Kansas lawmakers discuss ‘path out’ at closed caucus meeting

Republican senators gathered for an off-site, closed caucus meeting Thursday, as Kansas lawmakers searched for a solution to the state’s $290 million budget deficit.

Asked the topic of the meeting, Senate President Susan Wagle, R-Wichita, replied, “a path out.” Her spokeswoman later clarified that lawmakers would discuss several options and that Wagle was not endorsing a specific path. The spokeswoman said the discussions were confidential.

Gov. Sam Brownback has suggested several options for lawmakers: cutting spending across the board, using future tobacco settlement money for a one-time cash payment and delaying a payment to the pension fund for public employees. Lawmakers could go their own way – for example, a Senate committee held a hearing earlier in the day on a bill to roll back an income tax exemption for business owners.

Senate Minority Leader Anthony Hensley, D-Topeka, questioned the closure of the meeting by Republicans, who have more than the 21 votes needed to pass legislation in the Senate.

“I don’t see any reason why they have to close a caucus when we all know what the issues are. They’ve been out in the public for months and we all know what the governor’s put up as options,” he said. “I think they closed the caucus because they were talking about the election that’s coming up and how these issues will fit into their reelection plans.”

Sen. Ty Masterson, R-Andover, budget chairman, said he understood lawmakers would review polling data about election policy questions at the meeting.

Told of Wagle’s comments about a “path out,” Senate Vice President Jeff King, R-Independence, said, “You know what my preference for a path out is. We had a hearing on it today.”

King was one of three Republican lawmakers to testify in favor of putting 330,000 Kansas business owners back on the state’s income tax rolls.

SB 508, which was reviewed by the Senate Tax Committee, would bring in an estimated $170.6 million in fiscal year 2017 by taxing 70 percent of business owners’ income.

The bill faced strong opposition from business groups, who warned it would complicate the state’s tax code and hurt small businesses.

Democrats, who have long called for a rollback of the tax exemption, dismissed the bill as an election-year stunt by Republican lawmakers. They said it wouldn’t fully solve the state’s budget problems.

“We can’t wait on the creation of a tax utopia before we start addressing fairness problems we can solve,” King said.

Sen. Jim Denning, R-Overland Park, said many of the businesses that benefit from the tax break are single-person firms with no employees and that the policy, championed by Gov. Sam Brownback, had failed to accomplish its goal of spurring employment growth.

He said it made no sense to exempt all of business owners’ income since everyone consumes government services. “We let 330,000 folks have a free ride,” he said.

Bill would take effect in July

The tax bill would take effect in July, meaning that business owners would pay no taxes on their income for the first half of 2016, but face taxes for the second half of the year. It would still leave 30 percent of business owners’ income untaxed.

Opponents said this would lead to a lot of confusion.

Jay Langley with the Kansas Society of CPAs also warned that as written, the bill would require business owners to pay taxes on their income in years where they see a profit, but prevent them from deducting losses in years when they experience a loss.

“There’s no type of equity in that structure,” Langley said.

King said language should be added to bill to clarify that businesses would be able to deduct losses.

Dan Murray, a lobbyist for the National Federation of Independent Businesses, said the bill would hurt small businesses at a time when the state’s economy has been sluggish.

“Our members aren’t concerned about the re-election efforts by the Republican Party,” he said. “They’re concerned about their keeping doors open.”

Sen. Julia Lynn, R-Olathe, said the 2012 tax changes had created a disparity in the tax code that needs to be fixed. “Does this bill do that? Probably,” she said.

But she cautioned that the proposed solution could create more problems. “In listening to the opposition on this bill, we have to be really careful, because…all of the confusion that will happen in the business world over that could be a worse result.”

Democrats say the bill doesn’t go far enough

Sen. Tom Holland, D-Baldwin City, said the bill doesn’t actually close the business tax loophole, but “just waters down the benefit.”

The state’s fiscal problems are “much bigger than the LLC exemption,” he said, contending that the Legislature should revisit the entire 2012 tax cuts, which he said had reduced annual revenues by more than $700 million.

Hensley called the bill “an election-year conversion.”

Hensley has repeatedly called for business owners to be returned to the tax rolls. Pressed on whether he would support King’s bill if it came to the floor, he replied, “That’s a huge if. Because I don’t believe this bill would come to the floor. If it did, you know, I think I would be inclined … to support some sort of a rollback.”

Lawmakers might work into the weekend

Sen. Greg Smith, R-Overland Park, one of the lawmakers who supports King’s bill, joked that there’s plenty of momentum building in the Legislature on a budget fix: “It’s just not going in the same direction.”

There isn’t even agreement on whether to break for the weekend or not.

“I’d like to see us work through the weekend and keep going,” said House Majority Leader Jene Vickrey, R-Louisburg.

King said lawmakers need to give legislative staff time to work on the large number of other bills and that coming back next week to finish work on the budget would be more prudent.

“I think we should be diligent, but I don’t feel the need to rush to get the session done in a matter of hours,” he said.

This story was originally published April 28, 2016 at 12:23 PM with the headline "Kansas lawmakers discuss ‘path out’ at closed caucus meeting."