2013 Newsletter Header
May 27, 2013 - In This Issue:

2013 Session Winding Down ?

Denning Official Senate Photo
  • Two year budget FY 2014 and 2015 ready for floor debate
    • $6 Billion from State General Fund (SGF)
    • $14.5 Billion including SGF, Federal Funds, other funds
  • Tax Policy finally headed for floor debates
    • Moving to Consumption tax model
    • Transformational policy decisions.  Have to get it right
  • U.S. Census Bureau:  Money spent per public school student fell in 2011
    • First drop since 1977.  All 50 states
    • Driven by harsh recession and slow recovery
    • Click here for short article.
  • House soundly rejects Senate tax plan
    • Proposed to lower tax on groceries to 4.95% from 6.3%
    • Rejected by House vote of Yes = 5, No = 109
    • House will vote on its own tax plan as early as Tuesday?
    • The more proposals voted on the sooner we get to compromise and end the session.
  • Three weeks into Veto Session
    • Tax policy discussion has held up the session

Finished our second week of Veto Session.  When we return Tuesday for hopefully our final week of work this session, we will finalize the two major outstanding issues.  The major items remain the Budget for the next two fiscal years and Tax Policy for the next decade.


House and Senate Conference Committee Reach Agreement


Budget Headed to House Floor for Debate

The total Kansas budget will be around $14.5 billion for 2014. This includes State General Fund (SGF) spending of $6 billion as well as federal funds and other tax and revenue sources. The $6 Billion spending portion of the budget that centers on state tax collections is commonly referred to as SGF spending. 


The Budget should go to the House floor for debate this week.  I doubt the Budget will clear on the first pass. There are some non-essential, non-core government spending items in the budget. I suspect those will come out.


Once tax policy is agreed to, budget debate will immediately follow. SGF spending will decrease by approximately $210 million in fiscal year 2014. This is first time in memory that SGF spending has been reduced in a non-recessionary year.


The table below shows the major areas of SGF spending. I broke out the KPERs payment from schools and agencies to give a better picture of spending. These are estimates and should be taken as such.

There had been discussion this budget cycle to cut enough spending out of the budget to allow the sales tax to lapse back to 5.7% from 6.3% on July 1, 2013.  Neither Chamber could get close to that deep of a cut.  We ended up with about a $115 million cut over the governors recommended cut and other budget adjustments.  This set the stage for keeping some of the 6/10th sales tax scheduled to lapse.  A certain percentage of the 6/10th sales tax will be needed to fund essential government services and stabilize the budget going forward.  Taxes in 2013 were cut significantly totally over $800 million.  $600 million in personal income tax cuts and another $200 million in non-wage income pass-through no longer taxed in LLC's, Sub Chapter S corporations, and other similar tax styled partnerships.
Shift From Taxing Productivity To Taxing Consumption

We started the transformational tax policy last year with the sharp drop in personal income taxes and removing tax on non-wage income in LLC's, Sub Chapter S corporations, and other similar tax styled partnerships. Kansas has a 24% personal income tax reduction effective January 1, 2013. This will result in $800 million income tax decrease over the next 12 months. A certain percentage of the 6/10th sales tax scheduled to lapse on June 30, 2013 will be needed to "pay for" the income tax cuts as we transform to consumption tax.


The House and Senate finally started voting on different tax proposals last week. The only way to reach a compromise and bring the session to a close is to start having floor votes on different tax plans. The Senate sent its tax plan over to the House last Friday. The plan called for keeping the sales tax rate at 6.3% and lowering the tax on groceries to 4.95%. The House soundly rejected the Senate plan with a vote of 5 Yes, and 109 No. By the end of Friday, the Tax Conference Committee agreed to accept the House tax plan and have the House vote first. The House could vote on this plan as early as Tuesday or Wednesday? The headwind we see with this House plan is it has a sharp income tax cut in 2017. The top income tax rate decreases to 3.7% in 2017 from 4.8% in 2016. The sharp decrease will deplete the ending balance in the State checking account in 2018 and go negative in 2019. Although 5 years is a long ways to project out, the sharp income tax cut of 1.1% will have to be dealt with. A 1.1% income tax rate reduction on the top rate would result in at least a $500 million tax cut in 2017-18. It sets up another scenario similar to the one we created in 2013 in that it has no "pay fors."   Both the House and Senate plans phase out most deductions tied to lower income tax rates attempting to get to a flat tax scenario. 


Both House and Senate plans get Kansas income tax rates low and competitive with surrounding states. The proposed rates as they now stand are in the table below:




Tax brackets from surrounding states.



Oklahoma and Missouri are working on tax policies to lower their top rates to around 4.8%. Kansas will be competitive immediately if the competing states do accomplish their goals. In addition, with the proposed further reductions Kansas will be the most competitive state in our region on income taxes.

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Topeka, KS 66612




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Overland Park, KS 66210

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

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