Politics & Government

Brownback budget would eliminate mortgage interest deduction

Gov. Sam Brownback is announced Tuesday night prior to the State of the State address. Accompanying the governor was Sen. Oletha Faust-Goudeau, D-Wichita, (right) and Sen Les Donovan, R-Wichita. (Jan. 15, 2013)
Gov. Sam Brownback is announced Tuesday night prior to the State of the State address. Accompanying the governor was Sen. Oletha Faust-Goudeau, D-Wichita, (right) and Sen Les Donovan, R-Wichita. (Jan. 15, 2013) The Wichita Eagle

Gov. Sam Brownback is proposing to have tax cuts and keep state services, too.

He is banking on a Legislature of conservative allies backing a plan to keep a controversial sales tax and eliminate the home mortgage deduction.

He needs support on both measures to dodge a $500 million hole in the state budget while gradually dialing down income rates further.

Under Brownback’s plan, the state’s highest tax bracket would be reduced to 3.5 percent from 4.9 percent starting in 2017. The lowest bracket would be cut from 3 percent to 2.5 percent starting next year. It would be pared to 1.9 percent in 2016.

The proposed $14.6 billion budget for fiscal year 2014 depends heavily on keeping all of a penny sales tax increase the Legislature approved in 2010. Six-tenths of the penny tax is supposed to expire this summer, but Brownback has called on the Legislature to renew it, which is worth about $265 million.

Brownback’s budget covers fiscal years 2014 and 2015. State spending would grow $200 million for one year, an increase driven by highway projects. But in the second half of the two-year plan, the budget would return to existing levels.

That means essentially no growth in spending, and no across-the-board pay increases for state employees.

Among other things the proposal would:

• Presume the Legislature doesn’t have to increase base state aid per-pupil, as a district court recently ordered. Instead, the governor hopes to redefine education funding, keep per-pupil aid flat at $3,838 in 2014 and add $14 to it in 2015.

Wichita school board member Sheril Logan said she wasn’t surprised. "But I think it’s sad," she said. "The courts say we’re grossly underfunding education, and the governor seems to believe that that’s not true."

• Provide no additional state money that would be required to expand Medicaid services to more Kansans under the federal Affordable Care Act.

• Provide $5 million to subsidize low-cost airlines, mostly at Wichita’s Mid-Continent Airport, using highway money instead of economic development funds. Provide steady funding for aviation research and training in Wichita, and for the city’s aquifer recharge project.

• Reduce funding for public broadcasting by about $400,000.

• Leave funding for higher education in the regents’ system roughly flat.

“It doesn’t take rocket science to know that costs are going up,” said Tim Emert, the chairman of the Kansas Board of Regents. For the schools to make ends meet, Emert said, they will have to either raise more money privately or charge more for tuition.

• Save $15 million by having the Kansas Department of Transportation take over daily operations of the Kansas Turnpike Authority. Brownback would channel that money to general state services. Administration officials say they may spend some money to maintain roads that feed into the turnpike.

Michael Johnston, CEO of the Kansas Turnpike Authority, said he didn’t have enough details to know how the plan would affect the turnpike. He indicated he would like to see a thorough study before changes are made.

"The governor gave us his vision and the details will evolve as time goes by," he said. "I respect the governor’s prerogative to make whatever recommendation he sees fit."

The turnpike collected more than $84 million in tolls from 33.4 million vehicles in 2011, according to the agency’s annual report.

Sen. Ty Masterson, R-Andover, chairman of the Senate Ways and Means Committee, said he thinks Brownback’s proposal meets the education and public safety needs of the state.

“The pursuit of shrinking government I think is going to benefit every Kansan. It’s about jobs in the end,” he said.

Brownback spiced up the tax debate Tuesday when he renewed a battle lost last year to get the Legislature to eliminate the home mortgage deduction.

Real estate agents immediately promised a vigorous fight. Last year, the group spent more than $150,000 defeating Brownback’s proposal.

“It is an example of very poor policy to eliminate a deduction that encourages home ownership and provides tax relief for middle-income families,” said Luke Bell, lobbyist for the Kansas Association of Realtors.

About 315,000 Kansans — about 22 percent of all tax filers — deduct the interest paid on their home mortgages when they file their taxes. The deduction has averaged about $390.49, costing the state $162 million.

Budget director Steve Anderson said the home mortgage deduction tends to help the more affluent with large loans and big interest payments, something Bell disputed.

As the state reduces the income tax, Anderson said, the deduction becomes less valuable to homeowners. For instance, the average home mortgage interest deduction was expected to drop to about $300 with the 2012 income tax cuts passed by the Legislature.

Bell said it would be ill-timed to end the deduction now as the state climbs out of a downturn in the housing market.

Brownback’s plan forces the Legislature to decide on a pair of politically difficult issues in order to pass a budget that doesn’t inflict deep cuts in state services.

“I think there will be some very difficult decisions to make,” said state Sen. Pat Apple, a Louisburg Republican.

“I think the Senate is prepared to take the tough votes that we need to make sure we keep the state on a good solid foundation for future economic growth.”

In the House, the budget’s prospects seemed more uncertain. That chamber killed the governor’s proposal to end the home mortgage deduction last year.

State Rep. Marvin Kleeb, an Overland Park Republican, said the governor had reasonable proposals that needed to be considered.

Kleeb said the governor assumes a majority of legislators agree that lowering income taxes is a better option for boosting the economy than reducing the sales tax and keeping the home mortgage deduction.

“I don’t think it’s automatically passed and I don’t think it’s automatically defeated,” said Kleeb, who sits on the House Appropriations Committee.

Under Brownback’s plan, the state would still keep a couple of deductions and credits that the governor wanted to eliminate last year: the deduction for charitable contributions and the earned income tax credit.

That’s evidence of the governor’s “compassionate heart” for the needy, said Revenue Secretary Nick Jordan.

“Charitable contributions help. The EITC helps,” Jordan said. “Lowering tax rates help.”

Related stories from Wichita Eagle