State of the State Address
On Jan 11th Governor Brownback gave his annual State of the State address to a joint session of the Legislature. The Governor has set a very aggressive, but attainable, agenda for the legislature. I assure you that his pro-growth policies will result in a lot of debate in both chambers. We must ensure that Kansas is a better place to live and work. Our number one priority is to reduce unemployment.
The Governor has proposed to overhaul the state tax code. His goal is to make it simple, flat, and fair.
We need to put more money in Kansans’ pockets in order to boost the economy. The tax changes proposed will be revenue-neutral. Any future increases in revenue will be used to further reduce individual income taxes.
He will maintain corporate tax rates unchanged and the penny sales tax will not expire early. Gov. Brownback also introduced his budget for the 2013 fiscal year which begins July 1, 2012. Other subjects presented were: KPERS, Medicaid, and the school funding formula.
Tax Reform
Rebuilding and strengthening the economy is the most important issue facing the Kansas Legislature during the 2012 session, as pointed out by the Governor. During these tough economic times, a growing number of states have cut or are considering cutting taxes as a way to encourage economic growth. Research shows states with zero personal income tax significantly outperform states with higher income tax rates. These states also experience better population growth and increased tax revenues than those with higher taxes. However, a full elimination of state income taxes isn’t feasible in the 2012 session.
The Governor’s plan would lower individual income taxes for all Kansans. The highest tax rate will be reduced to 4.9 percent (from 6.45), and the bottom one to 3 percent. This plan will eliminate individual state income taxes on most small business. Any state revenue growth above two percent will be directed to further reductions in the state individual and corporate tax rates in future years. The plan is revenue neutral. In order to reduce taxes there is an elimination of many itemized deductions.
Kansas has the second highest tax rate in the region, behind only Nebraska. Migration data shows that we are consistently losing workers to nearby states with lower tax rates. From 2001 to 2010 private sector employment in Kansas fell by 39,700 jobs. Between 2004 and 2010, Kansas lost 15,683 tax filers and 17,640 dependents, costing the state $1.09 billion.
We must create a favorable tax climate that enables employers to create jobs, entices new business to relocate to Kansas and ensures residents will continue to live and work in our state. Feedback from all points of view is a critical and essential part of this process. Please involve yourself in the process and communicate your thoughts to me.
State Budget
Last year, for the first time since 1972, we decreased the state spending by nearly a billion dollars, and turned a $500 million deficit into a $100 million surplus without raising taxes. Part of our problem for many years has been that expenditures have been too high. For too long, Kansas government has lived beyond its means and we worked very hard last year to turn the tide. However, we still have very serious challenges facing the state. It is important for us to remain committed to keeping our spending in check. We must still pay off the accumulated state debt and spend conservatively to avoid some of the shortfalls we were forced to deal with in recent years.
Governor Brownback’s budget for FY 2013 funds or increases funding for essential state services while decreasing State General Fund (SGF) expenditures. This budget has a $465 million ending balance, exceeding the 7.5 percent statutory requirement. This is only the second time in the past forty years that the proposed budget decreases total state spending.
Education Finance Formula Reform
Governor Brownback introduced a plan that aims to prevent education dollars from being wasted in courtroom litigation, focuses resources on the classroom, and provides greater flexibility and local control to Kansas school districts.
The Governor’s plan is designed to provide stable, predictable, and fair funding to all of Kansas’ 286 school districts by:
• Providing the statutory $4,492 base state aid per pupil amount;
• Offsetting local property tax inequity through the Property Tax Equalization Fund that pays out in increasingly greater amounts to districts with low property tax valuation per pupil;
• Further equalizing district budgets through Supplemental Equalization to ensure that each district has a stable funding amount year after year; and
• Allowing for unlimited local control of property taxes for educational purposes.
The new legislation would take effect in FY 2014 and sunset after four years. The proposed formula would cost the State an additional $45.1 million. Education is the most important responsibility of the state government. Under the proposal, all the districts would receive at least the same amount as last year and approximately half would receive additional funds.
Kansas Public Employee Retirement System (KPERS)
For many years, the Legislature has failed to properly fund KPERS. The current unfunded liability exceeds $8 billion. This is one of the worst pension systems in the United States. A bipartisan study commission recommended that KPERS should be transitioned to a defined contribution plan. Any person currently receiving KPERS benefits and those who are vested will not be affected by this change. The state must live up to its committed obligation to state employees. The transition still has many details that need to be worked out before we completely correct the problem. Not doing anything is not an option. Unless substantive reform measures are taken to improve the pension fund, the problem will only get worse.
The commission also recommended reducing legislative pensions based on the actual salary of legislators rather than the theoretical salary of approximately $85,000 upon which KPERS retirement is currently calculated. Legislators are paid $88.66 a day for their work (90 days) plus $123 a day for meals and lodging. This would reduce the salary for calculation to about $14,000.
I encourage you to let me know your thoughts on these issues. Please feel free to e-mail me at mario.goico@house.ks.gov. I’d be happy to discuss any topic. Thank you for the honor and privilege of serving you!
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