2017 Advocacy Review and 2018 PreviewScott Rothschild
It has been quite a year in Kansas political news, and next year promises more.
Following large gains by Republican moderates and Democrats in the 2016 election, a new set of Legislative leaders and a new majority ultimately repealed a large part of the 2012 Kansas income taxes over Gov. Sam Brownback’s veto, passed a new school finance system similar to the model repealed by the block grant system, and increased K-12 operating funding by $300 million over two years in response to last spring’s Kansas Supreme Court ruling in Gannon.
However, in October, the Supreme Court ruled the Legislature had not shown enough to convince the court the $300 million would satisfy the adequacy problems it identified. It also ruled the new law created new equity issues that will have to be fixed. That sets up a major issue for the 2018 session, which we will discuss.
At the federal level, President Donald Trump took office. One of his first appointments was controversial secretary of education Betsy DeVos, a private school and charter school champion who wants to expand school choice, and who moved to pull back on Obama administration rules regulating local districts.
Over the summer, Congress considered proposals to “repeal and replace” Obamacare regulations that school leaders believed could cut funding for school-based medical services for special education. Those proposals ultimately failed, but this week Congress passed a major tax reform bill that most economists believe will reduce federal revenues and require either deeper deficits or cuts in federal programs. These could include Medicaid for schools and low-income families and education programs. Congress also has not yet reauthorized the CHIP program that supports health care for low income children. Schools are concerned about these programs because of the link between health and learning.
The Trump administration may have one more impact on Kansas – the nomination of Brownback to a federal position that would elevate Lt. Gov. Jeff Colyer. It remains unknown if this will happen before the session starts Jan. 8.
And, we would be remiss if we didn’t mention that in 2017 we celebrated the 100th anniversary of KASB, including marking the event at our annual convention earlier this month.
So, let’s dig into the issues we expect to see come up in 2018, including those that have been in the headlines this year and will continue to make news.
We begin with the federal tax reform measure signed into law by Trump. The House approved the conference version of the bill on Tuesday, but had to vote again on Wednesday after Senate parliamentarians found a few sections of the bill violated the “Byrd Rule” which is a rather opaque rule on whether legislative provisions are relevant to the federal budget.
Interestingly for public education, one of the offending items was an amendment by Sen. Ted Cruz, R-TX, that added homeschooling expenses to the list of tuition costs that will be eligible for tax credits. The final version of the bill allows parents to put aside tax-free savings for public, private and religious school costs of up to $10,000 annually, but NOT for homeschool costs. Because public education is largely free, except for certain fees, this change will obviously provide much more assistance to students in private schools.
The final bill eliminates advance refunding of some of the municipal bonds school districts and other local governments use to finance capital costs. Refunding allows local units to save local taxpayers money by essentially refinancing the mortgage on a bond. It’s not clear yet whether this might be changed in the future; that piece of the legislation was unpopular with local governments and with a segment of the financial sector. It is expected that Congress will have to pass a number of technical changes to address issues in the bill, which means some items could be revisited.
The new law does retain the $250 above the line deduction for teacher out-of-pocket spending on classroom expenses.
Congress put off reauthorizing the federal Children’s Health Insurance Program, or CHIP. Kansas has funds in the bank until about the end of March; other states, however, are running out of that health funding in the next few weeks. Congress has not reached agreement on how to reauthorize CHIP for the long-term.
The National School Boards Association Advocacy Institute takes place in early February and brings together thousands of school board members from across the United States. The sixteen members of the Kansas delegation will hit Capitol Hill on the last day of the conference to meet personally with our Members of Congress. KASB members will talk about KASB’s Federal Issues Resolution adopted at our Annual Convention and talking about some overarching issues that all U.S. school boards share.
That will include the Net Neutrality rules the Federal Communications Commission last week voted on party lines to repeal. Those Obama-era regulations governed how internet providers offer service. School district leaders are concerned about how those changes might affect services to schools, particularly in rural or underserved areas.
KASB will have a federal issue update on Jan. 12 at the Advocacy in Action workshop here in Topeka.
School finance case will continue to dominate
Turning from federal to state issues, perhaps the biggest challenge the 2018 Kansas Legislature will have to face is responding to the Kansas Supreme Court Gannon school finance decision.
In its simplest description, the Supreme Court found that too many Kansas students are below state standards in basic skills, there are wide gaps among student groups, and that the number or percentage of low achieving students is getting worse. The court said the state has the burden to show it has responded to solve the problem.
In October, the court said the 2017 Legislature did not provide enough evidence that its response, SB 19, was enough to address the issues raised. The court didn’t give a specific amount, but noted the $300 million two-year, two-step amount was far short of other evidence presented to the court. That evidence, and the plaintiffs, have suggested at least $600 million more might be required.
Legislative leaders appointed a special committee to explore options for a response, will hire attorneys for both the House and Senate, and hire a school finance expert. Based on three days of meetings and discussion by the Special Committee on a Comprehensive Response to the School Finance Decision, it appears the Legislature will debate the following options:
First, add significantly more money, as suggested by current evidence before the court, by raising taxes. Aside from the general reluctance to raise taxes ever, especially in an election year, and even more especially after a big tax increase last year, there are challenges with each of the major tax sources. Property taxes are usually considered the most disliked major tax and Kansas has shifted more reliance to property taxes at the local level as other sources have been curtailed.
The state sales tax has been raised in recent years to compensate for income tax cuts, and is now high compared to surrounding states, with the rate on food among the highest in the nation. Although income tax rates are still lower than before the 2012 cuts, it took a two-thirds vote to raise income taxes in 2017 and many of those legislators may be extremely wary about going back to that source right away.
Second option: add significantly more money by cutting other state programs. Excluding K-12 state aid, Kansas Public Employees Retirement System contributions and mandatory caseloads, the school finance committee suggested it would require 18 percent cuts in all other state programs to add $600 million to school funding. That would have a major impact on everything from higher education to prisons. Most other areas of the state budget have had real cuts in state funding, as opposed to K-12 funding, which has received increased funding but at less than the rate of inflation. Agency leaders told the committee they simply could not continue to operate at anywhere near the same level of services if such cuts were imposed.
Third, legislators could attempt to produce additional evidence to justify a lower level of funding, either through new studies or different analysis of previous studies; try to get the court to count additional spending that is not part of operating aid; or ask the court to reconsider how it looked at aspects of last year’s bill.
Fourth option: do nothing – either deliberately or because the Legislature (and whoever the governor is) cannot agree on a path by the deadline. That would throw it back to court to decide how to respond. The court has not spelled out what will happen if the Legislature does not respond satisfactorily. The most common suggestion is that it would not allow the school finance system to operate. The court has not suggested it will directly “close schools,” but that would be the impact of having no funding to operate. The second response discussed is that the court would propose to reallocate state funding to K-12 education, one of the few state responsibilities set in the Kansas constitution.
Fourth, amend the state constitution. This step has been proposed many times in the past, but no change has ever received the two-thirds approved of both the House and Senate to be submitted to the voters (since the current article was adopted in 1966). The attorney general also told the committee that a possible change in the constitution should not be considered a substitute for responding to the current court case.
The committee also heard that state attorneys want the Legislature to act by March 1 in order to prepare for a late April deadline to submit briefs to the Kansas Supreme Court. That would require extraordinary speed by the Legislature, which usually cannot get agreement on the biggest, most controversial issues until the end of the session in May or June.
Budget challenges remain a stumbling block
Why is the state budget so tight, even after raising about $600 million in taxes last year?
To begin with, about half of the money raised by last year’s income tax rate increase went to fill a projected deficit last year, just to keep most state funding at current levels. About $200 million went to K-12 state aid to respond to the original Gannon decision on funding adequacy, with minimum increases for everything else.
The new income tax rates, which also reinstated the tax on small business income, are expected to raise about $600 million (with considerable uncertainty) from 2017 to 2018. After that, revenues are expected to increase around $100 million each year through 2021. That is less than the rate of inflation. Such slow growth is expected for several reasons. First, Kansas continues to rank among the lowest states in personal income growth, which means the economy isn’t producing more income to tax and generally also means less sales tax growth.
Second, the Kansas tax system captures less income growth than in the past. Some of this results from a long-term shift in spending from goods, which generally are taxed, to services which are not; and to internet sales which are not taxed.
Third, Kansas has significantly expanded various income, sales and property tax exemptions, often for economic development purposes, which means more economic activity is not taxed.
Even as revenue growth is expected to remain low, the state has some built-in major expenses on the horizon. KPERS funding is supposed to go up $266 million in 2020, and around $40 million each year after, to stay on track to reduce the system’s unfunded liability. By the way, KPERS costs will be even higher if school funding is increased, because most school spending goes to salaries and that increases the payroll that must be covered by the pension system.
In addition, mandatory human service caseloads, mostly for medical assistance, are expected to increase $70-80 million each year – maybe more if there are changes in federal funding formulas or Medicaid expansion. This does not count cuts in state funding of social services, such as mental health programs.
Finally, budget projections assume continuing to take around $300 million per year from the state highway fund. If the Legislature attempts to reduce those transfers to support transportation projects, the budget pinch gets even worse.
All of these factors make even a possible phase-in of additional school funding extremely challenging, even if the court or plaintiffs will accept it.
Other issues concerning K-12 education are likely to get attention. Here is a short list.
A Legislative Post Audit study of school district transportation aid found that some large districts have been getting extra aid not provided in state law. Although the study suggested the additional aid is probably justified, it will take Legislative action to restore these funds. The study also suggested the overall formula may be too low to cover actual transportation costs.
Expect the school finance debate to look at school district consolidation. Some legislators say Kansas has too many districts and too much administration, although there has been little evidence presented to show how a change would improve student results. Last year’s school finance bill directed a legislative study of sparsity weighting this session, rather than low enrollment based on size. Such a change could result in big shifts in funding.
A task force established last session to study school district health insurance and procurement procedures is due to issue a report in January. A state efficiency study two years ago recommended a much larger state role in these areas, but the study is expected to say the disadvantages of such a plan would outweigh the benefits.
Both a State Board of Education task force and special legislative study committee have been examining child mental health and welfare systems in Kansas and uncovering major concerns. However, any solutions are likely to have a price tag – and lack of funding helped create the problems in the first place.
In its school finance decision, the Supreme Court raised concerns about a provision in last year’s bill creating a 10 percent floor in counting free lunch students to determine At-Risk funding. Some legislators continue to question the use of free meals to determine at-risk aid.
Last year’s school finance bill also created a statewide limit on school district bond issues each year, based on the amount of bonds retired the previous year. School leaders are concerned such a cap will make it much more difficult to address facility needs in the future, since construction costs are much higher than they were when retiring bonds were issued.
Finally, the issue of teacher due process may surface. In 2015, the Legislature eliminated a provision in state law allowing experienced teachers to have a binding hearing before an independent hearing officer when boards seek to terminate or non-renew their contact. The Kansas Supreme Court will hear arguments in a case challenging the right of the Legislature to remove this right from teachers who had attained it. A bill to restore the previous system passed the House last session, and will be alive for Senate consideration this session.
Finally, let’s turn to the upcoming 2018 primary and general elections.
On the ballot in this non-presidential election year are all statewide offices. That includes the governor. Sam Brownback would be term-limited even if he was not awaiting federal office, but Lt. Gov. Jeff Colyer and a number of other Republicans across the political spectrum are seeking the nomination, as well as the largest field of Democrats in memory. Secretary of State Kris Kobach and Insurance Commissioner Ken Seltzer are running for Governor, which would open up their seats.
All four U.S. House seats from Kansas are on up for election. One incumbent, Lynn Jenkins in the Second District, is stepping down to leave an open seat; two others, Roger Marshall in the First and Ron Estes in the Second, are in their first term.
Five of 10 State Board of Education seats are up for election this year: Janet Waugh in the Kansas City area, John Bacon in Johnson County, Sally Cauble in western Kansas, Ken Willard in central Kansas, and Jim Porter in southeast Kansas.
All 125 Kansas House seats are up for election this fall.
The filing deadline for most candidates is June 1, 2018.