ADJOURNMENT REPORT
- Session Overview
- KPERS
- Unemployment
- Work Comp
- Taxation and Business Development
- Politics of the Session
After 90 days and six hours, the Kansas Legislature officially adjourned at 6:00 am last Friday morning. The session proved to be fairly productive for business interests as well as social conservatives.
Major reforms were achieved on unemployment taxation and the worker’s compensation system. In addition, Governor Sam Brownback won approval from the legislature on all of his “Road Map for Kansas” economic initiatives, including his expensing plan and rural economic development zones. The Promoting Employment Across Kansas program (PEAK) was successfully tweaked for a third year in a row and now allows for forgiveness of personal income taxes for S-Corp and LLCs that relocate to Kansas.
Most of these issues had received major focus throughout the session, but didn’t find resolution until the final week. That’s not unusual in an environment where every issue is a possible bargaining chip for one Chamber or the other. It is not uncommon for agreements to be reached on a policy matter only to see official voting held up by one Chamber in attempt to force their counterparts to accept another policy position on unrelated legislation. It is a chess game that the Senate usually wins and while the House got better at the game this year, especially on the budget, the Senate still outmaneuvered the House on many issues.
The budget was the major point of contention the entire session. The session started with a speech from the Governor highlighting the criticality of the legislature passing a rescission bill and getting it to his desk by the end of January. With the state facing a $500M shortfall, the Governor wanted cuts to the FY2011 budget in order to help balance the budgets for this year and next. Neither Chamber passed bills in time to meet that deadline and then negotiations between the two Chambers on the bill just stalled. No rescission bill was ever passed and the Governor eventually had to use his allotment authority to balance this year’s budget. It was not a good start and it was sign of what was to come on budget matters and discussions between the two Chambers.
As the session entered day 89 of the 90-day session, and after over 20 rounds of bargaining between the House and Senate, a budget agreement was finally reached and was readied for consideration by the full legislature. The FY2012 budget cut nearly $50M in state general fund spending, but the cuts to agencies and especially public schools was much larger due the absence of federal stimulus dollars that had been backfilling state money for the last two years. It was a Republican only approved budget and not a single Democrat in either Chamber voted for the budget. Democrats were unwilling to support the budget due to cuts to schools and social service programs. In the House, some staunch conservative Republicans refused to support the budget because they felt the budget did not cut enough.
The final budget spends nearly $14B all funds, including state and federal monies. The state general fund budget is just over $6B and leaves a projected ending balance of $70M, well below the required 7.5% which would be $450M.
Even in good years budgets have winners and losers. In a tough budget year there are understandably more losers and those losses tend to be even more painful. Some longstanding state agencies were either eliminated or folded into larger agencies. KTECH and the Pipeline program were eliminated and while the Kansas Arts Commission and Public Broadcasting were funded by the legislature, the Governor has promised to use his line item veto authority to zero-out their funding. Public broadcasting will probably survive, though they will face significant challenges. The Kansas Arts Commission will not. In fact, it appears that June 10 is the effective end date for the Commission. Schools also faced significant cuts, although legislation was passed that allows them to use funds previously allocated for other uses.
There were some notable hard fought wins for south-central Kansas however. The Kansas Affordable Airfares Program was renewed and NIAR, NCAT, and CIBOR were all funded for the next budget year. The Equus Bed Recharge project was also funded, and Wichita State, KU and K-State will receive extra money to increase programs for engineering students.
COMPARISON OF FY 2011-FY 2012 RECOMMENDED EXPENDITURES
During the Veto Session the Legislature passed a bill creating a commission to study and develop a long term plan to address the $7.7B unfunded liability for the Kansas Public Employees Retirement Program (KPERS). The bill also requires public employees to choose between paying a higher percentage of their salaries into the Kansas Public Employees Retirement System or having future benefits cut. The measure commits the state to increasing its annual contributions to KPERS starting in July 2013.
KPERS Conference Committee Report
During the session two different plans emerged for reforming the Kansas Unemployment System. The fund is broke and money had to be borrowed from the feds in order to make unemployment payments. The plans were similar in that both reinstated the waiting week and created six new rate classes, basically for negatively balanced employers. The key difference was the Senate plan would increase the taxable wage base from $8K to $11K over three years. Although it would cost employers in the short term, increasing the wage base saves positively balanced employers millions in federal interest payments. The House refused the increase and left the taxable wage base at $8K.
In a final conference committee meeting, the House offered to accept the Senate plan, but in return the Senate would be required to accept the House-only passed Payroll Protection Act. This is the legislation that would prohibit unions from automatically deducting money from member’s paychecks for anything political. The legislation was popular in the House and became personal for House leadership after union members loudly interrupted the House of Representatives during voting on the measure.
In a bold move, Sen. Terry Bruce (R) Hutchinson, described as “shooting the hostage”, the Senate entertained and passed a motion to concur with the original House passed unemployment legislation. The original House legislation was simply unemployment and did not contain Payroll Protection. That means the bill is headed to the Governor without the increase in the taxable wage base.
Kansas business had long awaited some reforms to Worker’s Compensation laws. The legislation is the result of deliberation and extensive negotiation between labor and business representatives. The final version of the legislation improves the Kansas business climate, increasing our competitiveness with surrounding states and ensuring injured workers receive the care and benefits they need. The reform package passed the Senate 37 to 0 and the House 120 to 0. The Governor signed the bill into law in Wichita.
Work Comp Conference Committee Report
Kansas Governor Sam Brownback campaigned on creating jobs and growing the Kansas economy. His primary plans for accomplishing these goals centered on creating rural economic zones. If people from outside Kansas move to counties with decreasing populations and create jobs, they could forgo personal income tax and even have their student loans paid by the state and the county in which they locate. The other key to the Governor’s economic plan was the ability for businesses to expense 100% of capital investment in year one for tax purposes.
Things got a little complicated for the new administration when businesses across the state balked at the elimination of tax credits known as High Performance Incentive Program (HPIP). The Governor, looking to pay for his expensing plan and deal closing fund, put HPIP on the chopping block. In addition to HPIP elimination, the Governor’s plan also proposed eliminating the only retention tool available to the Department of Commerce. The session was barley underway when the Governor and his administration realized that the total elimination of HPIP posed a political cost that was too high for the comfort of legislators (and business).
In the end, a very beneficial and productive compromise was reached. The Governor would get his expensing plan, HPIP would remain, although slightly changed, and the PEAK program would be tweaked to allow for retention. The contents of the compromise are contained in SB 193 and SB196. The links below are to the final conference committee reports for the legislation.
Political junkies are fond of saying elections have consequences. Depending on your point of view, those consequences are either positive or negative, but no one would disagree that the last election had major consequences. The state has a conservative Governor for the first time in a very long time. The Senate which has been in charge for quite some time lost just a little bit of its moderate steam and a fair amount of its power. While the Senate is still firmly controlled by moderate Republicans, it now has more conservatives. That has left them a bit uncomfortable.
The House coalition, made up of moderate Republicans and Democrats (forming a majority), has been relegated to the status of irrelevant. Conservatives clearly rule the House, and after two frustrating years of seeing his proposals dead on arrival in his own Chamber, House Speaker Mike O’Neal is clearly the second most powerful man in Kansas next to Governor Sam Brownback.
What does it all mean? Well, for next session, look for both Chambers to send each other those highly political and uncomfortable election year “gotcha” bills that require a great deal of squirming and nose-holding before casting a vote. Despite the fact there is no public service announcement against it, there is nothing more addicting than political power, and for the next year and a half there will be an epic battle in Kansas for that power.
Government Relations Staff
Barby Jobe, Vice President, Government Relations, bjobe@wichitachamber.org
Jason Watkins, Director, Government Relations, jwatkins@wichitachamber.org
Pat Gallagher, Manager, Government Relations, pgallagher@wichitachamber.org