In order to pay for such a massive tax cut, the bill would cut the state earned income tax credit in half, by 2014. This results in a 1500% tax increase on the poorest working families in Kansas. House Republicans have forgotten the words of Ronald Reagan who declared the EITC as “the best anti-poverty, the best pro-family, the best job creation measure.” It simply should not be cut in any manner to pay for a tax cut that disproportionally benefits the wealthy.

In addition to the negative impact this bill has on the poor, it is very troubling that the proposal would require any growth in state revenue above 3 percent be used to cut further income tax reductions in the future. This would leave the state without the ability to restore school funding cuts, or to adequately provide for other essential state services. The current level of funding would become the status quo.

I voted against this tax plan. There are things we can do to lower the state tax burden in a way that is fair and fiscally responsible, but this tax plan is not the answer. The income tax accounts for nearly half of our state revenue. We simply cannot afford to eliminate half of our revenue and meet all of our obligations to schoolchildren, the disabled and public safety. This tax plan will permanently impede our ability to properly fund those things, and that is not what Kansans want.

Multiple studies, including one from the nonpartisan Tax Foundation, have confirmed that Kansas does not have an income tax problem. We have a property tax problem. Kansas ranks 41st out of all 50 states for competitiveness in property tax rates. We should keep our tax reform efforts focused on providing property tax relief, lifting folks out of poverty, and strengthening the middle class. There are a few good things in this tax plan, such as eliminating sales tax on food, but in its entirety this tax plan simple fails to meet the standard of fiscal responsibility.

Public schools have endured more than their fair share of budget cuts over the last few years. Now that the economy has improved and we have a $400+ million budget surplus, deeper cuts are unnecessary, and counterproductive to our long-term economic goals.

Republicans claimed that schools’ reserve funds should be depleted before the state invests more into public education. If the House Republicans’ cuts are approved by the full Legislature, it will grow the Kansas budget surplus to $500 million in the next fiscal year.

Before the economy plummeted in 2008, the Kansas Base State Aid Per Pupil was $4,433. After several rounds of cuts, including the latest proposed cut by House Republicans, the BSAPP drops to $3,739. Last year alone, Gov. Brownback initiated a $232 per pupil cut to public schools. This totaled $104 million, which was the largest cut to public education in Kansas history. In total, public education has been cut nearly $270 million since FY 2009.

It is hard for me to understand why we can afford new tax breaks for big businesses and the wealthy but we can’t afford to restore school cuts or protect our most vulnerable citizens. Of course the Legislature shouldn’t go on a spending spree with the current budget surplus, but we need to make some priorities when we build the budget.  Schools are closing, class sizes are increasing, and parents are worried. Before we throw new tax cuts at corporations and the wealthiest of Kansans, we need to properly fund public education.

School districts accumulate reserve funds to help make ends meet when the state delays payments or makes significant, unexpected cuts to current year budgets like we did this year. Over the past few years, school payments from the state have been delayed multiple times, but that doesn’t stop the district’s need to cut payroll checks every two weeks. Reserve funds help fill the gap. They are not excessive; the average district’s fund will allow it to operate for 28 days.

The most concerning thing about this proposal is the loss of local control. House Bill 2773 essentially punishes school districts for efficient budgeting and fiscal responsibility. Districts made very painful cuts to build up a modest reserve fund in the likely event of a cash flow problem, and they deserve discretion over how those funds are spent. They should not be forced to relinquish year-end balances.

Those buildings exempted include: private homes, outdoor areas with ventilation, gaming floors of lottery gaming facilities or racetrack gaming facilities, designated smoking rooms in hotels, and tobacco shops.

This week, House Bill 2690, which had a hearing in the House Federal and State Affairs Committee, would add businesses whose employees are 21 and over the list of exemptions. Basically, this would exempt most bars from the smoking ban.

Tobacco-related diseases cost Kansas nearly $200 million annually in Medicaid costs and are the number one cause of preventable death. Not only does a smoking ban protect innocent Kansans from harmful secondhand smoke, it saves our state millions of dollars. Health benefits aside, this is simply good public policy.

Over 70% of our district stated that they wanted “a real smoking ban” at the time that we enacted the Kansas Clean Indoor Air Act. I am not opposed to looking at some tweaks to the current law like removing the exemption for casinos, but House Bill 2690 would create too many further exemptions.

A proposal by the governor would completely eliminate the EITC, while a bill passed by the House this week reduced the EITC by 50%.

Eligibility for the EITC is made only on earned income as reported on an income tax statement.  It is one of the nation’s largest and most important work incentive programs, annually lifting 6.6 million people out of poverty, half of them children.

In Kansas, nearly 215,000 working families rely on the EITC to help make ends meet, using the refund to pay rent, catch up on medical bills, or enroll their children in school. If this refund is taken away, 8,000 Kansans’ incomes would drop below the poverty line. Thousands more who are already in poverty would be pushed deeper into the hole.

In 2010 the Kansas Legislature passed Senate Bill 54, which created the Capitol Preservation Committee and authorized the Committee to develop plans for the placement of a mural within the Kansas State Capitol to commemorate the landmark court case that ended the “separate but equal” law across the United States.

Project parameters can be found here:

http://www.washburn.edu/main/mulvane/files/Brown%20Mural%20Call%20for%20Artists%20RFQ.pdf.

The deadline for submitting an RFQ is 5:00 p.m. CST on May 1, 2012. The Capitol Preservation Committee will invite selected artists to provide a Request for Proposal (RFP) to more specifically outline their plan for the mural.

The contact person for submitting an RFQ is Cyndi Morrison at the Mulvane Art Museum. Her e-mail is Mulvane.info@washburn.edu, and her phone number is 785-670-1124.

The mural will be paid for by private dollars, projected completion in October 2014.

I hope that you will find this short outline of HRIP helpful in comparing what you have heard in the news about the Governor’s plan and what the Republicans in the House are proposing.

Not all business entities would qualify for the exemption.  Businesses that are organized as partnerships, sole proprietors, S-corporations, trusts would qualify.  C-corporations would not qualify.  HRIP has been characterized as targeting small business.  This is somewhat misleading as many very large businesses meet the organizational qualifications.  Global companies like Cargill and Koch Industries are organized in such a way as to qualify for the HRIP tax elimination as are many other large businesses.

Since HRIP makes no distinction on how income is earned by the businesses there will be many reorganizations to take advantage of the business income tax exemptions.  For instance, if a individual tax payers’ income is derived from passive investments like stocks or bonds, trust income, or royalties, that tax payer only need to form a partnership and transfer the assets earning the income to the partnership to avoid paying income tax.  Also, those professional tax payers like attorneys, architects, engineers, accountants can move from an employee status to an independent contractor as an S-corp. and also avoid income taxes.

• Income Levels          Current Rate     HRIP Rate          % Reduction
• $0-30,000                  3.50%                   3.34%                        4.57%
• $30,001-60,000       6.25%                    5.99%                        4.16%
• $60,001-over            6.45%                     6.21%                        3.72%

The reductions in rates is progressive as the lower income brackets receive the highest percentage reduction, however 100% of business income will be eliminated after 4 years.  Any future reductions in individual tax rates will be implemented if overall state revenues increase by more than 2%.  This provision will be discussed later in the section dealing with the HRIP revenue cap.

Overall the department of revenue estimates that HRIP will reduce income taxes in the first two years by an estimated $212 million.  This estimate includes the change to individual and business income taxes.  This estimate is based on historical filings of current businesses.  It does not account for any changes in filing status if HRIP is implemented. Given the incentive for business and employee reorganizing the impact to reductions in income taxes paid of $212 million is most likely very much understated.

The Brownback plan would have eliminated many credits and deductions that currently benefit individual tax payers.  Examples are the home mortgage interest deduction, adoption credits, charitable contribution deduction, college savings credits, food sales tax refund, and the Earned Income Tax Credit.  HRIP leaves these deductions and credits in place with the exception of Earned Income Tax Credits.  Those would be phased-out over two years and the refundability of these credits would be eliminated immediately.

In the Governors plan there had to be an ending balance in the state general fund of 7.5% of the total state budget before any revenue over the 2% cap can be used to trigger more rate reductions to individual tax rates.  HRIP eliminates the ending balance requirement.  Since state spending cannot exceed revenue and HRIP does not require an ending balance to trigger further income reductions planning for expenditures could result in a perpetual budget crisis for the foreseeable future.

In any event, state income under HRIP is projected to be negative in each of the next seven fiscal years.  The impact to state revenue as computed by Legislative Research Department is as follows:

Years                                     Total Income Reduction (in millions)

• FY 2013                                                     ($40.70)
• FY 2014                                                      ($12.00)
• FY 2015                                                      ($63.60)
• FY 2016                                                    ($343.80)
• FY 2017                                                    ($392.40)
• FY 2018                                                    ($423.00)
• FY 2019                                                    ($506.80)
• 7-yr total                                              ($1,782.30)

Please note the big decrease in revenue in FY 2016.  This is a result of two factors; the first being that is the first year all business income is exempt, and secondly because this is the first year that money taken from the highway program is scheduled for repayment (more on that below).  Since no year shows a growth in income, let alone anything approaching a 2% surplus, it is not at all likely that any further reductions in individual rates will be implemented.  The only reductions will be to businesses who, by statute, will continue to see their rates reduced to zero.

Given the budget cuts that the state has had to implement over the last three years and the forced reductions in revenue imposed by HRIP there will be no ability to restore the lost funding for schools, public safety, our courts, or the services to the disabled and elderly.