TOPEKA — Kansas lawmakers debated until nearly 2 a.m. Monday but failed to pass a tax plan to plug the state’s $400 million budget hole.
Senate leaders decided to adjourn and reconvene at 11 a.m.
Republicans, who control the Legislature, have been sharply divided on how to fix a $400 million budget deficit during a session that is heading into its 102nd day Monday.
The latest proposal — presented by Sen. Les Donovan, R-Wichita, during a 1 a.m. caucus meeting — bears similarity to a plan offered by Gov. Sam Brownback on Saturday.
It is projected to fill the budget hole and leave the state with $34 million at the end of the 2016 fiscal year.
It would raise the sales tax rate from 6.15 percent to 6.5 percent in July and drop the rate on food to 6 percent in January.
Sen. Vicki Schmidt, R-Topeka, asked why the food sales tax cut would be delayed. Donovan replied, “Save dollars.”
Donovan would proceed with the governor’s proposal to eliminate income taxes for low-wage workers, but not until 2017.
Business owners who saw their income taxes eliminated in 2012 would keep that tax break under the plan.
Secretary of Revenue Nick Jordan warned GOP lawmakers Sunday that the governor would veto any attempts to roll back that exemption – aside from his own proposal to tax guaranteed payments to partners of limited liability corporations. Donovan’s plan includes that.
The Department of Revenue estimated that taxing guaranteed payments would bring in $23 million, but Sen. Jim Denning, R-Overland Park, called that “fictitious” because most LLCs would be able to get around that. He said the plan failed to raise enough revenue by leaving the tax break intact and that lawmakers would face a budget crisis again next year.
“Are we going to fix this turd or not?” he asked at the caucus meeting early Monday.
Like the governor, Donovan would also eliminate all income tax deductions except for the ones for charitable contributions, mortgage interest and property taxes paid. The latter two exemptions would be reduced by 50 percent.
Donovan’s plan also eliminates the state’s food sales tax credit. He contended that this would be offset by the income tax break for low-wage workers.
The plan received a less-than-enthusiastic response from Republican lawmakers.
Sen. Greg Smith, R-Overland Park, called it “smoke and mirrors.”
"Everything on here is fiction,” he said. “You take this plan and shove it."
When the dissatisfaction with the proposal became clear, Senate Majority Leader Terry Bruce, R-Hutchinson, decided the most prudent action would be to adjourn until the morning.
If lawmakers do not pass a budget or approve a temporary measure to fund state government by the end of this week, state workers will face furloughs starting Sunday, according to the state’s budget director, Shawn Sullivan.
Senate Vice President Jeff King, R-Independence, reminded his party of the urgent need for action. “The clock’s ticking,” he said.
Earlier, senators spent hours debating a proposal to eliminate certain tax exemptions for schools, public hospitals and youth organizations, such as the Girl Scouts.
Sen. Steve Abrams, R-Arkansas City, contended that eliminating the exemptions would allow the state to avoid increases to sales taxes and income taxes.
His plan would have closed a sales tax exemption on property and services for public and nonprofit hospitals and blood banks.
Ending this and a host of other exemptions would bring in $635 million total.
Abrams would use that revenue to fill the budget hole, cut the sales tax rate to 5.95 percent and speed up income tax cuts over the next three years.
He said it is unfair to treat nonprofit institutions different from for-profit institutions. However, Sen. Vicki Schmidt, R-Topeka, said hospitals are treated differently because nonprofit hospitals have a charitable mission.
Sen. Jeff Melcher, R-Leawood, who helped Abrams craft the plan, called nonprofit status for hospitals “a ruse to get around paying taxes.”
The contentious debate on the amendment lasted three hours before the plan was voted down 30-9.
Democrats used a procedural motion to split off the sales tax cut from the other portions of the amendment. That passed and was added to HB 2109, the Senate tax bill.