February 5, 2019 Newsletter
This regular newsletter keeps you in touch with news and developments in the Kansas legislature. In this and all newsletters, I shall be reporting decisions and discussions taking place in the legislature that impact my constituents, and all Kansans. As your Kansas Senator, I encourage you to reach out to me and share your concerns and questions. You can reach me at Jim.Denning@Senate.KS.Gov or call my office at 785-296-2497.
Fast Facts
  • KPERS has $19 billion in assets
  • KPERS has 312,000 members, 100,000 are retirees
  • $1.7 billion in total benefits paid yearly
  • $1,336 is the average monthly retiree benefit
2019 Legislative Session Begins

The 2019 session is the start of my third year serving as Senate Majority Leader. My Committee assignment saw one change from last year with the addition of Senate Committee on Ethics, Elections, and Local Government. Full list of my committees include:
  • Senate Ways & Means (Senate Budget Committee)
  • Senate Select Committee on Education Finance - Vice Chair
  • KPERS Sub Committee - Chair
  • Health SubĀ­ Committee
  • Confirmation Oversight - Chair
  • Legislative Coordinating Council (LCC)
  • Ethic Elections and Local Government
 
On January 14th, Laura Kelly was sworn in as the 48th Governor of the State of Kansas. Delivering her first State of the State address on January 16th, Governor Kelly laid out her agenda for her first term as governor. Some of her main agenda items include:
  • More money to public education
  • More money for Department of Children's and Families. Mostly in the Foster Care area.
  • Medicaid expansion.
  • What was missing was no mention of a sales tax reduction on food. This was one of her main campaign promises. We hope to see something on lowering the sales tax on food from Governor Kelly this session.
Governor Kelly's Budget
Governor Kelly's proposed budget includes state and federal funds exceeding more than $18 billion dollars. The state general funds (SGF) budget will exceed $7.5 billion dollars. This would be the largest budget in state history.

Below is a graphic of major areas where the money is spent.



Governor Kelly gave the legislature an unbalanced budget with deficit spending. Below is a snapshot of what she gave the legislature to work with.



Governor Kelly's budget spends $137M more than 100% of tax collections will support. She balances her budget by making a $145M cut to the KPERS payment. Her budget attempts to mask the cut with her proposal to re amortize KPERS too early.
 
Governor Brownback experienced budget shortfalls with his tax policy with most agreeing it went too deep, too fast. Governor Kelly is creating similar budget deficits with higher spending levels than the state can afford. Governor Kelly promised no new taxes so she appears to be wanting to use KPERS to fund her spending agenda and balance her budget.
 
We turned over a structurally balanced budget to Governor Kelly with a $905M ending balance. Her first budget starts decreasing the ending balance as a result of higher and new spending.
 
The early re-amortization proposal is discussed in length below. Re amortizing KPERS early is bad fiscal policy and I will not be supporting it.
KPERS - Kansas Public Employees Retirement System
Governor Kelly wants to re-amortize KPERS early
When Governor Brownback had trouble balancing his budget's he floated the idea of re amortizing KPERS early as well. We studied the proposal, got a lot of negative feedback from KPERS Board, retirees and teachers, and quickly determined it was not sound fiscal policy. We dropped the proposal like a hot potato.
 
There has been some confusion about re amortization and "layering". Layering does not change the actuarial calculated funding ratio or increase the unfunded liability. Moderate use of layering is viewed positively by the KPERS Board.
 
When Governor Brownback floated the idea in 2017 Senator Kelly, now Governor Kelly, was strongly opposed. "Sen. Laura Kelly of Topeka, the committee's ranking Democrat, said the governor's plan would unravel all the work done to ensure the financial stability of KPERS. She criticized the governor for short term thinking." (Wichita Eagle, January 12, 2017)
 
The KPERS board unanimously voted NO on early re amortization and sent Governor Kelly a letter on January 22, 2019 letting her know they are unwilling to re amortize early. Having learned this the democrats have introduced SB73  to have the legislature force the KPERS board to re amortize early. There has been little support in the legislature to force the KPERS board to re amortize early.
 
As the graphic below demonstrates, re amortizing KPERS early will have an additional cost to the taxpayers of $7.4 billion dollars.


Unfunded liability in $ Billions. Blue is the current KPERS plan to pay off the unfunded liability. The Orange is Governor Kelly's plan to re-amortize and adds $7.4 billion in extra expense to the plan. Blue is good, orange is bad.

The legislature has made great progress in shoring up the financial strength of KPERS. Staying the course and making the scheduled FY-20 payment will result in making the actuarial required contribution payment for the first time in 25 years. Making this payment sets the course for all future payments to be at the actuarial rate.

Making the full FY-20 payment is important and historic. The actuarial rate is met, the funded ratio could increase to 70%, another milestone accomplishment, and future payments will only incrementally increase while significantly reducing the unfunded liability on an annual basis. The funding period we are in is like the last 10 years of a 30-year mortgage where the majority of the payment goes towards reducing principle rather than just paying interest. Governor Kelly's proposal would take us back to just paying interest.

Below is a good link about KPERS thoughts on early re-amortization

Tax Windfall Bill
Senate Bill 22 (SB22)
Senate Bill 22 would allow Kansans to continue to itemize their tax returns this filing season. An unintended consequence of the Trump tax cuts would prohibit most Kansans who typically itemize deductions on their tax returns from itemizing their tax returns starting this filing season. Senate Bill 22 would allow taxpayers to itemize their tax returns and continue to deduct interest on their mortgage, property taxes, charitable contributions, and health care expenses.

The issue is Kansas is a "conformity" state and now needs to decouple from that particular requirement.

There is also a business component known as repatriation income and global intangible low-taxed Income (GILTI). Kansas is one of a handful of states who has not addressed this new international tax phenomenon. Missouri has already addressed this and will not add this tax. We need to act fast to stay competitive with Missouri and other neighboring states.

Senate Bill 22 is NOT is a tax cut. The provisions of SB22 avoid an unintended tax increase to middle class individuals who normally itemize on their tax returns and businesses who are now subject to repatriation earnings and GILTI provisions at the federal level.

Tax rates remain the same, that is to say SB22 does not modify either individual and corporate tax rates.

Individual tax rates remain unchanged:

Wage Brackets
Singe/Joint
Rates Effective
July 1, 2017
$15K / 30K 3.10%
$30K / 60K 5.25%
$30K+ / $60K+ 5.70%


Corporate tax rates remain unchanged:
  • 4% up to first $50K
  • 3% Surcharge on earnings above $50K
This money belongs to Kansas taxpayers, not our state government. Senate Bill 22 corrects the unintended potential stealth tax increase. SB22 is not a tax cut for anyone or any business. However, SB22 not becoming law will result in a tax increase.
Following the Kansas Legislature
You can view video streaming of both chambers via the Kansas Legislature YouTube page. In addition, many committees are now audio streamed. The Kansas Legislature website is easy use with Senate and House calendars and journals as well as the rosters of both chambers. 

Here are the relevant links:

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


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