September 1st, 2017 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.
Quick Facts

Kansas Public Employees Retirement System (KPERS)

  • KPERS' funded ratio has been improving, from 56% as recently as 12/31/2012, to 67% as of 12/31/2016
  • The FY 2018 payment of $548 million by the State for KPERS State/School is the largest annual amount to date that the KPERS Trust Fund will receive from the State
  • With over $19 billion in assets and a well-diversified investment portfolio, KPERS is able to pay promised benefits to all retirees
  • KPERS assets are held in trust, and therefore, can never be removed for any reason other than to fund member benefits and pay the System's expenses
  • Pension liabilities are expected to grow more slowly in the future as a greater proportion of KPERS members are covered by the Cash Balance Plan, Tier 3
  • Cash Balance members, Tier 3, is projected to be more than half of active members by 2022 and more than half of the active payroll by 2025
  • The Legislature will continue to consider ways to responsibly provide for sustainable, long-term funding of KPERS

Budget and Tax Policy

We passed a large tax cut in 2012. I voted for it. We passed a large tax increase in 2017, I voted for it. Now the details and decision process. Nothing to be proud of, or to celebrate, with passing a tax increase. The 2012 tax cuts lowered personal income taxes by $800 million annually. The 2017 tax policy increased personal income taxes by about $600 million annually. So the 2017 tax increase took back about 80% of the 2012 tax cuts.

After four (4) years of trying to make the big income tax cuts work I finally had to pivot. Kansas took on a lot of unnecessary debt and did other financial maneuvers to pay our bills that just got too uncomfortable for me.

  • The good - We bent the growth curve of government spending, limiting the growth in state spending to about 1.6% year-over-year through fiscal year 2017.
  • The bad - We took on a lot of new debt to pay our bills.
  • The ugly - We cut Medicaid fees to our doctors and hospitals by 4%. Could not fund core government services. We froze pay for our prison and correction offices to the point turnover approached 50%.
The tax cuts went too deep, too fast. The tax cuts did not stimulate economic growth as high as the projections indicated on which the original decision was made. The policy created a loophole where 100% of pass through income could be sheltered from tax. This became known as the LLC loophole. Legislative intent was to shelter about 30% of pass through 
income, not 100%. Unforeseen headwinds could not be overcome. The deep rural recession started in 2013 and has only recently eased a bit.  However, Ag commodity prices have slipped again.  Still a long ways to go to get a healthy Ag economy back. Oil commodity prices collapsed in 2014. On July 1, 2014 West Texas Intermediate oil "WTI" was $105 per barrel. WTI has been hovering around $46 per barrel this week. Kansas oil is priced less than WTI. We had to do something. The legislature did not think it was appropriate to reduce education spending from current levels  - but to instead provide clear direction to school districts to spend education funding wisely for greatest value, and to bring all Kansas students to appropriate grade level competence in math and reading comprehension. There was no will to cut Medicaid services further. K-12 and Medicaid is where 90% of the states' budget is being spent. No way to balance the ongoing budget deficits on the remaining 10%. The $600 million annual tax increase ended up being where the votes were to fix the budget shortfall. The $600 million tax increase breaks down like this; $270 million from closing the LLC loophole and $330 million in other personal income tax increases. Time to take my lumps, turn the page, and govern.
Structurally Balanced Budget

Where the Money Comes from and Where the Money Goes

Payroll and Personal Tax Increase

If you work and receive a paycheck you noticed your take home pay was lower with paychecks received after July 1, 2017. The following payroll tax rates went into effect on July 1.

There has been a lot of confusing information about the tax being retroactive. If your employer is using the wage tax tables published by the Kansas Department of Labor effective July 1, 2017 you should not experience much, if any, retroactive tax due when you file your final tax return in April 2018, for tax year 2017. The legislation passed (SB30) provided for a lower weighted average effective tax rate for calendar year 2017. This should alleviate most, if not all, retroactive effect, when tax returns are filed in April 2018.
Other major points of the tax policy:

  • LLC loophole completely closed. Net business losses re-instated.  Both effective January 1, 2017.
  • 2018.  50% of medical expenses, mortgage interest and property taxes become deductible again; increased to 75% in 2019 and 100% in 2020 and thereafter.
  • 2018.  Dependent care tax credit will be set at 12.5% of allowable federal amount in 2018, 18.75% in 2019 and 25% in 2020.
New K-12 School Finance Formula

SB-19, Effective July 1, 2017

Our prior K-12 finance formulas have been in litigation for many years. The block grant formula in place effective July 1, 2015 through June 30, 2017 was ruled unconstitutional by the Kansas Supreme Court. A new school finance formula was passed effective July 1, 2017. I chaired the committee and voted for the final bill. The new legislation/formula provides additional money to the K-12 school system. $200 million in school year 2017-18, and another $100 million in school year 2018-19. The table below shows the amount of additional funding for the schools in my district.

We are currently waiting on a new ruling by the Kansas Supreme Court on SB-19. The rulings normally come out on Friday's. So every Friday we anticipate getting an updated ruling on our work. Having Chaired the Senate Select Committee on Education Finance I know we made every effort to comply with the Kansas Supreme Court recommendations. Some of the accomplishments and key provisions.
  1. Injected $300 million in new funding over a two (2) year period
  2. Tied future funding increases to the CPI-Midwest inflation index
  3. Provided funding for all-day kindergarten
  4. Dedicated more financial resources and human resources to the 25% lowest performing students
  5. Increased the At Risk weighting from 45.6% to 48.4%
  6. Supplied all source and work papers to the Kansas Supreme court showing our work on reasonably calculating suitable funding
  7. Expanded local authority
  8. Made the Department of Education accountable for measuring outcomes and developing best practices
  9. Put limits on bond and interest commitments placed on the state to allow for more funding available to the classroom
  10. Prohibited developers from diverting school capital outlay mill levies to their private projects
  11. Equity issues continue to be fully funded using the formulas the Supreme Court has previously approved
  12. Put a sunset on the formula of June 30, 2027 to force a new review
Other News

Depending on the Supreme Court's ruling on the new school finance formula I anticipate next session to concentrate on the following agenda items.
  1. Work on developing a solid Rainy Day Fund/concept
  2. Acting on remote sellers, aka online internet sales tax legislation.  Closely follow Colorado and South Dakota's lead and efforts here
  3. Continue to strengthen KPERS.  Look at re-amortizing the long term funding component
  4. Evaluate building a new mental health hospital in Osawatomie
  5. Evaluate building a new prison in Lansing
  6. Evaluate the possibility of using a Section 1332 state innovation waiver to improve health care insurance access in the individual market.  Lower premiums for all and better options for the working poor
  7. Star Bond reform to stop the financial abuse and put in more taxpayer protections

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