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February 10, 2013 - In This Issue:
Jim in Senate Office
Quickfacts
  • By making a commitment to hold school harmless and honoring all statutory obligations already built into the budget, legislators only truly control about 30% of the budget. State and local governments obtain the largest portion of tax revenues from property taxes, and sales taxes.
  • Paycheck protection empowers employees by requiring labor unions to obtain prior approval from members to spend their contributions for political activities.
  • Families should have greater control from their investment in our state's education system by ensuring we have effective teachers and less bureaucratic policies that hinder our children's education outcomes.
  • I Chair Senate Ways and Means Social Services budget committee. This week we found a way to shift $400k to safety net clinics without increasing state spending. The process is known as re-purposing.
TAX POLICY
Time to Get Serious
TaxesScrabble

Tax policy is complicated to say the least.  To make it even more complicated major tax cuts were passed in 2012 but the other necessary changes - the "pay-fors" - need to be passed in 2013.

 

Speaker Merrick shared this Marine quote with me when I started my first term in the House in 2010. "It is our responsibility to be successful under conditions as we find them-- not as we would like them to be."  This certainly applies to our tax policy issues we must deal with head on.

 

Here is a recap of the tax policy passed in 2012 and what the Governor is further proposing in 2013.

 

 

 

To help focus the debate, I have broken the tax plan and policy into three phases.

 

  • Phase 1 - Agree to the pay-fors this year for the $800 million in income tax cuts that have begun as of January 1, 2013.  The major components of the tax cuts are $600 million in personal tax reductions and $200 million in LLC and Sub Chapter S tax deductions.  To pay for the reductions:
    • the 6.3% sales tax will need to stay in place, and
    • $100 million in school transportation cost needs to be shifted to KDOT,

or

    • $500 million will need to be cut from the budget.

 

Those that do not want to keep the sales tax in place have not come up with areas of the budget to cut.  There will be little support to cut school funding, which is over 50% of the budget.  That results in other parts of the budget being cut up to 25% to balance the budget.  I doubt there is any appetite for that approach either.

  • Phase 2 - Address additional proposed eliminations of deductions such as the mortgage tax deduction that will cover further reductions in the tax bracket for years 2014 through 2017.  An abrupt elimination of deductions, especially the mortgage tax deduction, will be met with strong headwinds from legislators.
  • Phase 3 - Apply tax receipts growth in excess of 4% toward driving the tax rates to zero. 

The legislature must get serious on Phase 1 now, and not wait for session end.  All budgets are being moved through Senate Ways and Means committee based on the 6.3% sales tax staying in place.  An "all or nothing" approach to solving this challenge is not the answer.

 

There is a reality that must be faced.  We made the tax cuts in 2012 and we need to get the pay-fors in place now.  Once we have the pay-fors agreed to we can move on to debate Phases 2 and 3.

EDUCATION BILLS
Favorable to Schools and Teachers
School Books Apple

Last week I introduced three bills favorable to schools and teachers in Senate Ways and Means Committee.  I was pleased that Education Committee Chairman Senator Abrams allowed me the flexibility to introduce the bills through Ways and Means.  All three bills center on local control and do not have any effect on the State budget. 

  • SB-131 allows schools more flexibility when spending their capital outlay funds.
  • SB-132 provides high growth school districts a soft landing when winding down tax levies to finance the schools.
  • SB-133 is a local activities budget option.
AFFORDABLE CARE ACT / INSURANCE EXCHANGE
Cost to Under Age 35 will Increase 48%

We had several bills and informational testimony presentations in both Public Health & Welfare, and Financial Institutions & Insurance.  I have not been a fan of the Affordable Care Act aka as "ACA"  or "ObamaCare."  It is now Federal law and I will work to keep up with changes that help Kansas as well as those that hurt Kansas.  With exception of the preexisting condition rules for kids and being able to keep your child on your policy until they are 26 years old the remaining parts of the plan will prove to be very expensive to everyone; rich, poor, young, and old.  Lots of unintended consequences are surfacing  as we get closer to the January 1, 2014 implementation date.

 

Kansas, like most states in the United States, currently uses a 5:1 insurance age rating band. Starting January 1, 2014 the new ACA law will require Kansas to compress our age band ratio to no greater than 3:1. This will negatively affect individual policy holders as well as small employer groups of 25 or less.  Larger employer groups greater than 25 will not be affected.  The 5:1 rating band strikes a delicate balance to provide some price protection for older consumers without making it impractical for younger consumers to purchase health care insurance.  In a nut shell, the 5:1 rating band means an older person will not pay more than 5 times the cost of a younger person. Thus, if a 20 year old can purchase a health insurance policy for $100 per month, a 64 year old could purchase a health care policy for not more than $500 per month.

 

Requiring Kansas to change our rating bands from 5:1 to 3:1 will significantly increase costs for individuals aged 18-34 in both the individual market and the small employer market of 25 employees or less.   Insurance Commissioner Sandy Praeger led the fight in the United States to keep the age rating band at 5:1 but her efforts fell on deaf ears.  Most actuarial analysis in the United States show moving from a 5:1 age rating band to a 3:1 age rating band will increase health care premiums by 48% for individuals in the 18-34 age brackets.  Individuals 18-34 years of age comprise the fastest growing segment of the uninsured.

 

  Graph - ImpactAgeBands

 

Younger families and individuals will experience a rate shock in January of 2014.  More than likely they will forgo obtaining coverage.  As young healthier individuals drop health insurance the cost of health insurance sold through the health care benefit exchanges will spiral.

 

Two bills were introduced in Public Health and Welfare on Friday to give employers and individuals an alternative to the ACA plans.

 

  • Senate Bill 162 would allow small Kansas employers to use a Health Reimbursement Account (HRA) to pay a portion of their employees' private individual insurance policy costs. This will also help make plans portable as they will be owned by the employee.
  • Senate Bill 163 is known as Mandate Lite.  It will allow Kansas based insurers to sell policies that do not meet the ACA guidelines and not require them to have any state mandates for additional insurance coverage over basic Health care coverage.  The mandate lite plans will not satisfy the health care mandate required for individuals to have ACA compliant coverage.  This means the individuals will have to pay the $95 penalty.  Even with the penalty the Mandate Lite plans will be inexpensive compared to the 3:1 age rating plans required by the ACA. 

Capitol Office

300 S.W. 10th Street, Room 541-E

Topeka, KS 66612

785.296.7394

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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