2018 Kansas Legislature Faces Tough Decisions
by Paul Johnson
The 2018 Kansas Legislature began Monday January 8. Legislators face many challenges — all amid what will certainly be one of the most interesting election seasons in the country. All 125 Kansas House seats are up for election in November 2018, as is the Governor’s seat. The Governor’s budget, which called for more spending without recommendations on where the money will be found, has only increased animosity at the Legislature. Will Kansas continue its momentum away from the Brownback agenda or will it move forward in both the Legislative session decisions and the fall elections?
Since a two-year budget was passed in 2017, there should be more time for the Kansas Legislature to drill down into the vital issues surrounding revenues, budget cuts, public education funding, social services, energy policy, and fully funding natural resource needs. Adding to the complexity, the Kansas Supreme Court has set one critical deadline – bring them a constitutional public school funding plan by April 30 for review.
The income tax cuts of 2012/2013 reduced income taxes to the State by over $900 million dollars with $600+ million from income tax bracket changes and $300 million from eliminating income tax on ‘non-wage’ income (the LLC loophole). The income tax increase passed in 2017 over the Governor’s veto restored just under $600 million with $270 million from restoring the taxing of ‘non-wage’ income. There is uncertainty that this full $270 million will be realized. The new federal tax reform may also impact these numbers. This ‘Kansas Tax Experiment’, which failed to generate promised growth, was partially included in the new federal tax cut as ‘non-wage’ income (known as ‘pass throughs’) tax rates were lowered from 37% to 20%.
The revenue debate in 2018 could go a few directions. Raising the income tax again may be the easiest administratively but the hardest politically. If services such as health care, accounting, legal, engineering, etc. were charged a 6.5% sales tax, Kansas could raise $912 million. Very few states have experimented with sales tax on services. There is debate over the amount of property tax paid by agriculture. While residential and commercial/industrial property are taxed at ‘market value’, agricultural land is taxed at a ‘use value’ by computing the last eight years of production on a given piece of land. One estimate claims that agricultural land comes in at one-tenth the assessed valuation of residential or commercial property. With commodity and beef prices down over 50% the last couple years and this rolling 8-year average now including very profitable years of 2012/2013, property taxes for agricultural land will continue to rise, as will agricultural opposition to increase them further.
Since 2009, there have been 10 rounds of budget cuts with some caused by the Great Recession of 2008 and 2009 and some to pay for the Brownback income tax cuts. In the process, Kansas has drained the state’s ending balances. Kansas has resorted to increased bonding for the retirement system (KPERS) and raiding the Highway Fund, thus shoving these costs down the road. Kansas has ceased paying certain statutory revenue transfers to local governments thus jeopardizing those local budgets. Kansas has experienced 3 credit rating downgrades thus increasing borrowing costs.
Kansas has cut the number of state employees by 15-20% thus damaging vital health and public safety services such as prisons and state hospitals. 2017 marks the first state employee salary increase in ten years except for instances such as the Kansas Corporation Commission that offered a 7% salary increase for its 300 employees if they became unclassified employees with no work place protections.
With the 2017 tax increase and some economic growth, the 2019 Kansas budget is solvent. However, in 2020 with obligatory payments to KPERS and stopping the sales tax raid on the Highway Fund, Kansas is in the red by $143 million and this rises to $419 million in 2021. There is no provision for increased public education funding or repairing broken institutions such as prisons, state hospitals or child welfare programs.
Public education accounts for 50% of the State budget. The 2017 public school plan added close to $300 million in new funding over two years. While base state aid per pupil (BSAPP) reached $4,400 in 2008 just prior to the recession, this $4,400 was cut to $3,850. The new school funding plan will only increase BSAPP to $4,103 in 2019 and there is no accounting for inflation since 2008. The Kansas Supreme Court did not issue a specific funding number to reach the constitutional standards of ‘adequate and equitable’ support of public education. At the same time, higher education – which accounts for 15% of the State Budget – has experienced a 30% cut in state support thus relying on higher and higher tuition fees to cover some of the lost state support.
Social Services account for 20% of the State Budget so combined with K-12 (50%) and Higher Education (15%) these three areas account for 85% of the Kansas Budget. Medicaid (KanCare) accounts for the greatest share of social service spending. KanCare expansion will be debated again. The drastic reduction in public assistance programs has increased concern over hunger and ‘food insecurity’ in Kansas.
Medicaid expansion almost passed last year over the Governor’s veto. The vote was three shy in the State Senate. Congress has not repealed Medicaid expansion and would fund any expansion in Kansas with a 90% federal and 10% state match. Regular Medicaid is 55% federal and 45% state funding. There are an estimated 150,000 Kansans that would be covered through expansion. Thirty of the ninety hospitals in Kansas are considered financially at risk. Medicaid expansion would ease that pressure. Medicaid expansion would also stabilize and increase mental health services across Kansas, as State support for the 27 community mental health centers has sharply declined.
Foster care continues to deteriorate in Kansas. A record number of children (over 7,600) are now in this privatized system. Kansas was the first state in 1996 to completely privatize foster care with no pilot projects to test the idea. Post audit reviews show that these private companies pay lower salaries and have higher employee turnover. The 2017 State Legislature established a special Child Welfare System Task Force (including six legislators and others) that is discussing foster care, adoptions and family preservation. There have been publicized instances of children sleeping in private contractor offices and a number of missing foster care children. The Task Force is mandated to offer solutions to the State Legislature in 2018.
Food insecurity is a way of life in Kansas – the breadbasket of the world. The Kansas Health Institute published a report in November 2015 documenting that in 2013 one in six Kansas households were ‘food insecure’ – unsure of having food the whole month. Single women with children were twice as likely to be ‘food insecure’. Of the 50 states, Kansas is 45th in eligible recipients actually getting food stamps (SNAP). Kansas has been dead last in accessing federal funds for summer feeding programs for children. The SNAP budget in Kansas has fallen from $402 million in 2014 to $302 million today as 20,000 children have lost benefits. Temporary Assistance for Needy Families had 38,950 recipients in 2011 and today has less than 10,000. 18,500 of these recipients who lost TANF were children.
There will be efforts to reverse recent election laws that mandated proof of citizenship and increased the number of persons unable to register. Legislation will be proposed to establish same day voter registration, as is the case in a dozen states. There will be a debate to turn redistricting over to a non-partisan committee as is done in a few states. Presently, the Secretary of State selects the election commissioner for each of the four largest counties with populations over 130,000. The Kansas Senate used to confirm these appointments but that was changed in 1982. While the Secretary of State appoints the election official, the counties fund the budget. Returning selection of election officers to county control will be debated this year.
UTILITY POLICY CROSSROADS
The Kansas Corporation Commission has three key decisions to make over the next year that will define a future for energy utilities in Kansas. The first decision will come over the merger of Kansas’ largest electric utility – Westar – and Great Plains Energy (Kansas City Power & Light). The second decision involves ‘distributed energy’ that will define a future for solar and independent power producers. The third decision is how will ‘energy efficiency’ programs (offered by utilities) be factored into rates and utility regulation.
The first request by KCP&L to buy Westar was turned down by the KCC that ruled the buyout was too expensive and too much of an economic burden for ratepayers. KCP&L and Westar have now come back with a plan to just merge the two companies. Apparently, this would be a very unique approach and the KCC is taking all of 2018 to research the economics and risk of this proposal.
The ‘distributed energy’ of solar panels and some smaller wind systems are starting to take off in Kansas. The cost of solar panels has dropped significantly and banks are now offering financing arrangements to make monthly cost more affordable. There are two key issues. If I have solar panels on my home and I am connected to the electric utility grid, what is a fair monthly customer charge for that utility back-up? The second issue is the electric rates that I pay for electricity bought from the utility and what electric rate should the utility pay for any power I sell into the grid? Right now a customer pays retail rates (10-14 cents/kwh) for power bought from the utility but extra power sold back to the utility is a wholesale rate of 3-5 cents/kwh.
Of the 50 states, Kansas ranks close to the bottom for having utility-based or governmental energy efficiency programs. Energy efficiency (1-2 cents/kwh) is far less expensive than producing new power. KCP&L has $60 million in energy conservation programs (insulation, new lighting, better motors, etc.) for residential and commercial customers in Missouri. KCP&L has requested that the KCC allow such programs to be offered in Kansas. In return for their monopoly status of defined service areas, energy utilities are required by law to provide ‘efficient and sufficient’ services/programs.
Last fall, the Special Interim Committee on Natural Resources met to specifically discuss the State Water Plan (SWP) and existing state water law and adequate funding for the SWP. In terms of water law, two statewide legislative water law studies were done in 1947 and 1956 but none since. By law, the citizens of Kansas are the primary managers of water resources. Conservation or reaching sustainability is not part of Kansas water law today.
The explosion of groundwater pumping from the 1970’s through the 1990’s and the draining of the Ogallala aquifer, have presented many challenges. 40% of the Ogallala has been used and 70% will be gone by 2050 at present pumping rates.
In Eastern Kansas, the water battle is over surface water and adequate storage to supply public water needs. Fourteen federal reservoirs provide public water storage. Built decades ago, they are slowly but surely silting in. Dredging is costly. The first effort is John Redmond Reservoir where Kansas floated $20 million in bonds to start dredging Redmond and fund streambank stabilization on the Neosho and Cottonwood rivers feeding into the reservoir. John Redmond provides the backup cooling for the state’s sole nuclear power plant.
Funding the State Water Plan (SWP) is the ultimate challenge. Developed in 1989, the SWP was to be funded 1/3rd by state taxes, 1/3rd by water user fees, and 1/3rd by agricultural use (pesticide/fertilizer) fees. Normally this would generate $25 – $28 million annually. Since 2009, Kansas has not been contributing the $8 million in state taxes due to the SWP, so the SWP is now down to $13 million. Two years ago, the Governor appointed a Blue Ribbon Task Force to debate and recommend funding options. The first decision was that the SWP requires $55-60 million annually to meet the needs. The Task Force recommended a constitutional amendment where one-tenth of one penny of the existing sales tax would be dedicated to the SWP generating $55 million. This idea was not even introduced in the 2017 session. There is no water usage fee on crop irrigation, the largest user of water in the state. A nickel per thousand gallons would bring in $6 million yearly. But agricultural interests oppose such a fee.
Noxious Weed Law and Pesticide Law. Currently to list a new noxious weed (there are now 12), Legislators must pass a bill, and the Governor signs it. For two years, Legislators have debated moving away from listing noxious weeds by statute and converting to an administrative rule and regulation procedure where the Kansas Secretary of Agriculture has the authority with advice from an appointed noxious weed advisory committee.
But the debate over noxious weed law begs the question of overall state pesticide law, which should be discussed at the same time. There is no definition of ‘drift’ in pesticide or noxious weed law. There is no statutory right for a landowner to post their land as a ‘no spray zone’. As the overuse of glyphosate (Round Up) has become routine over the last 20 years, there are now 13 ‘super weeds’ in Kansas resistant to glyphosate, so harsher chemicals such as 2-4D or ‘Dicamba’ are being used. Drift problems are routine. Dicamba use impacted thousands of acres across the Midwest last summer, presenting a very real threat to non-Dicamba resistant crops. Current law and management practices rely largely on chemical controls, which are increasingly ineffective. More emphasis on integrated pest management practices and approaches, which involve complex crop rotations and biological/cultural options, is needed, along with more research on improving IPM.
Federal Food and Farm Bill.
The federal farm bill that comes up every four or five years impacts natural resource management, adoption of conservation practices to mitigate soil loss and climate change, and build soil health in all states. It also impacts rural development and nutrition programs, and can have a big influence on who the next generation of farmers and food producers will be. State legislators usually consider it a federal responsibility to be determined in D.C., but the federal farm bill currently under debate should at least be part of informational hearings at the State Legislature.
Watch for KRC’s Weekly E-Update Policy Watch in your e-mail inbox to keep you up to speed on all the above. Issues will also be posted on KRC’s website at http://kansasruralcenter.org/category/legislative-policy-watch/.