Despite many and varied complaints from lawmakers, the Kansas House gave initial approval Tuesday to a bill taking money from highways, disaster relief, pension funding, children’s initiatives and other programs to try to backfill a $300 million-plus budget hole.
The House passed Senate Bill 4 on a voice vote, with a final recorded vote scheduled for Wednesday.
But those moves won’t be enough to cover the entire shortfall, according to new figures from the Legislature’s research staff.
The report said tax collections from the start of the current fiscal year on July 1 through January were almost $66 million short of expectations – a little higher than the state Department of Revenue reported last week.
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The plan given approval Tuesday is aimed at eliminating a projected $344 million shortfall in the current fiscal year, which ends in June.
Legislative researchers had estimated the plan would leave the state with cash reserves of almost $65 million on June 30, but that was before the final report on tax collections. Factoring in the new numbers, the bill would leave the state with an $800,000 deficit.
That means that if lawmakers pass the bill quickly – as Gov. Sam Brownback wants – they may be forced to follow up with other adjustments later.
“Nothing precludes us from making further adjustments,” said Senate Ways and Means Committee Chairman Ty Masterson, R-Andover. “The thing about budgeting is that the horse is never all of the way out of the barn.”
The House debate over the bill offered a preview of the major upcoming struggles of this legislative session, in which lawmakers will consider budget cuts, tax increases on tobacco and alcoholic beverages and possibly rolling back some of the income tax relief that the Legislature and Brownback approved in 2012.
House Appropriations Committee Chairman Ron Ryckman Jr., R-Olathe, carried SB 4 on the floor and said it is intended “to provide cash flow for the state to pay its bills.”
It primarily shifts funds dedicated to specific purposes to the state general fund, where it can be spent on any service or program.
The transfers include $158 million from the Kansas Department of Transportation’s construction and maintenance fund and $55 million in one-time funding that is available because the Affordable Care Act expanded a pharmaceuticals reimbursement program to managed care insurers, such as the state’s three KanCare providers.
The transfers in the bill include:
▪ $158 million from the Kansas Department of Transportation’s construction and maintenance fund, which is primarily funded through gas taxes.
▪ $55 million from the Department of Health and Environment. The one-time funding is available because the Affordable Care Act expanded a pharmaceuticals reimbursement program to include managed care insurers, such as the state’s three KanCare providers.
▪ $12 million from the Kansas Endowment for Youth, tobacco settlement money that pays for childhood education and social programs.
▪ $7.1 million from the Job Creation Program Fund, a Department of Commerce program that provides incentives to employers to move to Kansas or expand their existing workforce here.
The bill also delays payments to school districts for capital improvements to their buildings until the start of the next fiscal year.
“Like anyone running a business or farm, we have to make adjustments so we pay our bills and provide certainty and do so with minimal impact on important core state services,” Ryckman said.
He said he has been in daily contact with House Speaker Ray Merrick, R-Stilwell, about passing a budget fix for the current year.
Focus on tax cuts
Tuesday’s discussion allowed dissenting lawmakers to air their frustration about the budget transfers. But the underlying debate was over the wisdom of the deep state income tax cuts of 2012, the centerpiece of Brownback’s plan to stimulate business development in Kansas.
Those cuts exempted more than 190,000 businesses from income taxes and reduced tax bracket rates for wage-earning taxpayers.
Now the state faces a shortfall of more than $300 million for the current fiscal year and a projected budget gap of $600 million to $700 million next year.
Rep. Don Hill, R-Emporia, said the 2012 tax bill caused the problem and was a major blunder that needs fixing.
“One of my favorite sayings and one of the things I’ve told my kids and colleagues in my business: ‘There’s no sin in making a mistake as long as you learn from it,’ ” he said. “I will submit to you we made a miscalculation, or we made policy based upon miscalculations, at best. And as a result, we have a budget that’s been structurally out of balance and unsound and unpredictable for two years, to the tune of hundreds of millions of dollars.”
Harkening to the tax vote, Hill said it was “one of those times when we were on the fly, when we were rushed, when we were pressured, when we were, some of us, bullied.”
Hill said a follow-up tax bill in 2013 compounded the problem.
“That’s the vote I regret more than any other vote since I’ve been in this chamber,” he said.
He said the tax plan “pretty much managed to decimate a whole lot of really good work” by both houses of the Legislature. But, he added, “There’s good news. We are going to have the opportunity over the next couple of months or so to work on fixing it.”
Rep. Steve Brunk, R-Wichita, led the defense of the tax bill.
He disputed that lawmakers were pushed into voting for the tax plan.
“Was it intense at that time? Certainly it was,” Brunk said. “But to say that we succumbed to bullying and pressuring, I have to say no, that that wasn’t the case, that each of us have our own mind and that we vote our own minds accordingly.”
Brunk acknowledged that the bill passed in the waning hours of the session but added: “We had an entire session leading up to that, so we knew what was coming.”
He also disputed the charge that the tax cuts heavily favored the wealthiest Kansans and said rolling back the cuts is not the only way to solve the budget problem.
“The reality is that we’ve left some $700 million into the hands of the taxpayers, which personally I think is a good thing,” Brunk said. “I think we have a responsibility after the 30 to 35 percent increases during the previous administration to rein our spending back in and be more responsible with our spending and fund those core services and fund them well and fund them appropriately. And now is our opportunity to be able to do that.”
SB 4 is designed to make nearly $250 million in transfers from the state highway fund and other dedicated funds to help fill the budget gap.
The bill comes on top of $66 million in budget cuts to state agencies made by Brownback that did not require legislative approval.
The transportation department has said that the $158 million taken from the highway fund will not affect announced projects, such as the expansion of the I-235 and Kellogg interchange in Wichita, but will delay some undisclosed maintenance projects.
The shift of money from highways to the general fund generated the most objections from lawmakers, especially those outside the major metropolitan areas.
Rep. Tom Phillips, R-Manhattan, said the highway fund expanded the three main roads into his home city from two lanes to four. That was helpful, but it’s at risk if the state doesn’t provide the necessary maintenance.
“Each of those improvements have been critical to the economic development and success of Manhattan,” he said. “It’s not just Manhattan, it’s all over our great state.”
He offered an amendment to require the transportation department to borrow $51 million through bonds to continue its maintenance program on schedule, but the amendment was voted down.
Rep. Gail Finney, D-Wichita, objected to sweeping funds from law enforcement and the state’s disaster-response account to help fill the budget hole.
She said it will leave the Highway Patrol 100 officers short and disaster relief with an anemic balance of $467,000.
Ryckman assured Finney that if there is a major disaster, the governor could “maneuver money” to pay for relief, up to $10 million.
Complaints also arose over cuts from the perennially underfunded Kansas Public Employee Retirement System.
Rep. Kathy Wolf Moore, D-Kansas City, said diverting KPERS money flies in the face of a bill passed last year to try to stabilize the retirement system and that it’s unfair to local governments and employees who can’t cut their payments into it.
“What appears was a shared sacrifice (in last year’s KPERS bill) isn’t going to be shared anymore,” she said. “The weight is back on the employees. Many employees understandably feel betrayed by this.”
Rep. Barbara Ballard, D-Kansas City, argued against shifting $12 million from the Kansas Endowment for Youth, Kansas’ share of the proceeds from multistate tobacco litigation.
She listed some of the programs that would feel the effects: Early Head Start, Tiny K, Parents as Teachers, infant mortality reduction and autism diagnosis.
“I just want you to know that that money has a face, has families, it has children that are dependent,” she said. “I know we need to come up with funds, but I also know that we need to protect those children.”
House Speaker Ray Merrick, R-Stilwell, said he was pleased legislators had passed the bill.
“I think the people of the state, they sent us here to solve this problem, and this is the first step in solving it,” he said.
“You know the easiest road out here is to vote ‘no.’ It’s been that way ever since I’ve been here, but that doesn’t solve the problem or get anything done. So I think this is a good move to move the process forward.”
House Minority Leader Tom Burroughs, D-Kansas City, said the bill “kicks the can down the road and continues the fiscal mismanagement of this administration.”
Shawn Sullivan, the governor’s budget director, wouldn’t comment.
Contributing: Bryan Lowry of The Eagle and the Associated Press
Reach Dion Lefler at 316-268-6527 or email@example.com.
Where the money comes from
Among the transfers:
▪ $158 million from highways. The shift won’t affect announced projects but will affect maintenance.
▪ $55 million in one-time funding from a pharmaceutical reimbursement program under the Affordable Care Act
▪ $12 million from a fund that pays for childhood education programs.
▪ $7.1 million from a program that provides incentives to employers to move to or expand in Kansas