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- 48th and current governor of Kansas
This story is part of The Capital-Journal’s ongoing package previewing the 2022 Kansas legislative session. Follow reporters Andrew Bahl, @AndrewBahl, and Jason Tidd, @Jason_Tidd, on Twitter or go to cjonline.com for more state government and politics coverage.
Flush with cash, Kansas lawmakers are set to debate how to spend — or whether to spend — a windfall of taxpayer money.
The 2022 legislative session starts Monday, and Democratic Gov. Laura Kelly is expected to unveil a budget proposal later in the week.
"My top priority," Kelly told The Capital-Journal last month, "is always presenting a balanced budget that fully funds our public schools, that will close the bank of KDOT, that will take care of our kids in our child welfare system, that will allow us to continue to invest in economic development — you're reaping incredible returns on investment there."
The governor is also prioritizing axing the food sales tax — an idea that has bipartisan support.
"It's an aggressive program, but it is one that we can sustain," Kelly said. "I want to get that done. I want to get it done quickly and cleanly, at the beginning of the legislative session."
Economists in November projected a $2.9 billion surplus, and that number could grow as tax revenues continue to outpace expectations. Last week, Kelly announced that total tax collections in December beat the month's estimate by $64.5 million.
Axing the food sales tax would cost about $450 million. The proposal has bipartisan support, though it is unclear whether Republicans would support a standalone bill without other tax cuts that have doomed prior attempts.
A separate Kelly proposal to give Kansas residents a one-time $250 rebate comes with a $445 million price tag.
Republicans have said that temporary relief is not good enough.
"I appreciate Governor Kelly's election-year revelation that Kansans are taxed too much," Senate President Ty Masterson said in a statement on the rebate. "While I am open to all ideas to help reduce the tax burden on Kansas families, permanent solutions will be our priority."
Limiting government spending
But some lawmakers are exploring options to legally bind the government's hands. Last month, the Special Committee on Taxation heard details of tax and expenditure limitations in other states.
Such fiscal mechanisms are designed to restrain the growth of government budgets by limiting tax revenue, spending or both. They can be tied to various indicators, such as inflation or personal income growth.
"These efforts to rein in government ... I have hope and I am optimistic we can get this done," said committee chair Sen. Caryn Tyson, R-Parker, who is running for state treasurer.
Tyson, who is chair of the Senate Assessment and Taxation Committee, has also called for eliminating taxes on retirement accounts, including Social Security, eliminating the 1.5 mill levy collected for state building funds to provide property tax relief and freezing property tax payments for seniors.
Resisting a 'spending spree'
Republican Attorney General Derek Schmidt, who is the frontrunner to challenge Kelly in the November election, urged fiscal caution in a Dec. 28 Facebook post.
"Kansas should proceed cautiously and budget conservatively, resisting calls for a spending spree," he said.
He said lawmakers and the governor should pass food sales tax relief, pay for core obligations — including schools, highways and public safety — save some of the surplus for a rainy day and pay off state debt, especially in the public employee retirement system.
Schmidt said the surplus comes with a context of similar situations elsewhere, as well as the boom "will inevitably come down."
"States all around the country have record amounts of money," he said, "because (1) Bidenflation is driving up state tax collections, (2) the record-high stock market is driving up state tax collections, and (3) the federal government continues to flood states, local governments, and individuals with newly printed money under the labels of 'COVID relief' and 'infrastructure,' which, when spent, further drives up state tax collections."
Kansas Chamber calls for tax relief
Business lobbyists with the Kansas Chamber called for tax relief during a Tuesday news conference on the results of a November and December survey of 300 business owners and executives.
Chamber officials pointed to recommendations made in a 2019 tax modernization study conducted through a chamber partnership with the right-leaning Tax Foundation. Many of the issues have already been addressed.
"But there's still quite a bit of good recommendations that are in that proposal that can still be accomplished on all front:, sales tax, income tax, corporate income tax and property taxes," said chamber lobbyist Eric Stafford. "So the work's not done, even though there was a lot of positive changes that took place last year."
The Legislature passed a slate of controversial tax cuts last session when Republican lawmakers overrode a Kelly veto. Democrats argued the legislation would be fiscally destructive, likening it to the tax experiment under former Gov. Sam Brownback.
The bill had an estimated price tag of $284 million over three years and included some measures that had bipartisan support.
The chamber poll found that while taxes were the top concern of businesses in 2018 and 2019, COVID-19 became the most important issue in 2020. In 2021, it was the quality of the workforce, followed by taxes.
Business leaders have consistently said taxes are the top concern affecting profitability, even during the years of the Brownback tax cuts. Additionally, while 62% of business leaders currently believe state and local taxes are too much, that has consistently been the survey's majority position.
A plurality of business leaders support decreasing the state sales tax, half want to cut the personal income tax and two-thirds want property taxes reduced.
A majority of business leaders have consistently said they believe lowering taxes would help the economy, though the percentage has grown in recent years to 73%.
Chamber president and CEO Alan Cobb said their legislative agenda is to lower rates.
"I think lowering marginal rates and lowering the corporate income tax rate would be good, good policy," he said. "And, of course, we have an election year and you can't dismiss the politics of an election year about getting things done or not."
The chamber is not directly backing Kelly's proposal to eliminate the food sales tax.
"We're all for tax reductions," Cobb said, "I think we'd prefer an overall reduction in the sales tax rate ... and maybe they can do both."
Budgeting process takes time
While government agencies, politicians, lobbyists and activists could find numerous ways to spend extra cash, it is unclear what may make it into or be left out of the budget. Proposals are not yet public, and high-profile budget issues are typically resolved late in the legislative session.
An economist on the governor's tax reform council has said the surplus could pay for Medicaid expansion. Democrats have long pushed for expansion, which would primarily be funded through federal money.
School choice issues could complicate education funding debates, and it is unclear how far the governor is willing to compromise.
"It depends upon what you mean by school choice," Kelly said. "If you mean diverting taxpayer dollars to private schools, yeah, I'm not and never have been interested in doing that.
"I think one of the reasons that Kansas has had as good a school system as we have had is because we've devoted our taxpayer dollars to that and not let them be distracted or pushed over to other entities, but rather keep the focus on our K-12 classrooms."
The chamber survey asked business leaders what they consider to be more important for improving education, pitting "more funding" against "improving performance." Business leaders have consistently sided with performance over funding.
"They don't want more funding for more funding's sake, it's got to be geared toward improving the performance," said Pat McFerron, who conducted the survey.
Jason Tidd is a statehouse reporter for the Topeka Capital-Journal. He can be reached by email at email@example.com. Follow him on Twitter @Jason_Tidd.
This article originally appeared on Topeka Capital-Journal: How will Kansas Legislature spend budget surplus of taxpayer money?