 percent to 5.5 percent. The measure also directed the funds to be allocated to K-12 education and higher education. Staff estimated the amount of revenue gained by the state through this measure would be $223.7 million in the first year, $231.6 in the second and $240.2 in the third. The House divided the question and approved the allocation of funds towards education, but did not approve the increase in sales tax. The second amendment offered was structured in the same way as the first, except it had a three year sunset on the increase. This means the sales tax would increase to 5.5 percent for three years and then would revert to the current level of 4.9 percent. This amendment would have provide $716 million over five years, but was rejected by the body. A third amendment offered an increase of .35 percent in the state sales tax, bringing the total to 5.25 percent. This proposal would provide an estimated $132.7 million the first year and $714.7 million over the first five years. However, the House failed to pass the amendment and subsequently did not move the bill out for final action.

Day 4 - Sin Taxes

A bill which would make several technical changes to the cigarette tax imposition statute was up for debate in the House on Thursday. Since the subject matter of the bill was a "sin tax," it was open to any amendment which related to that matter. A total of six amendments were offered, but none of them were approved by the House. Three cigarette and tobacco tax increases were proposed. The first amendment would have increased the cigarette tax by 90-cents. Currently, cigarette taxes are 35-cents per pack. In addition, the motion to amend would have increased taxes on tobacco products, such as chewing tobacco, from ten percent to 22 percent. This proposal would have generated an estimated $148 million in the first year. After this motion was rejected, an amendment was offered to raise the cigarette tax by 75-cents and taxes on tobacco products by ten percent. The fiscal impact of this amendment was projected to be $129 million in the first year. A final try at increasing tobacco taxes proposed raising the cigarette tax by 50-cents and taxes on tobacco products by six percent. An estimated $96.5 million would have been generated for the state had this motion passed.

In addition to tobacco tax amendments, alcohol and liquor "sin tax" amendments were proposed which in total would have generated $26 million. A motion was made and subsequently rejected to increase the tax on gallon-age of alcohol produced in order to provide $5.5 million in additional revenue for the state. Another amendment offered would have increased the enforcement tax for clubs from eight to ten percent. Had this motion passed, the state would have incurred $8.5 million in revenue enhancement. A final amendment was offered to increase the liquor by-the-drink tax by 5 percent to 15 percent. This proposal would have increased state revenue by $12 million, but was not approved by the House. In addition, a motion to report the bill out favorable for passage failed.

At the end of the week, no new revenue was passed by the House. In fact, the chamber passed a revenue reduction by approving HB 2377 on Monday. If enacted, the property tax exemption for qualifying seniors will cost the state $1.4 million in lost revenue. Since no revenue enhancements were passed by the House, the House Appropriations Committee will work throughout the next few days to pass out a budget bill with $680 million in spending cuts. The House is expected to debate a budget bill within the next two weeks.

BRIEF LEGISLATIVE UPDATES

Redistricting and Reapportionment - The Governor signed the House redistricting map (Substitute for HB 2625) into law on March 11th. The bill redraws the lines for all 125 House districts. The bill will now go to the Supreme Court for constitutional review. If the map stands, it will reflect district lines for the 2002 elections. The Senate Select Committee on Redistricting met this week to redraw the 40 Senate districts after the Governor vetoed their first Legislature approved map on March 5th (Substitute for SB 379). The House Select Committee on Redistricting passed a reapportionment map out of committee this week which redraws the four congressional districts for the state. The bill redraws the lines as demonstrated in the map titled "HR Congress 4." The full House is scheduled to debate the bill, Substitute for HB 3012, on Friday, March 15th.

Slots - A House Tourism sub-committee worked this week on legislation which would allow slot machines in authorized locations. The sub-committee compared different versions of gaming bills in order to achieve a consensus as to the best bill to offer to the full Tourism committee. The bill, PROPOSED Substitute for HB 2890, would authorize electronic gaming machines at parimutuel tracks or at veterans organizations. The operation of electronic gaming machines, commonly known as slot machines, by authorized locations would require a county election. The machines would be regulated by the Kansas Lottery and the Racing and Gaming Commission. The sub-committee negotiated components of the bill including: the required payout percentage; limits on number of machines; and disposition of net gaming revenue. Current parimutuel tracks which may be eligible to be slot machine operators include The Woodlands, Wichita Greyhound Park and Camptown. In addition, the sub-committee included a measure that would allow slot machines to be operated at an "at-large location," which is presumably a location in Dodge City, Kansas.

Keg Registration - The House Federal and State Affairs Committee passed out a bill this week that would enact the "Beer and Cereal Malt Beverage Keg Registration Act." The bill requires beer and cereal malt beverage (CMB) retailers to place an identification number on all kegs with a capacity of four gallons or more. Under the legislation, retailers will be required to maintain records on keg purchasers that match the identity of the purchaser with the tag of the keg. In addition, retailers would be required to keep records of keg purchasers until the container is returned or six months following the date of sale. The bill makes it a class B misdemeanor to possess an unregistered beer keg or to remove or deface the required keg identification number.

Supporters of keg registration believe the measure will help reduce the number of "keg parties" held by minors by providing a way to track kegs purchased for them by adults. In Emporia, where a local ordinance currently requires kegs to be tagged, law enforcement officials have seen a decline in the number of confiscated kegs from illegal parties since the tags were put into place. Many legislators are concerned that adults should be responsible for providing alcohol for minors, especially in the case of keg parties where binge drinking occurs. The Senate bill will now go before the House for debate.

School District Budgets - This week, the House Education Committee received a performance audit report on School District Budgets: Determining Ways to Structure the Budget Document to Make it Understandable and Allow for Meaningful Comparisons. The Post Audit used example budgets from Manhattan, Topeka, Wichita and Salina. The audit asked, "What changes in school district budget documents are needed to make those budgets more useful to district officials and the public?"

In order to answer the first question, Post Audit identified problems with the school districts_ budget processes, which ranged from fundamental and systemwide flaws, to inconsistencies among districts, to lack of clarity in reporting. The report determined that Kansas school districts don_t report important information in their budget documents or don_t report certain information consistently. In addition, Post Audit found that some school districts mis-categorize or mislabel expenditures in either their local budgets or the ones they submit to the state. After addressing these issues, the Post Audit developed a new format for school districts_ local budgets that consolidates categories, includes all revenue and expenditure information and provides more summarized and understandable budgetary information. Admittedly, the new format would likely create some additional work for school districts and the Department of Education. However, the new format proposed by the report should be viewed as a step in improving school districts_ local budget documents.

In addition, the performance audit asked the question, "How could the new budget documents be used to improve school district operations?" It was found the new budget format should be a tool to help district officials and other identify where operating costs may be out-of-line or where adjustments can be made. The Post Audit Report made recommendations to the Kansas Legislature, the Department of Education and to officials and school boards in sample districts. One of the recommendations to the legislature was "to ensure that any standardized budget format adopted for school districts_ local budget documents is as workable and meaningful as possible, and that the information reported in those documents is uniform and comparable across the state. Following the report, the Education committee held a two-day hearing on HB 2904, which is a bill that would require school districts to use the same standardized accounting format for their school district budgets. The committee did not take any action on the measure this week.

Paid for by the Committee to Elect Doug Patterson, Dave Imhoff, Treasurer