February 6, 2017 - In This Issue:
Quick Facts
Oil above $50 barrel
  • Will help stabilize the Kansas economy
  • 67 straight days and counting
  • Reached low of $26 one year ago
  • 100 new rigs in U.S. compared to last year

Kansas exceeded tax collections estimates in January by $24 million
  • Confident Kansas will make the estimates for remainder of FY 2017 (June 30th)
  • 3rd straight month of exceeding estimates since forecast was lowered in November
  • $32 million above revised estimates YTD.
  • $350 million budget deficit will not grow any larger

Dow Jones Industrial Average
  • Broke through the 20,000 point ceiling
  • Historical High

Low Wheat and Corn prices
  • Need 40% + increase in prices to return to profitability
  • KS farmers planted 7.4 million acres of wheat
  • This is down 1.1 million acres from last year
  • Lowest acreage planted in 100 years
  • Attempting to reduce supply and prop up prices

BUDGET AND TAX DEBATE BEGINS
Following the primary elections the Republican Senate Leadership held an informational meeting with sitting Senators and the Senators who won their primary elections. That meeting was held on August 30th. Budget and tax discussion dominated the meeting. At that meeting, it was calculated that the state had a small $4 million dollar positive ending balance. Minuscule but still positive. On November 10, 2016, two (2) days after the general election the official revenue estimators met and lowered the expected estimates b y $346 million. These lowered estimates created an immediate $350 million budget deficit for the current fiscal year, which ends June 30th. No one expected such a large correction and decrease. To my knowledge the state has never faced such a big budget deficit with only a few months remaining in a current fiscal year. Legislators will have to bring their full attention to fixing this shortfall. The reality is it needs to be addressed immediately.  finger-keyboard.jpg

Senators huddled up in small group presentations for several days last week. Financial models were analyzed showing assumptions for 100% cutting our way out of the deficit, 100% taxing our way out of the deficit, and a combination of operational cuts and tax policy changes to eliminate the deficit and structurally stabilize the budget. Obviously no consensus was reached at this early date with exception the majority wants a long term structural fix to the budget deficits. Starting this week tax debate will start up in Senate tax and budget debate will start up in Senate Ways and Means budget committees. Tax Chairwoman Tyson will hold hearings on SB-147 and Budget Chairwoman McGinn will hold hearings on SB-27, the recession/budget bill. With the large deficit, tax and budget changes will all be coupled this year. Very much chicken and egg scenario we are dealing with. The purpose of the financial modeling presentations was to demonstrate the interwoven relationships with budget and tax policy dealing with a current fiscal year deficit and the direct effect any changes have on the budgets for FY2017, 18, and 19. 

Some starting discussion points in SB-147 to get the debate going.
1. Repeal of the non-wage pass through provision. The revenue estimates were $230.9 million in FY2018 and $181 million in FY2019.
2. Increase the lower income tax bracket. Each 1/10th increase equals $18 million in taxes.
3. Increase the upper income tax bracket. Each 1/10th increase equals $40 million in taxes.
4. Repeal the low income exclusion. Increase taxes by $20 million.

Some starting discussion points in SB-27 to get debate going.
1. Do we use some of the $317 million long term investment account fund as bridge money?
2. Do we cancel all or part of the Governors recommended $540 payment reductions to KPERs?
3. Do we propose budget cuts which would include cuts to K-12?
4. Do we create a new extraordinary needs fund for schools districts without reserves to absorb a current year funding cut?

To be clear, any significant cuts if agreed to will include K-12 this round. Medicaid and all other programs have taken cuts in previous years. Below is a graphic of the budget allocations.



If cuts are proposed, there is no way cuts can be structured without including K-12.  We have no ending balance and  $350 million current fiscal year deficit. No amount of tax policy changes can be implemented to have any meaningful effect in FY-17.  If legislators approve any tax policy changes now, any measureable effects will not be felt until January of 2018.
SENATE BILL 111
Taxing Online Sales
S B-111 will have a hearing on Wednesday. The intent of SB-111 is to level the playing field and allow the brick and mortar stores to compete with on line retailers. Current law requires all consumers who purchase goods online to remit sales tax to Kansas if they were not charged tax by the on line retailer. This tax is to be remitted on Line 19 of the KS Tax Form K-40. This is very difficult as most of us do not know or keep records of our untaxed online purchases. SB-111 would require the online retailers to either collect the correct tax or send an annual statement to the consumer letting them know the amount of untaxed sales they purchased. Very similar to all the 1099's we are receiving this time of year from banks and businesses to help us complete our tax returns. Without these 1099's it would be very difficult for us to accurately report our interest and other earnings. SB-111 is simply applying this same logic to online purchasers. Should be a valuable debate when we hear the proponents and opponents.
OTHER NEWS
Kansas 2017 Republican Convention - Manhattan, KS, February 10-11, 2017

Keynote speaker at luncheon on Saturday is Allen West. To to https://www.kansas.gop/ for the full schedule.

 

Capitol Office
300 S. W. 10th Street, Room 330-E
Topeka, KS 66612
785.296.2497
Jim.Denning@Senate.KS.Gov

Overland Park
8416 W. 115th Street
Overland Park, KS 66210
913.345.9416
JDenning@Discovervision.com

 

www.JimDenning4Kansas.com



Paid for by Jim Denning for Kansas Senate - Kathy Vance, Treasurer