Interim Session – April 21, 2020
In March, the Legislature passed a budget for the remainder of fiscal year ’20 (through June 30) and for fiscal year 2021. At the time, the state’s ending balance June 30 would have been $927 million, and was projected to be $730 million at the end of 2021.
On Monday, April 20th, the Consensus Revenue Estimating Group (CRE) met and provided an updated estimate on state revenue. The Consensus Revenue Estimating Group, or CRE, is composed of representatives of the Division of the Budget, Dept. of Revenue, Legislative Research Dept., and economists from the University of Kansas, Kansas State University, and Wichita State University.
According to the CRE report, following the COVID-19 outbreak, it is estimated that revenues to the state will decrease dramatically, leaving the state with only $200 million in the bank at the end of June 2020, and with a projected deficit of more than $600 million in June of 2021. These projected shortfalls are primarily due to decreases in individual income taxes (down $295 million), corporate income taxes (down $165 million) and sales taxes (down $110 million).
This massive decline in state revenues will require dramatic changes to the state budget for this fiscal year and next when lawmakers return for the wrap-up session, possibly as early as next week. Governor Kelly has already instructed state agencies to eliminate discretionary spending, shelve salary increases, leave open vacant jobs, and identify other cost saving measures.
Looking ahead, the CRE will meet again in the fall to revise estimates. If the COVID-19 recovery begins quickly in Kansas, there is hope that the projected decline in state revenues will have leveled off.
Final Week of Regular Session – March 20, 2020
On Thursday evening, the Legislature wrapped up regular session business, adjourning nearly a full week before its regularly scheduled adjournment date as concerns of COVID-19 exposure continue to grow. This shortened session prevented final legislative action on many bills. However, the adjournment resolution is scheduled to bring the legislature back on Monday, April 27, and allow one final week of possible action on bills — all of which is dependent on the broader COVID-19 pandemic.
Angel Investor Tax Credit Extension
House Bill 2689. This bill extends the sunset on the Angel Investor tax credit to tax year 2026. The annual cap on tax credits would increase in $0.5 million increments annually, from $6.0 million in tax year 2021 to $8.0 million in tax year 2025 and thereafter. The balance of unissued tax credits, as allowed by continuing law, may be carried over in future tax years. The bill would increase the amount of tax credits claimed on a qualified business investment from $50,000 to $100,000. The total amount of tax credits an investor could claim in any one tax year would increase from $250,000 to $350,000. Currently, tax credits are issued to qualified investors at an amount equal to 50.0 percent of the investment. The bill would revise the credit to an amount up to 50.0 percent of the investment, as negotiated between the qualified investor and the qualified Kansas business. The bill would allow bioscience businesses in Kansas to qualify for the tax credit. If a qualified business or bioscience business fails to be in substantial compliance within five years or ten years, respectively, that business would be required to repay the financial assistance to the Secretary of Revenue. Under current law, qualified businesses must be in compliance for ten years. As amended, this bill would also increase an existing tax credit to allow disabled family members more home accessibility. The House passed this bill on a vote of 103 to 12. A hearing had been scheduled in the Senate Commerce Committee, but due to unforeseen circumstances did not occur. We will work to keep the bill alive for the remainder of the session, however, given the current situation, nothing is certain.
Legislature Passes Budget for fiscal years ’20 and ’21
On Thursday, March 19, following multiple rounds of conference committee meetings between the House and Senate, the legislature passed, and sent to the Governor for consideration, Conference Committee Report (CCR) on Senate Bill 66, which contains the approved state budget for fiscal years 2020 (remaining), and 2021. The budget contains appropriations for $6.4 million in funding for the State Water Plan Fund, and also contains a proviso limiting the regulatory authority of the Kansas Dept. of Health and Environment from increasing fees on industries to fund its Bureau of Air Quality. The agency had previously stated its intention to increase fees on Class I and Class 2 air emitters up to an additional $1.7 million in 2020. Additional proviso language extends the sunset on the underground petroleum storage tank fund; and maintains $650,000 in the Ag Marketing Division of the Kansas Department of Agriculture that had been slated for transfer to another state agency.
Fiscal year 2020 budget includes total expenditures of $18.7 billion, including $7.8 billion from the State General Fund. This is an all funds increase of $7.1 million, or less than 0.1 percent, and a State General Fund increase of $6.9 million, or 0.1 percent. Some of the highlights in the fiscal year 2020 budget include:
- $50.0 million for the coronavirus response in FY 2020.
- $15.0 million to the Kansas Division of Emergency Management for coronavirus response in FY 2020.
- Does not include the Governor’s proposed transfer of $54.0 million for the Local Ad Valorem Tax Reduction Fund.
Fiscal year 2021 budget includes total expenditures of $19.9 billion, including $8.0 billion from the State General Fund. The recommendation is an all funds increase of $127.7 million. The FY 2021 projected ending balance is $627.8 million, or 8.0 percent of expenditures. Some of the highlights of the fiscal year 2021 budget include:
- Medicaid Expansion Proviso – language was added to prohibit the expansion of the Kansas Medicaid program without express consent of the Legislature.
- $17.5 million to the Coronavirus Prevention Fund of the State Finance Council if Medicaid expansion is not passed into law.
- $5 million for the Cancer Center Research Fund at the University of Kansas Medical Center, bringing the total amount in the fund to $10.0 million for FY 2021.
- $2 million from the State General Fund to the State Water Plan Fund, bringing the total transfer to $6 million for FY 2021, and $413k from the Economic Development Initiatives Fund.
- $2.4 million to the Kansas Dept. of Agriculture, mostly from the State Water Plan Fund, for a variety of cost share water projects including: conservation ($250,000), Watershed conservation ($300,000), streambank stabilization ($250,000), watershed dams ($200,000), conservation reserve enhancement program ($297,699), Water Injection Dredging ($660,000), Dewatering in Hayesville ($200,000).
- Reduces Governor’s proposed transfer from the State Highway Fund to the State General Fund by $25 million – leaving a transfer to SGF of $133 million for FY 2021.
- Does not include the Governor’s proposed transfer of $54.0 million for the Local Ad Valorem Tax Reduction Fund.
Legislature Passes State Transportation Plan – Renamed “Eisenhower Legacy” Plan
Following much debate in conference committees, on Thursday, March 19, the legislature passed, and sent to the Governor, House Sub for Senate Bill 173. Now known as the Eisenhower Legacy Transportation Program, this bill sets forth the state’s next 10-year transportation plan. The final plan will: specify the types of projects authorized, address local funding and new and continuing grant programs, authorize alternative procurement methods under certain circumstances, increase city connecting links payments, add reporting requirements, require at least $8 million to be spent in each county through FY 2030, state 16.154 percent of sales tax shall be levied for the State Highway Fund (SHF), and make additional changes to law. In addition, the plan includes a new $15 million, 3-year, 70/30 cost-share grant program for improvements to short line rail and rail siding owned or leased industry. Kansas Grain and Feed Association, Kansas Agribusiness Retailers Association, and Renew Kansas Biofuels Association requested inclusion of this language for its member companies.
Bills Passed, Advanced to the Governor:
Unemployment Insurance Benefits Extended
House Sub for Senate Bill 27. This bill was passed by both chambers, and then signed into law by Governor Kelly on Thursday, March 19. The bill extends the total number of benefit weeks for unemployment insurance for Kansas workers, which is currently adjusted for the seasonal average unemployment rate. Kansas’ unemployment insurance system currently allows for 16 weeks of benefits at our current unemployment rate. The bill would increase the maximum benefit to 26 weeks. The bill would sunset on April 1, 2021. Kansas went through $800 million in six months during the 2008 recession. There is currently $1 billion in Kansas’ unemployment insurance fund.
High Performance Incentive Program Amendments
On Tuesday, March 17, the Senate passed HB 2702 favorably on a vote of 39-0. The bill decouples the High Performance Incentive Program tax credit from the requirement to participate in either the Kansas Industrial Training (KIT) or Kansas Industrial Retraining (KIR) workforce training programs. The Division of the Budget states the bill would give the Department flexibility in using dollars from both the KIT and KIR programs. It is assumed that there would be an increase in those who qualify for the HPIP investment tax credit since there is no longer a training requirement and only the wage standard requirement. The Department of Commerce determines who would be qualified for the High Performance Incentive Program. The bill is advanced to the Governor for consideration. The bill was amended by the Senate Commerce Committee, and will head to conference committee.
Local Government Consolidation Bill
On Tuesday, March 17, the Senate passed House Bill 2510 favorably on a vote of 39-0. This bill would establish a procedure for a city or county to assume the powers, responsibilities, and duties of any special district located within the city’s corporate limits or county’s boundaries and dissolve such a special district if approved by a joint resolution adopted by the city or county and the special district. The bill was supported by the Kansas Grain and Feed Association, Kansas Agribusiness Retailers Association, and Renew Kansas Biofuels Association.
Select Bills Awaiting Final Passage
Public Utilities Income Tax Exemption for Rate Relief
Senate Bill 126. This bill would permanently exempt certain public utilities from paying an income tax and also exclude the utility from factoring the cost of this income tax in setting their utility rates. The purpose of the bill is to lower utility rates and make Kansas more competitive. The measure could save over 2 million Kansas residential and industrial rate payers over $40 annually in lower energy rates. The bill, which passed the Senate 40-0, awaits final action in the House Committee on Utilities. In addition, on a procedural motion, the Senate Committee on Utilities placed the contents of SB 126 into Senate Substitute for House Bill 2585, along with the contents of Senate Bill 339 concerning special contract rates for electricity.
Utility Securitization Bill Receives Hearing
Senate Bill 437. The bill would give the Kansas Corporation Commission the authority to authorize the issuance of ratepayer-backed securitized bonds in order to finance the retirement of existing generating assets in the state, as well as any replacement generation facilities necessary to replace the lost capacity and energy from the retired generation facility. The goal of the bill is lower utility rates by Kansas rate payers. A hearing on the bill was held in the Senate Utilities Committee.
Net Operating Losses Carried Forward
House Bill 2490. This bill would extend the net operating loss carried forward period to 20 years (currently 10 years) beginning in tax year 2018. The bill was passed by the House on a vote of 118 to 2.
Postsecondary Scholarship Act
Senate Sub House Bill 2515. This bill would create the Kansas Reinvest in Postsecondary Education Act (RISE Act), and amend the Kansas Private and Out-of-State Postsecondary Education Institution Act (KPOPEIA). The bill would also establish the Kansas RISE Scholarship Program (Program), which would be administered by the Kansas Board of Regents (KBOR). The Program would, subject to appropriations, provide a scholarship to eligible students for up to two years to attend a public or private eligible postsecondary educational institution in an associate degree program, career and technical education program, or baccalaureate degree completion program. The bill, which passed the House on a vote of 116-6, was supported by the Kansas Grain and Feed Association, Kansas Agribusiness Retailers Association, and Renew Kansas Biofuels Association. The Senate Committee on Education advanced the bill favorably for passage.
Vocational Training Liability
House Bill 2507. This bill limits a business’ exposure to liability from injury to a student participant in a school-sponsored vocational programs at the business’ worksite. The intent of the bill is to cover students during these vocational training activities in the same manner as they would be covered during school-sponsored sports activities. The bill was supported by the Kansas Grain and Feed Association, Kansas Agribusiness Retailers Association, and Renew Kansas Biofuels Association. The bill was passed by the House 97-27, and was advanced favorably for passage from the Senate Commerce Committee.
Broadband Deployment Grant Program
House Bill 2618. This bill would establish the state broadband deployment grant program in the department of commerce to encourage the deployment of broadband in the state. The bill was introduced following multiple meetings of a legislative broadband task force in 2019. Funding for this cost-share grant program is included in the state transportation plan. The bill had passed the House on a vote of 120-5, and was then recommended favorably for passage by the Senate Utilities Committee.