January 22, 2017 - In This Issue:
Quick Facts

- Rainbow Crisis Stabilization Center to receive full funding in the budget

- Governor's Budget proposed $5 million for additional Resident slots at KU Medical School, providing for 12 additional doctors with an emphasis on placement in rural Kansas

- I was elected Senate Majority Leader for 2017-2020

- Johnson County economy remains healthy:
  • Homes sales YTD - 10,472
    (2.1% increase over last yr)
  • Retail sales YTD: $11.1 B
    (4.0% increase over last yr)
  • Residents
    Employed: 316.8K
    (2.4% increase over last yr)
Source: CERI
This session will be consumed solving very difficult issues.  Senate Leadership is committed to structurally balancing the budget through expenditure cuts and tax policy changes.  We also are committed to writing a new school finance formula that is fundable and fair to all students.  The budget must be structurally balanced in the midst of the severe rural recession which started towards the end of 2013. The rural recession is projected to last through at least calendar year 2018.

Combined with Tax Policy Changes

The Kansas operating budget has been structurally out of balance following the income tax policy changes of 2012. We never matched up our lower income tax collections with lower government spending. Nor did we grasp how severe the rural recession was developing. We have kicked the can down the road by increasing other taxes, bringing back funds originally pointed to Kansas Department of Transportation (KDOT), and using one time money sources. On November 10, 2016 the Consensus Revenue Estimators significantly lowered our expected tax receipts for fiscal year 2017. We now have a deficit of $350 million to deal with in this fiscal year. Senate Leadership is committed to structurally balancing the budget this session. It will require a combination of cuts and tax policy changes. The governor presented the legislature with several budget scenarios.   Click here to review a PDF of the scenarios.
The Governor prefers the scenario on page 35. The main pieces in this scenario are securitizing $530 million of the Tobacco settlement money, deferring around $500 million in KPERs payments, raising about $200 million through new taxes on cigarettes and liquor, and raising fees on businesses registrations. The other scenario is on page 38. It presents a more structured approach to balancing the budget. It defers about $200 million in KPERs payments, structurally cuts $365 million in expenses out of the budget, and repeals the business pass through tax policy known as the LLC Loophole. The Loophole repeal adds $215 million in annual taxes from putting 330,000 businesses owners and farms non-wage income back on the tax rolls. The KPERs modification will result in the new approach of "Layering" being applied in the pension industry. KPERs would layer the $200 million starting the next calendar year for 20 years. It has a similar effect as re amortizing. This policy has been adapted by Pension plans nationwide. Layering insures that there will be no effect on retiree's payments. Everything continues as normal.

To show what a structurally balanced budget looks like I took the scenario on page 38 and modified it to make the presentation below.


The main pieces in this structured budget is making $364 million in structural cuts and repealing the LLC loophole tax policy which brings in $215 million in annual taxes. Most of the cut would go to K-12 schools since they represent more than 50% of the budget. No question the cuts are big and the legislative body may not end up going that deep. We have some bridge money available to us to be used prudently should the body elect to soften the cuts.
We will write a new school finance formula.  The last time the formula was rewritten was back in 1992.  The old formula was converted into a block grant approach to fund schools the last two years.  For the most part, block grant funding has worked well for our schools.  The old formula never was sustainable.  It has only been fully funded 55% of the time.  Part of the original plan to launch the old formula in 1992 was to reduce KPERs payments to 1/10 of the actuarially calculated amount to fund the plan at start up.  The state has been playing catch up on the resulting KPERs unfunded liability for many years as a result.  We are also waiting on the Kansas Supreme Court's decision on Adequacy.  Lots of modular work has been done on a new formula with input from everyone involved.  It will be politically difficult to accomplish but we are up to the task.
The Rural Recession started in late 2013 and continues through today. It has played a major impact on the State missing its revenue projections. And of course, has made it very difficult on our rural economies. Two major drivers of the rural economy, agriculture commodity prices and oil & gas went into recession. The Kansas Department of Agriculture performed corollary analysis on the effect of low agriculture commodity prices. Department of Agriculture reports that for every 1% decrease in commodity prices there is a corresponding $7.7 million decrease in sales tax collections. This is further documented with retail sales trends in Kansas' 105 counties. The 10 largest urban counties reported an average 1.31% increase in retail sales while the remaining 95 counties reported an average -4.42% decline in retail sales. The 95 counties for the most part are rural economy dominated.

The low Oil & Gas prices are estimated to have a $60 million negative effect on the State General Fund (SGF). The low agriculture prices are estimated to have an $80 million negative effect on the SGF. Kansas SGF tax collections in a normalized economy grows at about 3.8%. Year to date SGF tax receipts are growing at a negative .7%. The rural recession has contributed to at least a 2% growth rate reduction in SGF tax receipts. The tables below show how weak commodity prices are.

Marearl has organized the "Happy Birthday Kansas Student Photo Contest" for 3 years. Winners will be honored at 11:00 a.m. Friday, January 27, 2017, first floor rotunda, at the Kansas State Capitol.  This year's theme is Making a Difference in Your Kansas Community. Awards will be presented at the Kansas State Capitol as part of the Kansas Day celebration, January 27, 2017. First place winners from each grade level will receive iPads, second place entries from each grade level will receive Kindles.

Click here to read all about the event.


Capitol Office
300 S. W. 10th Street, Room 330-E
Topeka, KS 66612

Overland Park
8416 W. 115th Street
Overland Park, KS 66210



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