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Kansas governor's budget fix: Higher taxes, tobacco funds

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Posted at 4:34 PM, Jan 11, 2017
and last updated 2017-01-12 17:31:10-05

Republican Gov. Sam Brownback proposed budget-balancing tactics Wednesday, including higher taxes on Kansas business owners, cigarettes, beer and liquor.

He also submitted a proposal to the GOP-controlled Legislature to sell off the state's right to collect a share of revenues from a 1990s legal settlement between states and tobacco companies. On top of that, he suggested diverting funds for highway projects to general government programs, scaling back the state's contributions to public employees' pensions and liquidating a $317 million state investment fund.

$526 million was transferred from the Highway Fund to the General Fund for the 2016 Fiscal Year Budget. 

41 reached out to KDOT after Brownback released his plan for the budget.

Spokesman Steve Swartz sent 41 Action News the following statement:

"The governor’s budget doesn’t affect KDOT’s day-to-day operations, such as snow removal, mowing, roadside maintenance and more. Going forward, KDOT will continue to prioritize projects for its monthly construction lettings that preserve our nationally ranked highway system."

Republican legislators initially reacted cautiously to the package, but Democrats were harsh, with Wichita Rep. Tom Sawyer, the top Democrat on the House Taxation Committee declaring, "It's a pile of garbage."

"We've just got to get our expenses and revenues in line," Sawyer said. "I mean, this is just ridiculous."

Kansas faces a projected $342 million shortfall in its current budget and gaps in funding for existing programs totaling $1.1 billion through June 2019. The state has struggled to balance its budget since GOP lawmakers slashed personal income taxes in 2012 and 2013 at Brownback's urging in what even some Republican voters now see as a disappointing economic stimulus effort.

Brownback has argued that slumps in key parts of the economy, including agriculture and energy production, are to blame for the state's budget woes — not his tax policies. He also defended them in his annual State of the State address Tuesday evening, particularly a 2012 income tax exemption for 330,000 farmers and business owners that many legislators want to end.

His budget director, Shawn Sullivan, said that without the mix of proposals Brownback has outlined, "You're left with huge tax increases or huge cuts — even the mix between the two is huge."

Republican legislators expressed concern with the tobacco, pension and investment fund proposals.

"There were some areas that probably are not going to be well received by some members," said House Appropriations Committee Chairman Troy Waymaster, a Bunker Hill Republican.

Brownback's proposals would raise taxes and fees for business owners by nearly $74 million a year, starting in 2018. They would start paying taxes on royalties and rents exempted under the 2012 tax break, and the annual filing fee for for-profit companies would rise to $200 from $40.

The House Taxation Committee already has drafted a bill to end the full 2012 tax break as a way to raise $260 million a year. Chairman Steve Johnson, an Assaria Republican, said the governor's proposals are a starting point, but, "My guess is we still have to go farther."

Brownback also is aiming to increase the state's cigarette tax by $1 a pack, to $2.29. The state would double its liquor enforcement tax — which consumers pay when they buy liquor, wine and beer — to 16 percent.

The governor's proposals are designed also to ensure the state has a cushion of cash reserves. His budget assumes Kansas can raise $530 million by selling off its rights to tobacco settlement dollars, which amount to between $55 million and $60 million a year.

Legislators have been talking for weeks about the possibility of liquidating a state investment fund that was set up with idle tax and fee dollars in 2000 to boost the state's interest earnings.

Brownback's plan would do just that, then make an internal loan to education, social service, public safety and other general government programs to help close the shortfall in the current budget. The state would then pay the loan back over seven years. The plan would allow the state to avoid deep and immediate spending cuts.

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