2013 Newsletter Header
June 9, 2013 - In This Issue:

2013 Legislative Session Review

Denning Official Senate Photo
  • The IRS is one naughty agency.
  • Verizon can hear you now.
  • The Office of Governor under the prior administration grew spending at 39% annually.
    • Under Brownback administration the office spending has decreased 1% annually.
  • The Office of Lt. Governor under the prior administration grew spending at 23.0% annually
    • Under Brownback administration the office spending has decreased 3% annually
  • The legislature adjourns "sine die"  - the final adjournment of this legislative session, on June 20th at 10 am.

The Kansas Legislature completed its work for the 2013 session last Sunday morning, June 2nd.  We passed a two (2) year budget and a six (6) year tax plan.  Throughout the session we passed business friendly legislation to grow good jobs in Kansas.


$14.5 Billion


Spending Flat Over Two Years

The total Kansas budget, referred to as the All Funds Budget is approximately $14.5 billion for 2014 and drops to $14.2 Billion in 2015. This includes State General Fund (SGF) spending of $6 Billion in 2014 and $6.1 Billion in 2015 and all other 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 the SGF spending budget. The All Funds budget represents total Kansas government spending and growth. Special emphasis is given to the SGF spending portion as it is funded entirely with Kansas tax collections.

The graph below shows the major areas of SGF spending. I broke out the state's defined benefit retirement plan (KPERs) payment from schools and agencies to give a better picture of that cost. These are estimates and should be taken as such.


The two year budget cuts $43 million from the state general fund over the next two fiscal years when compared to the base year of 2013. There had been discussion this budget cycle to cut $500 million in 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 without cutting K-12 and core services.  There was no intention of cutting these areas. This set the stage for decreasing the sales tax to 6.15% rather than letting it lapse back to 5.7% on July 1, 2013. The difference of .45% in extra sales tax was needed to fund essential government services and stabilize the budget from the $800 million tax cut effective January 1, 2013. Personal Income Taxes in 2013 were reduced by approximately 24%, totaling over $800 million - $600 million in personal income tax cuts and another $200 million in non-wage income pass-through. Non-Wage Pass-through income is no longer taxed in LLC's, Sub Chapter S corporations, or other similar tax styled partnerships effective January 1, 2013.

See the table below showing SGF spending for 2014 and 2015.


  20130609 - SGF Spending


Using 2013 as the base year you can see that the budget reduces spending by $43 million or .7%. This is first time in memory that Kansas has reduced government spending in a non-recessionary year.


The budget also allows for the KBI Forensics Lab Project to begin, $5 million to KU to continue its Cancer Research Program, $600,000 to the Free Health Clinics to help the working poor, and $355,000 to the Mental Health Crisis Screening Program.  In addition to negotiating these appropriations as Vice Chairman of Senate Ways and Means Committee, I also put a Proviso on the budget that forbids the state from selling Rainbow Mental Health hospital. Our Johnson County Delegation is in discussions with the mental health providers and public safety officials in Johnson and Wyandotte Counties to determine what type of services should be provided at Rainbow going forward. It appears that the stakeholders want more crisis stabilization beds rather than long term inpatient beds. It could be a private / public partnership but I wanted to give us time over the summer to sort it out. Selling the brick and mortar structure could make sense but the services needed should be determined first. Not having a "port in the storm" for mental health patients puts a direct cost burden on our jail and county budgets.  As importantly, jail is not the ideal place for these patients to be stabilized and cared for.

6-Year Plan

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. We did end up modifying the sales tax lapse scheduled for July 1, 2013 to pay for the initial personal income tax decrease, stabilize the budget and continue the income tax decreases through 2018.  The current sales tax rate is 6.3%.  It was scheduled to lapse to 5.7%.  We modified the lapse and the new lower rate will be 6.15% effective July 1, 2013.    The difference of .45% in extra sales tax retained along with the $600 million in ending cash balance will fund essential government services, stabilize the budget and pay for the $3.8 billion in income tax cuts scheduled for 2013 through 2018.  


The table below outlines the income tax rate reductions scheduled for 2013 through 2018.  It also shows the sales tax rates for same period.






The plan increases the standard deduction for Married and Head of Household filers (See table below), and phases down most deductions to match up with the decline in income tax rates, with the exception of charitable deductions.  Charitable deductions will remain 100% tax deductible.  Beginning in 2019, certain tax receipt growth over 102% of the prior year will be monetized and applied to further reductions in income taxes.  This will help control spending in the out years.  This is better described in the Spending Trends section of the newsletter.  An increase in the standard deduction will result in a tax decrease for Married and Head of Household filers.



20130609 - Std Deduction  

The next table calculates the reduction in income taxes projected as the result of the two tax plans passed.  The first phase of the 6 year tax plan was passed in 2012.  That was SB 2117.  The second phase of the tax plan was passed this session.  That was HB 2059.  Both tax plans affect income tax that start on January 1, 2013.



20130609 - Proj Reductions


The tax policy will return on average $627 million annually in personal income taxes to Kansans, starting at $231 million this year and increasing to $939 million in 2018. The total tax relief will approach $3.8 billion in total over a 6 year period.


These two tax plans change the trajectory of our state's tax policy by enacting a fairer and flatter tax model that taxes consumption in order to lower income taxes. We cut income tax rates below neighboring states after eliminating all taxes on small businesses starting in 2013. By 2015, we will have the lowest income rates in the entire region and by 2018 we will have the 12th lowest personal income tax rates in the United States.

Trends Unsustainable

The two year budget and the six year tax plan are intertwined.  We were asked to reign in government bloat, reduce the overall tax burden, create economic incentives to grow jobs and hold K-12 school spending harmless.  We accomplished the goal.  The following chart demonstrates what we were left to deal with from the prior administration.


Under the prior Administration, government spending increased an average of 10.3% annually.  Over three times the rate of inflation.  This certainly met the definition of "unsustainable."  The deep recession did force spending reductions.  With so much built in bloat it was difficult not to restore the level of spending the agencies were used to receiving.  Once we got Kansas growing again we were determined not to fall back into the pattern of spending all tax receipts coming into the Treasury.  With the budget and tax plan in place we project about a 2.8% annual increase in government spending.  This will fund core services, K-12 schools, and our roads and infrastructure.  The legislature did some heavy lifting this session.  The Governor, Agency Secretaries, and Stakeholders will be doing some heavy lifting going forward.  It will be up to them to analyze programs that work and don't work.  Eliminating the programs not producing positive outcomes will leave more money for the programs, state employees, and tasks that do.   The goal here is to have more and better government, but pay less for it.  This same logic is prevalent in the private sector.  We are under extreme competition in the private sector to deliver a higher quality product for less cost.  Think LASIK surgery here.

11 Months Ending May 31st

$64 Million or 1.1% Over Budget

20130609 - May Tax Receipts

The trends for Kansas tax receipts remain positive through the 11 months ending May 31, 2013.  For the 11 month period YTD tax receipts are $64 million or 1.1% over budget and 3.8% above the same period last year.  This is good news for the Kansas economy. Personal income tax collections are higher than initially projected, even after a 24% tax decrease. This is partially the result of business owners deciding to report higher income for 2012, which was paid in May 2013 to avoid higher federal and health care taxes effective January 1, 2013. We will see how year-end as of June 30 compares to last year. The large Kansas state income tax cuts effective January 1, 2013 are working to help the economy. Unemployment is down and job creation is up. There will be lots of head winds coming out of Washington. 2014 will be a challenging year for small businesses.  We have Kansas in a good spot to grow jobs and reinvest in business for growth.


We passed a balanced budget while funding core services and kept state spending within our means. With the historic tax cuts and a two-year budget leaving a healthy ending balance, we improved the regulatory environment for all businesses in Kansas by fixing and lowering unemployment taxes, improving the workers compensation process for employers and employees, passing paycheck protection, and prevented local governments  from implementing mandated employee benefits on our Kansas employers.

Capitol Office

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

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