Legislative Update No.2

With the third week of session complete, it is clear that there is a sense of urgency to move quickly on leadership priorities including tax legislation, emergency powers, the Value Them Both Amendment and the budget.

One tax bill, SB13, has already been passed by the Senate and had hearings in the House this week. It primarily focuses on property tax transparency and forces counties and cities to notify the public and vote to approve budgets that use tax revenue that is derived from increases in property tax valuations. So far, it appears to be a noncontroversial bill enjoying bipartisan support in the Senate. Time will tell if the House will offer amendments to it that may change that fact.

Another tax bill, SB22 that focuses on income tax and federal decoupling, had hearings last week and more importantly had an overview of the fiscal note attached to the bill. Fiscal notes are essentially non-partisan estimates of impact on the State budget and/or revenues. In the case of SB22, the Department of Revenue estimated that the reduction to State revenue would be approximately $300M the first year and $600M the following year. SB22 is a broad tax bill that impacts both individual filers as well as corporate entities and is likely to be one of the most controversial pieces of legislation this session. The high fiscal note would create a sizable hole in the budget’s ending balance both this year and in the future. This may be why the Senate Taxation and Assessment Committee has not schedule final action on this legislation.

The Governor did have an opportunity to sign the first bill of the 2021 session this week that extends the emergency declaration until March 31^st, 2021. This allows the State to continue to receive federal funds to help respond to the COVID-19 pandemic.

A number of bills in the Senate have stalled due the maneuvering of votes for the Value Them Both constitutional amendment that passed the House last week 86-39. The Senate was poised to take up the resolution that, if passed, would put the amendment on the next primary ballot. However, one senator was mysteriously absent last Friday for “personal reasons” which would have likely derailed the vote with one republican already in opposition due the primary date of the election and one being away from Topeka due to health reasons. Senate leadership worked most of this week to guarantee they had the votes for the amendment which passed Thursday by a vote of 28 – 12. The amendment is not subject to the Governor’s veto and will now go on the ballot where it will be decided by a majority of votes of those voting.

The University Engineering Initiative Act (UEIA), HB 2101 is tentatively scheduled for a hearing February 2^nd. HB 2101 would extend the demand transfers from the lottery fund to KU, KSU and WSU for the purposes of graduating engineers in Kansas for another ten years totaling $10.5M a year ($3.5M for each university).

Another piece of legislation that is attracting attention in the Senate Education Committee is SB 43 which establishes the Kansas PROMISE Act which pays for pell eligible students to attend a two-year college for free and is a “last dollar in” scholarship. The legislation is seen by proponents as a way to grow workforce at low cost; however, there is a fiscal note that assumes only half of the currently eligible students would take advantage of this program while still costing the State $20M a year. This is a priority for House leadership and had a hearing this week. SB 43 will likely be worked sometime next week.

SB 32 also received a hearing in Senate Education this week. This bill would allow school districts to pay for high school students to concurrently enroll in college courses. Since the legislation is permissive and does not force districts to pay for tuition, this legislation does not have a fiscal note and is designed for school districts that have funds set aside for such purposes. This legislation will likely be worked sometime next week.

Conceal and Carry legislation is also being talked about again this session with two pieces of legislation discussed this week, HB 2058 and Hb 2059. These bills focus on reciprocity with other states conceal and carry laws. For example, if you live in Nebraska and are permitted to conceal and carry in that state, you would be allowed to extend that right to Kansas. Some legislators have expressed a desire to expand the age of allowing conceal and carry to 18 down from the current 21 years of age; however, would require a permit until you turn 21. This would have a significant impact on higher education as we have a large population on campus and in residence halls that are between 18 and 21 years of age.

Now that the constitutional amendment has been decided, the legislature will likely focus on continued debate and voting on tax legislation as well as begin work on the budget. Higher education will likely have their budget hearings the second week of February in the House. There has not been direction given yet for the Senate, but it will likely be about the same time.

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Legislative Update No. 1

The 2021 Legislative Session began Monday with the swearing in of House and Senate members. A process that normally takes an hour took several due to precautions established to reduce the spread of COVID-19. After that, official business was pretty quiet until Tuesday evening with the Governor’s State of the State Address. Governor Laura Kelly focused on broad themes including coming together to find sensible solutions to fight the Coronavirus, stabilize the budget, avoid budget damaging tax legislation and focus on ensuring Kansans have access to quality health care including Medicaid Expansion. As expected, there was little detail about the actual budget in her speech that was later unveiled to a joint House Appropriations and Senate Ways and Means Committee.

Budget

The Governor used a combination or reductions in spending and delaying some transfers to balance the FY22 budget that was negative over a hundred million dollars. For higher education, this left us held harmless, and the Governor was able to reinstate the $24M that was temporarily replaced with one-time federal funds back into the higher education system which was the priority request from KBOR and the universities. However, she also cut higher education $38M in order to balance the budget due to reduced revenue from COVID-19 with approximately $4.6M impacting WSU’s budget. It’s largely believed that the federal stimulus funds higher education received positioned universities for temporary cuts while the State tries to manage through FY22’s reduced revenues.

While we have not received an official plan for how the budget recommendations will be reviewed by the budget committees in the House and Senate, we expect that a process similar to previous years will be used including a first review by budget subcommittees including presentations by CEOs and KBOR in the next few weeks. That will likely lead up to a full appropriations committee review of subcommittee recommendations late February.

Other Bills

As expected, the Senate Assessment and Taxation Committee introduced their tax bills that focus on transparency in property tax valuations as well as income tax and scheduled hearings on Tuesday and the income tax bill was recommended favorably for passage by the Tax Committee on Wednesday and passed by the full Senate Thursday. The first bill, SB 13, is designed to prevent automatic property tax increases due to property valuation increases unless there is a vote of the governor body. There has been increased scrutiny in recent years in certain parts of the state where the mill levy (set by City Councils and County Commissioners and the State with the adoption of their budgets and generates property tax revenue) has remained constant but the amount of tax required by homeowners and businesses to pay has risen by large percentages due to property values increasing creating a “back door tax increase” without elected officials voting to approve it. While there seems to be broad support by moderate and conservative Republicans on this issue, it is unclear where Democrats and the Governor stand on the bill, and they may be waiting to see what gets added as the process goes forward. In previous years, narrowly focused tax legislation such as this has been used as a vehicle for other tax policy changes. For higher education in particular, the 1 mill on property tax that pays for deferred maintenance on university buildings was briefly discussed as something that should be included in this legislation. While it was not included, the Chair did say she was open in the future to completely removing the tax and funding deferred maintenance for universities out of the general fund.

The second tax bill, SB 22, focuses on income tax. This will likely be the more contentious of the tax bills, and avoiding unnecessary tax legislation was specifically addressed in the Governor’s State of the State Address and could trigger a veto if it passes. As it has just been introduced Wednesday morning, there’s not a lot of detail at this time but it will almost certainly include the decoupling from the federal tax filing that was vetoed last session as well as some measures that are considered necessary in order to be compliant with federal stimulus requirements. This bill will likely take longer for the Tax Committee to work, and it will need to be scored to see what impact it will have to state revenue.

Also of interest is SB 14 which focuses on codifying restrictions that legislative leadership placed on the Governor to respond to COVID-19 including closing businesses, regulating religious organizations, seizing ammunition and altering election procedures among others with legislative approval. While the proposed changes are not seen as controversial, it will likely open the door to amendments that could be contentious.

The University Engineering Initiative Act (UEIA) was introduced in House Appropriations Wednesday and will likely be given a hearing in the next couple of weeks.

The Value Them Both Constitutional Amendment was introduced in both the House and the Senate and will likely move quickly to a floor vote. This will be the first test to see if Senate and House leadership have the crucial 2/3 supermajority to pass legislation without the support of the Governor.

Going Forward

You can expect tax legislation and the Value Them Both amendment to be given priority consideration for hearings and votes in both chambers. Once those are done, attention will be paid to the emergency management legislation followed by the budget. There’s mounting concern about the possible shortening of session with the potential spread of COVID-19 in the Capitol.

2021 Legislative Session Preview

As session is set to begin on January 11^th and the Governor’s State of the State Address the next day, here is some context for the upcoming session as well as some important dates and events to consider.

First, this is the start of a new biennium which simply means it’s a new two-year term for the legislature, and we are coming off the heels of elections for both the State House and Senate which also means leadership elections in both chambers. Leadership elections are important as these are the individuals that will dictate committee assignments, chairmanships, priorities and set the agenda for what bills we be voted on during session. As a reminder, the Republicans expanded their supermajority from 84 seats to 86-39 after 2020 election and maintained their supermajority in the Senate of 29-11 seats giving them the number of votes to potentially override a Gubernatorial veto or pass constitutional amendments.

In the House, leadership positions remained largely unchanged as Speaker Ron Ryckman Jr. won an unprecedented third term as Speaker alongside Dan Hawkins as Majority Leader, Blaine Finch as Speaker Pro Tem and Tom Sawyer as Minority Leader. What makes these elections particularly significant is they were all done by acclamation which means no other Representatives challenged them for leadership which could indicate a well-run House for the upcoming session.

In the Senate; however, there were significant changes with two out of four Senators currently occupying leadership positions retiring and a third not running for leadership. The new slate of Senate leaders is Senate President Ty Masterson, Andover; Senate Majority Leader Gene Suellentrop, Wichita; Senate Vice President Rick Wilborn, McPherson; and Minority Leader Dinah Sykes; Lenexa. All of the majority party positions are seasoned senators serving multiple terms and chairing multiple committees, but they will now have to negotiate priorities with their own caucuses as well as the House and try and find some room to work with the Governor in an environment where there is an ongoing pandemic, economic downturn and potential budget issues looming.

What to look for?

Budget – Every session the Governor prepares a recommended budget for the legislature to consider and make amendments to. Practically speaking this is the legislature’s most important duty as it is the only one that is defined in the State Constitution. After last session with the protracted lockdowns due to the Corona Virus, the Kansas economy suffered a steep decline that impacted the State revenues including a loss of over $1B. Since then, Kansas has relaxed many of its restrictions which have improved the financial situation to only being negative just over -$120M. Both the Governor and the legislature will have to work to balance the budget as well as prepare for contingencies if further lockdowns are needed.

Higher Education – In order to balance this year’s budget, the Governor removed approximately $24M from the higher education system in Kansas and replaced it with one-time federal funding provided in CARES III. If the State funding is not restored, that will essentially be a reduction in State spending in the next fiscal year.

University Engineering Initiative Act (UEIA) – This is a program that was started several years ago to grow the number of engineering graduates from KU, KSU and WSU to meet workforce demands in Kanas. The funding provided $3.5M to each university for ten years. The program is due to sunset next year although demand for graduates continues. As of this year, each university has achieved its goal for graduating more engineers; however, a new strategy is being proposed to develop partnerships with the Kansas Department of Commerce and industry to provide work opportunities for students while in school and extend the program for another ten years with the goal being to retain more graduates in the state. Industry leaders have identified this program as critical to their business needs and are working closely with KBOR and the universities to get it renewed.

Deferred Maintenance – The physical footprint of higher education in Kansas is large and continues to grow. Unfortunately, the amount that is currently being spent to maintain campuses and cost to maintain them are growing further apart every year. KBOR has done a space utilization study as well a deferred maintenance study and believes the time is appropriate to ask the legislature to allocate funds to strategically address the growing deferred maintenance needs in Kansas. The plan calls for just over $1B to be spent on updating or renovating campuses and potentially reallocating under-utilized space. KBOR has already begun briefing the legislative budget committee about this plan and conversations are ongoing. This could be an item of interest either this session or next or both.

What’s Next?

Now that leadership positions have been decided, the next major event will be the swearing in of the new legislators on January 11^th followed by the Governor’s State of the State Address the following day. While the speech itself will be largely symbolic, it is a critical moment since the Governor’s Recommended Budget will be released the following day which will not only have an impact on state agencies, but it will allow the new Republican leadership to have their first opportunity to respond to the Governor and could set the tone for the rest of the session. After the legislature spends a couple of days unpacking the Governor’s budget, their subcommittees will begin reviewing her recommendations and making changes.