Brownback wants to tap state investment fund for budget fix, GOP leader says

Gov. Sam Brownback wants to tap the state’s long-term investments as part of his budget fix, according to the majority leader of the Kansas Senate.

Brownback has been tight-lipped about how he plans to address the $930 million budget shortfall the state faces over the next 18 months. The governor will roll out a budget proposal during the second week of January when Kansas lawmakers officially begin their 2017 legislative session.

One source of money that the governor is eyeing is a long-term investment fund, according to Senate Majority Leader Jim Denning, R-Overland Park.

Denning said the governor plans on using the roughly $360 million fund “to get out of the crisis” for the next six months “without having to do deep, deep cuts to K-12.”

It’s one of several budget fixes being discussed.

Among the other possibilities:

▪ Selling off future proceeds from the tobacco settlement, money that is currently used for children’s programs.

▪ Rolling back the state income tax exemption for the owners of pass-through businesses.

▪ Raising the state income tax rate on wealthy residents.

▪ Instituting a flat state income tax of 5 percent – a move that would almost double the tax rate on married couples earning less than $30,000 a year.

Leaders ‘on board’

Denning said tapping the state’s long-term investments would allow the state to avoid having to cut nearly $350 million before the current fiscal year ends in June.

“The governor’s on board and all the budget folks are on board,” said Denning, a member of the Senate’s budget committee. “And all the legislators that have read about it – that I’ve talked to – they’re on board because they know that if we don’t do this one-time money with such a short time frame left in fiscal year ’17 that we’d have to take almost that entire cut to K-12. There’s no other place to go.”

Brownback’s office would not confirm that the idea is part of the governor’s budget plan, saying only that the governor will present a balanced budget in January.

Lawmakers of both parties have bristled at the governor’s reliance on one-time budget fixes in recent years, but Denning said he thinks the idea will find broad support in the Legislature.

“You’ve got to take your hat off that they’ve looked under another sofa cushion and found another one-time solution,” Denning said. “But this one, I think, is important, and I think all the legislators will support it.”

A ‘payday loan’

However, the Senate’s new budget chair, Sen. Carolyn McGinn, R-Sedgwick, said she opposes the idea of tapping the state’s long-term investments.

“It looks to me like we’re taking a payday loan,” McGinn said. “We’re borrowing against ourselves again internally, and I think it’s just going to put us further away from where we need to get to.”

Senate Minority Leader Anthony Hensley, D-Topeka, called the idea of tapping the investment fund “another gimmick” that wouldn’t “even come close” to fixing the state’s budget problems.

McGinn said that for the current fiscal year, the state needs “to make some very serious cuts as quickly as possible to help us get our head above water so we can even look at the next year.”

Even after lawmakers close the nearly $350 million budget gap for the current fiscal year, they’ll face the question of how to close an even bigger budget gap – estimated at more than $580 million – for the following fiscal year, which starts July 1. They also need to figure out how to put the state on more secure financial footing for the long term.

“We’ve been constantly just trying to plug a hole year after year, and nobody’s looking at the two to four years down the road,” McGinn said.

Investment pool

The idea of using the fund has been repeatedly floated in recent weeks, but Kansas Treasurer Ron Estes sent lawmakers an e-mail in mid-December pushing back on the notion that those dollars are available to use.

Estes, who noted that he spoke with Denning, said Friday, however, that lawmakers could potentially use the money if they pass new legislation.

Estes explained that the Legislature created a long-term investment fund in 2000. At the end of each fiscal year, the state puts money left over from the state general fund, highway fund and other revenue sources into this pool of money to be invested in the stock market.

“Since 2000, we’ve made $114 million in investment and dividends from that,” Estes said.

The amount of money that the state puts into the investment fund each year is based on the dollar amount of unclaimed property, money from banks and insurance companies that Kansans are entitled to, that the state has on hand at the end of the fiscal year. However, Estes clarified that using the money would not affect Kansans’ ability to retrieve their unclaimed property, a common misconception.

The amount in the fund bounces up and down each month depending on the stock market. At the end of November, there was about $359 million in the fund, Estes said.

However, only about $40 million of that is profit from the investments that could be liquidated immediately to go toward filling the budget hole, according to Estes. Another $317 million, which accounts for the principal investment, would require legislation to go toward a budget solution, he said.

“If the governor and the Legislature would come up with legislation to pull that money back … then it would be available,” Estes said.

Estes, a possible contender to replace U.S. Rep. Mike Pompeo in the 4th congressional district, said that he wouldn’t oppose the measure, but that doesn’t mean he recommends that the governor and Legislature tap that fund.

“My preference is that they would have a balanced budget that you don’t spend more than what you bring in revenue,” Estes said. “I recognize that there’s short-term time left in this (fiscal) year and that they’ve got to come up with something. I do strongly recommend that when we get past this short-term issue we go back and re-create that longer-term investment pool because it’s made a lot of money for the state over the years.”

Denning said the state could plan to repay the money over a 15-year period to rebuild the investment fund.

Hensley, the Senate minority leader, is skeptical that the state would keep that commitment.

“The Kansas Legislature is notorious for saying that we’re going to do something, and then we never do follow through,” Hensley said.

Other solutions

Denning said lawmakers are only willing to do a short-term fix for the current fiscal year if the governor is willing to make a long-term fix after that. He said the governor “still hasn’t made up his mind” about what he’s willing to do.

The governor has not publicly discussed any budget plans.

“Governor Brownback will propose a balanced budget to the Legislature when they return in January,” Melika Willoughby, the governor’s communication director, wrote in an e-mail.

Denning said the governor is still weighing a plan to sell off the state’s future proceeds from a legal settlement with the tobacco companies as a way to get cash in the short term. Denning said that idea was a non-starter for many lawmakers because that money is currently committed to children’s programs such as Early Head Start, which provides care and education to toddlers from low-income families.

Denning also said he thinks lawmakers can have a veto-proof majority to roll back an income tax exemption for business owners, the governor’s signature policy. That would generate more than $200 million a year, but would still fall short of plugging the state’s budget hole.

Lawmakers may also look to raise income tax rates, he said.

A variety of plans are being considered.

Kansas currently has two income tax rates. Married couples that earn $30,000 or less currently pay a rate of 2.7 percent, while couples that earn more pay a rate of 4.6 percent.

Some lawmakers want to increase the top bracket to 5 percent, while others want to create a third tax bracket and require wealthy Kansans to pay a higher rate – as they were required before Brownback ushered in his tax changes in 2012.

Hensley called restoring the third bracket a necessary part of fixing the budget.

Other lawmakers are considering a 5 percent flat tax rate, according to Denning, which would double the state income tax rate on those in the bottom bracket.

This story was originally published December 31, 2016 at 4:37 PM with the headline "Brownback wants to tap state investment fund for budget fix, GOP leader says."