Legislative Report May 7, 2002

patterson@house.state.ks.us

www.dougpatterson.org

Prepared by Rep. Doug Patterson

The Kansas House of Representatives convened on Wednesday, May 1, 2002 to begin the wrap-up session of the 2002 Kansas Legislature. Many issues will not be completed until the final hours of the wrap-up session, including the fiscal year (FY) 2003 budget. However, here is an update of current issues under consideration by the Kansas House.

Leawood takes a lot of hits because of the impression that Leawood maintains a very high tax rate. This is not so. As of year end 2001, of the 27 cities of the first in Kansas, Johnson County has six. Leawood is the twelfth largest with a population of just over 28,000. We are, however the eighth largest in terms of assessed valuation and total bonded indebtedness. In terms of tax rates, however, we are low. Of the first class cities, the highest total city mill levy is in Atchison with a city levy of $58.136 and the lowest is Overland Park with $7.979, Shawnee with $21.042 then Leawood a close $21.815. Lenexa, Olathe, Prairie Village and Shawnee all have higher city levies. Of the total mills levied in first class cities from all taxing districts, ie., cities, school districts, etc. Leawood is the third with a total levy of $112.827. The Unified Government of Wyandotte County/Kansas City is the highest at $170.310 and the lowest is Prairie Village at $92.500. Overland Park is second at $101.737......Just in case you really wanted to know that.

April Revenue Receipts Reported Down - The Kansas Legislative Research Department reported fiscal year (FY) 2002 receipts through April 2002 on Friday, March 3rd. Total receipts for April were $58.4 million or 1.8 percent below the estimate. The biggest shortfall in April receipts was in individual income taxes, which came in $50 million below the estimate. Retail sales tax was reported below the estimate by $14.0 million.

State Revenue Shortfall - The legislative debate this session has centered on the state budget and revenue shortfalls. When legislators started the session in January, reports indicated the legislature would have to address a $426 million revenue shortfall for FY 2002 and FY 2003. In March, the Consensus Revenue Estimating Group (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, left the state with an estimated $680 million revenue shortfall for the two combined fiscal years. In addition, Consensus Estimates were revised for education and SRS/Aging caseloads. Revised estimates indicated an additional $11.9 million from the State General Fund (SGF) was needed. After the addition of these revised estimates, the revenue shortfall for FY 2002 and FY 2003 grew to approximately $698.5 million. The Kansas Legislative Research Department reported FY 2002 SGF receipts through March 2002 and April 2002, noting that total receipts were down by $27.0 million and $58.4 million respectively. These figures place the current revenue shortfall at approximately $780 million for FY 2002 and FY 2003.

House Considers Budget - Before legislators adjourned regular session on April 13th, the House and Senate passed FY 2002 and FY 2003 budgets based on the March CREG estimate. Both the Senate version and the House version included agency budget reductions and required tax increases to balance the state budget. During the legislative break, the House and Senate appropriations leaders negotiated an appropriations megabill for FY 2002 and FY 2003. On May 2nd, the House passed the conference committee report on SB 517. The budget holds K-12 education at the FY 2002 funding level of $3870 in Base State Aid Per Pupil (BSAPP). This is wholly unacceptable. It also holds higher education operating grants (Regents institutions) at the 2002 funding level. The House and Senate appropriations leaders proposed budget reductions for state agencies and made cuts to various government services. However, the report makes vital appropriations for the disabled and elderly through SRS caseloads and Aging services in an effort to protect our most frail citizens. The conference committee report requires $222 million in revenue enhancements in order to comply with a 5 percent SGF ending balance requirement. SB 517 identifies important priorities for state spending, the House and Senate must now address these defined priorities through tax increases or additional cuts. The bill will be considered by the Senate on Friday, May 3rd. If the report is adopted by the Senate, it will go to the Governor. If the Senate fails to adopt the conference committee report, Senate and House appropriations leaders will return to the negotiating table to draft a new compromise.

Tax Increases to be Considered - The state budget finances services for all Kansans including: education, human resources, general government, agriculture and natural resources, transportation and public safety. These services are provided through all funds money and SGF money. The all funds budget includes expenditures from the SGF, special revenue funds including federal funds, the State Highway Fund, the Employment Security Fund, the Retirement Fund and other funds.

The two biggest sources of revenue for the SGF are individual income tax and sales tax. The SGF also receives funds from corporate and financial income tax, severance tax, insurance premium tax, inheritance estate tax, alcohol taxes, tobacco taxes and other taxes.

The state legislature has the ability to change the rate at which state taxes are levied, thus affecting the amount of SGF receipts. So, when the state is faced with a revenue shortfall, as it is this year, the legislature may choose to increase the amount of SGF receipts by increasing specific tax rates. This year, many different proposals have been made by the legislature to enhance state revenues. One of the proposals the legislature is considering is an increase in the state retail sales tax. The retail sales tax was first passed by the legislature in 1937 at a rate of 2 percent and is collected by state retailers. The current retail sales tax was set in 1992 at 4.9 percent of purchases. In the early 1970s, the state legislature began to provide for exemptions to the state retail sales tax. These state exemptions include but are not limited to: prescription drugs; purchases made by religious, benevolent or charitable organizations; new farm machinery, repair and replacement parts from property and services purchased for use on land devoted to agricultural use; and, purchases made by education institutions. The state legislature is considering a revenue enhancement proposal that would eliminate some of these sales tax exemptions. Removing existing exemptions would allow the state to increase SGF receipts without increasing the state retail sales tax rate.

In addition to changes in the state sales tax, the legislature is considering an increase in the state cigarette tax. The cigarette tax was first enacted in 1927 and is placed on the amount of cigarettes sold or distributed, such as a pack or a carton. The current tax rate on cigarettes is 24 cents per pack and was set in 1985. The Governor proposed a 65 cent per pack cigarette tax increase in his State of the State message, which would provide an additional $111 million in state revenue. Anti-smoking groups believe increases in state cigarette tax have a direct correlation to a decrease in underage smokers. However, a cigarette tax increase may also have the unintended consequence of forcing cigarette purchases to occur on the internet or over the state line to avoid taxes. Other proposals recommend increases in other "sin taxes" such as the tax on tobacco products and liquor enforcement. I support the cigarette taxes as well as the other "sin" taxes.

State legislators are also considering an increase in the state motor fuel tax. An increase in this tax may be used to fund the Comprehensive Transportation Program (CTP) which was passed by the legislature in 1999. The current state tax on gasoline is 21 cents per gallon and an additional cent is scheduled to be added on July 1, 2003 to finance the CTP. Proposals have been made to accelerate the 2003 cent gasoline tax to July 2002 or to increase the tax by an additional one or two cents per gallon.

Slots Legislation Resurrected - See, I told you it wasn't dead. On Friday, May 3rd, the House considered a measure that would legalize the operation of electronic gaming machines at parimutuel facilities. The legislation was a second attempt at the issue by slots supporters, a previous bill was considered by the House and failed in April. Substitute for HB 2183 authorizes electronic gaming machines at existing parimutuel race if approved by a majority of voters in the county. The new slots bill made revisions to the previous bill by adjusting revenue payout amounts by changing percentages for regulation, changing the amount of revenue deposited in the SGF and setting management fees. In addition, the bill as it was presented for debate removed the option for an "at-large" facility as proposed in the original bill. Many legislators believe passage of legislation will provide the state with needed revenue in slow economic times. Reports indicate the state could receive approximately $70-80 million each year, once the slots program is implemented.

Comprehensive Transportation Plan Revisited - This week the House considered HB 3026, which proposes adjustments to the CTP. The legislation provided necessary funding to maintain and complete projects from the 1999 transportation plan. Due to current state fiscal situation, many legislators believe the CTP may not be completed as it was passed if additional funding is not identified. HB 3026 recommends increasing in the sales and compensation use tax to be deposited directly to the State Highway Fund for transportation projects. The bill also proposes increases in registration fees and motor fuel taxes. During debate, the House amended the measure to adjust transportation funding components. The House action delayed the implementation on two of the motor fuel tax increases. It also established a flat increase in vehicle registration fees at $5 for cars and pick-ups and $50 for trucks, instead of the proposed 3 percent increase in registration fees. Components of the amendment balanced the cost of the CTP among all users of the program. After much debate, the House failed to pass the measure on to final action by a vote of 56-65. Many legislators were hesitant to vote to increase taxes for highway projects when revenue needs for the FY 2003 budget have yet to be addressed. Supporters of the legislation believe funding for the CTP will be debated again before the 2002 Legislature adjourns. As I told you in last weeks e-mail, I will support the CTP with the gas tax and registration fee increases, only when we first support education.

Congressional Map In Conference - Prior to adjournment of the regular session on April 13th, the Senate passed a congressional redistricting map. The map redraws the four congressional districts in Kansas according to the 2000 Census. The House passed its version of the congressional map earlier in the session. When the legislature returned for the wrap-up session, a conference committee was appointed in order for the House and Senate to resolve the differences between the two maps. The Congressional reapportionment map is the only remaining piece of the redistricting process. The Legislature passed and the Governor signed the House, Senate and the State Board of Education redistricting maps. The Legislature is charged to redraw Senate, House, Congressional and State Board of Education districts every ten years following the national census. As of May 7, 2002, there is no agreement on the Congressional map. There is serious pressure from democrats to require Johnson County to be split in two with nearly all of Douglas County, Wyandotte County and one half of Johnson County to be the Third Congressional District. This will assure that our Third District will be held by a democrat for the next ten years. With all due respect to my democratic friends, I'll be voting against this map, thank you.

With congressional mapping, a budget and school finance still up in the air, we still have a lot of work to do. I am pleased that progress is being made on "No Call", anti-spam, crimes, consumer protection and other measures. At the end of the session, I will be sending out an overall summary of the work of the 2002 session.

Rep. Doug Patterson

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