Legislature overrides veto of tax plan that funds budget, schools

The Kansas Legislature last night overrode Gov. Sam Brownback’s veto of SB 30 , the tax bill projected to raise state revenues by approximately $600 million per year. The new revenue would fund current budgets under consideration by the Legislature and a new school finance plan awaiting action by the Governor.

The vote was 27-13 in the Senate (roll call vote) and 88-31 in the House (roll call vote). The override marked a dramatic two days of action that saw passage of the school finance bill, SB 19, and the tax bill Monday night, veto of the tax bill yesterday afternoon and override last night.

The final major issue before the 2017 session is passage of a state budget. The Senate has approved a budget bill. The House Appropriations Committee has recommended a budget, but it has not been approved by the full House.

The tax bill marks a dramatic shift in the state’s direction since 2012, when the Legislature passed an almost 25 percent cut in state income tax rates, eliminated income taxes on many small business, and set in place a formula to cut future rates until the income tax was eliminated.

Advocates said the action would dramatically increase business activity in Kansas, raising taxable income and shifting revenues to consumption taxes like sales. However, Kansas economic growth has actually been among the worst in the nation. The Governor and Legislature adopted a series of budget cuts, transfers from other programs, one-time adjustments and other tax increases, while state reserves were spent down and the state credit rating reduced.

At the same time, sales tax revenues slumped as more spending shifted to non-taxed services and internet purchases. The state retirement system requires significant increases in contributions to pay accumulated future benefits. Finally, the Kansas Supreme Court has issued a series of rulings that the state was failing provide funding to maintain an equitable and adequate school finance system.

Moderate Republicans and Democrats critical of state tax policy and its budget impact made large gains in the 2016 election, and ultimately the two-thirds of both houses required to override a vote agreed to change course.

SB 30 raises income tax rates, repeals the small business (LLC) exemption and eliminates the phasing out of the income tax. It also  restores certain exemptions and deductions repealed or reduced since 2012, but it leaves in place the state sales tax rate adopted to offset some of the loss in income tax receipts, including a high rate on food. Because of some of the deductions are phased in, income from the bill is actually expected to decline somewhat in future years.

In fact, information distributed on the House floor show that under current projected growth rates in state expenditures, including the school finance act, the state general fund will face a deficit by 2021.

Whether that happens depends on the accuracy of revenue estimates for the bill and changes in future economic activity. Many Legislators believe the repeal of the LLC exemption will generate more revenue than expected, and if the state economy returns to more normal growth rates, state revenues would be expected to be higher. However, an economic downturn would result in less tax revenue than expected.

Here is a link to the legislative staff report on the bill.

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