KEPC UPDATE: tax debate, crystal ball, school finance, STAR ...

• Statehouse gearing up for Monday tax debate
• Here?s our crystal ball on the Senate tax plan
• Senate settling on school finance
• Committee reviews STAR Bonds extension
• House budget may be out today
• 235 apply for Rural Opportunity Zone benefits
• Federal Reserve economist on Kansas taxes

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Statehouse gearing up for Monday tax debate

Monday is expected to be tax day in the Kansas House as lawmakers debate a bill to phase out the state income tax.? Groups opposing the bill?s $350 million diversion of transportation funds, increase in the severance tax, and $60 million cut in the Earned Income Tax Credit are contacting legislators about their opposition.

The bill is House Substitute for Senate Bill 177.

KEPC and Economic Lifelines have put together a chart that shows the difference between current law and changes to transportation funding in the tax plan (see below).

The bill freezes T-WORKS spending at $320.7 million until Fiscal Year 2016, when it?s supposed to jump to $581.5 million.

However, that increase conflicts with the bill?s intention to take revenues over 2 percent and put them into income tax reductions.? Two percent of FY 2013 revenue estimates is $125.8 million.

Meanwhile, the Kansas Petroleum Council, in a letter to House members, continues to express opposition to the severance tax provision of the bill.? Executive Director Ken Peterson writes:

?Contrary to claims made earlier this year, not all oil and gas producers in Kansas have agreed ? even grudgingly ? to the severance tax increase contained in House Substitute for Senate Bill 177.

? In fact, many oil and gas producers oppose the increase and are seeking removal of the entire severance tax section.? And that includes several independent producers who have told your colleagues their operations could be devastated if the severance tax increase is passed by the 2012 Legislature.

?Make no mistake about this severance tax scheme.? It is a tax increase, it plays favorites, it makes Kansas even less competitive with other states in attracting oil and gas investments, and it could jeopardize new drilling opportunities in south central Kansas where exploration is just beginning.?

?The severance tax increase sends the wrong signal to an important Kansas industry at a crucial time in its history.?

The bill eliminates the two-year severance tax exemption on new pool oil and gas wells, with the exception of oil wells that generate fewer than 250 barrels a day.

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Here?s our crystal ball on the Senate tax plan

The Senate Assessment and Taxation Committee is scheduled to work on the Governor?s income tax reduction proposal next Wednesday.

Here?s our educated guess on what, if anything, will come out of the Senate when it?s all said and done, based on discussions with informed sources:

• The Senate may accept a one-time income tax reduction, but not a mechanism to divert future revenue growth to income tax reductions.
• The Senate would restore the angel investor tax credit, historic preservation tax credit, and the home mortgage deduction, all eliminated by Governor Brownback?s proposal.
• There will be no diversion of transportation funds.
• There may be some sort of Bioscience element, which is unclear to us at this point.
• There could be a single factor sales corporate income tax element.? This allows corporate income tax to be based on a single factor: a firm?s sales outside of Kansas.? This has been successful in luring corporate entities to states like Iowa.? The idea was strongly supported by Salina Chamber President Dennis Lauver when he served on the Senate Tax Policy Study Group.? KEPC has also suggested this approach in testimony for the past two legislative sessions.

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Senate settling on school finance

The Senate Education Committee will likely not adopt Governor Sam Brownback?s school finance proposal.? The committee is working on Senate Bill 450, which amends the current formula.

The bill would require an additional $56 million in school finance.? It would also allow local school boards to increase the local option budget above the current 31.0 percent cap.? Budget authority would increase from 31.0 percent to 33.0 percent in the 2012-2013 school year.? In the 2013 ? 2014 school year, the LOB authority would jump from 33.0 percent to 35.0 percent.? Increases above 31.0 percent would be subject to a protest petition, which could force an election in the district.

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Committee reviews STAR Bonds extension

Without legislative action, the Kansas STAR Bonds program will expire, so the House Commerce and Economic Development Committee has been reviewing the economic development tool.

Under the program, sales taxes collected in new developments are used to pay off bonds that were used to help build the projects.? When the projects are complete, the sales tax flow reverts to state and local governments.? A maximum of 50 percent of a project can be financed with STAR bonds, but the practice has been to use them for 30 to 35 percent.

Commerce Secretary Pat George told the committee STAR bonds have created 10,000 direct jobs and more than 20,000 indirect jobs.

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House Budget may be out today

House Appropriations Committee Chairman Marc Rhoades (R-Newton) says he wants the House version of the Appropriations bill out of committee by today (Friday), and he plans to work as long as it takes to do so.? The plan is for the capital improvements, supplemental, and mega appropriations bills to be rolled into one bill once work is complete.

Rhoades says the plan is to work the budget bill on the House floor next Thursday (March 15).

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235 apply for Rural Opportunity Zone benefits

The Senate Ways and Means Committee heard an update on last year?s legislation creating Rural Opportunity Zones this week.? The Commerce Department?s Chris Harris provided the information.

The program allows a full income tax credit for certain new residents who move to certain rural Kansas counties and also provides funds to pay off education loans.? It was proposed by Governor Brownback.

Here are the numbers:

• As of December 31, 44 counties had passed resolutions to participate.
• There have been 235 applications from 42 of the participating counties.
• 54 of those using the program work in education.
• 46 of those using the program work in healthcare (nurses, physicians, chiropractors, pharmacists).
• Five are engineers
• Four are veterinarians
• 148 have family connections in rural Kansas
• 80 are from out of state:? 15 from Colorado; 14 from Nebraska; 9 from Missouri

During the discussion, Senators brought up once again the long-time problem of a lack of housing in rural areas for new residents.

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Federal Reserve economist on Kansas taxes

From Representative Don Hineman?s (R-Dighton) newsletter:

Alison Felix, economist at the Federal Reserve Bank in Kansas City, recently stated, ?Kansas had the least volatile tax revenues in the Tenth District over the past 40 years.? The tax portfolio in Kansas is relatively diversified, putting almost equal weight on sales taxes and income taxes.? Just as diversification reduces risk in a financial portfolio, diversifying state tax structures is likely to reduce volatility.?

The Tax Foundation ranks Kansas citizen?s property tax burden as excessive.? Only nine states have greater property tax burden, and none of them are our neighbors.? This is a very real problem for property owners, particularly in rural Kansas communities.? Perhaps it is time to consider tax reform in this arena as well.

Source: http://ksepc.org/2012/03/518/

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