2012 Legislative Session Convenes
The 2012 legislative session officially began this week, as usual, with abundant energy and enthusiasm for what lies ahead. Our agenda is quickly filling up. Issues like strengthening the state’s economy, education finance reform, immigration, Medicaid reform, KPERS, redistricting, tax reform and further balancing the budget are already taking precedence on the agenda.

Early on, most of our time will be spent in committee reviewing policies remaining from the 2011 session, learning of new proposals and beginning the process of determining which legislation will be the primary focus of the session. After a week or two, bills will begin passing out of committee and voting will commence shortly thereafter. As the session progresses, activity will transition from the committee level to floor debates and final votes. Throughout this process I will continue to keep you updated as we work together to represent our shared interests.

State of the State Address
On Wednesday, Governor Brownback appeared before a joint session of the Legislature to give his annual State of the State address. The Governor’s main priority is to overhaul the state tax code to make it simple, flat and fair. Key to the overhaul is lowering individual income taxes for all Kansans by going from three to two income tax brackets, reducing the highest tax rate from 6.45 percent to 4.9 percent and lowering the bottom tax bracket to 3 percent. In addition to shrinking individual income tax rates, the Governor proposed to eliminate individual state income taxes on most small business income.

Governor Brownback also introduced his budget for the 2013 fiscal year which begins July 1, 2012. The proposed budget provides an ending balance of $465 million and meets the 7.5 percent ending balance requirement for the first time in several years. Included in the Governor’s budget is full funding for essential services and plans to address the mountain of state debt.

For several years the Legislature has failed to ensure funding for KPERS. It’s an impending crisis, and we must quickly begin addressing it. The current unfunded liability of KPERS exceeds $8 billion, which ranks it as one of the worst pension systems in the United States. In response, Governor Brownback has endorsed the bipartisan KPERS study commission plan to transition from KPERS to a defined contribution plan. Individuals who currently receive KPERS benefits and those who are vested will remain in the system and receive full protection while unvested workers and new state employees will transition to a defined contribution plan. This proposal guarantees the state will live up to its obligation of ensuring state employees receive their hard earned retirement funds. However, the transition will not be cheap and there are still many details to work out and more difficult decisions to make before we truly begin to correct the problem.

In two short years, federal funding to Kansas has fallen by $1.5 billion – a majority in Medicaid dollars. At the same time, Medicaid funding demands have increased at an alarming rate, placing stress on education, public safety and other essential state services. Additional federal cuts are expected, so the need to implement massive Medicaid reform in Kansas is now. The administration’s plan proposes to transition Kansas Medicaid to a managed care system that offers Kansans the opportunity to choose a plan that suits them best; encourages the disabled to find meaningful employment; and consolidates the Medicaid program into one state agency. The administration projects the overhaul will result in total savings of $853 million, though these savings would not be fully realized until the plan is completely implemented in future years.

The existing school finance formula, law since 1992, has consistently fueled a string litigation, frustration and has simply reached the end of its life-span. Governor Brownback introduced a new school funding formula intended to send dollars to classrooms, not courtrooms; focus resources on classroom instruction; and allow for greater flexibility and local control to school districts. Protecting classroom funding has long been a priority of the House. While the ultimate school finance solution will take time, patience and compromise, the Governor has provided the legislature with a realistic starting point for discussion. Now legislators can move forward with the ultimate hope of ending school finance litigation for good without bankrupting the state.

Governor Brownback has set an aggressive, but attainable, agenda for the 2012 legislative session. The pro-growth policies introduced by the Governor will result in meaningful debate by both chambers as we work together to make Kansas a better place to live and work.

Tax Reform
Rebuilding and strengthening economy remains one of the most pressing issues facing the Kansas Legislature during the 2012 session. During these tough economic times, a growing number of states have cut or are considering cutting taxes as a way to encourage economic growth. Research shows states with zero personal income tax significantly outperform states with higher income tax rates. These states also experience better population growth and increased tax revenues than those with higher taxes. While a full elimination of state income taxes isn’t a legislative goal in the 2012 session, there will be serious attention focused on broad-scale tax policy and the best way to move forward during challenging times.

Beginning the discussion, Governor Brownback has asked the Legislature to consider his tax proposal, which proposes to lower individual income tax rates from 6.45 percent to 4.9 percent for the higher bracket and lower the bottom tax bracket to 3 percent from 3.5 percent. For individuals earning $15,000 or less ($30,000 married filing jointly) their tax rate would fall to 3 percent, a reduction of 14 percent. For incomes over $15,000 ($30,000 married filing jointly) the tax rate would fall to 4.9 percent, a decrease of 24 percent. Any state revenues beyond two percent growth will be directed to further reductions in the state individual and corporate tax rates.

A key component of this proposal would be the elimination of itemized deductions, certain tax credits, and individual income taxes on non-wage business income. Low-income Kansans will see increased benefits through the doubling of the standard deduction for head of household filers (from $4,500 to $9,000) and an additional investment of $60 million to state social services and healthcare programs.

Currently, Kansas has the second highest tax rate in the region behind Nebraska with migration data showing we are consistently losing workers to nearby states with lower tax rates. From 2001 to 2010 private sector employment in Kansas fell by 39,700 jobs. Between 2004 and 2010, Kansas lost 15,683 tax filers and 17,640 dependents costing the state $1.09 billion.

To help Kansans get back to work, a significant policy focus of the House has been and will continue to be on finding ways to stabilize the state economy. One significant way we can do this is to create a favorable tax climate that enables employers to create jobs, entices new business to relocate to Kansas and ensures residents will continue to live and work in our state. However, broad scale change for such a diverse economy presents a difficult challenge. This topic will be a major focus of the legislative session, and alteration to the current formula will not come without serious discussion and further study to ensure. Feedback from all angles is a critical part of this process, so I encourage you to involve yourself in the process and express your views.

State Budget
Last year, the Legislature passed a budget that, for the first time since 1972, decreased all-funds state spending by nearly a billion dollars and turned a $500 million deficit into a $100 million surplus without raising taxes. Since then, we’ve been fortunate enough to have a number of good months and revenues are finally headed in the right direction. However, we still have very serious obligations facing the state, which makes it important for us to remain committed to keeping our spending in check. For too long, Kansas government lived beyond its means and we've worked diligently to turn the tide. History shows revenues will remain erratic as the economy struggles and we must pay off state debt and spend conservatively to better stabilize the budget and avoid some of the major shortfalls we were forced to deal with in recent years.

To continue building on the progress made in 2011, Governor Brownback has introduced a budget for FY 2013 that provides a $465 million ending balance, exceeding the 7.5 percent statutory requirement for the first time since 2008. The Governor’s budget fully funds or increases funding for essential state services while decreasing State General Fund (SGF) expenditures from the previous fiscal year. For the second time since 1972, the proposed budget decreases total state spending.

Many state, local and national economic issues remind us we are far from a full economic recovery. While many factors are out of our control as state legislators, we still maintain a great responsibility to not only project how these factors will influence the Kansas economy, but more importantly, determine what strategies will most effectively spur our growth here at home. Kansas is a diverse state with distinct urban and rural issues, often making reasonable and agreeable solutions difficult. This is never any easy process and increased revenues often complicate the process. There will be considerable debate on how to best use the projected $465 million ending balance if the Governor’s budget is approved. Options include: buying down income and other tax rates, fund services that we’ve been forced to cut in recent years, pay off state debt or simply pocket the funds to help build a reserve fund. It's a burdensome process and the budgeting process will absolutely play a pivotal role in the future of our state.

Education Finance Formula Reform
The existing school finance formula is in dire need of simplification, clarity and renewal. Last year, Governor Brownback indicated overhauling the state education finance formula would be one of his primary policy proposals. Last month he introduced a plan that aims to prevent education dollars from going to the courtroom, focus resources on the classroom and provide greater flexibility and local control to Kansas school districts.

In short, the plan is designed to provide stable, predictable, and fair funding to all of Kansas’ 286 school districts. This is achieved through:

• Providing the statutory $4,492 base state aid per pupil amount;
• Offsetting local property tax inequity through the Property Tax Equalization Fund that pays out in increasingly greater amounts to districts with low property tax valuation per pupil;
• Further equalizing district budgets through Supplemental Equalization to ensure that each district has a stable funding amount year after year; and
• Allowing for unlimited local control of property taxes for educational purposes.

Education is the primary mission of state government and will continue to be moving forward. The current education formula is incredibly complicated and relies on several factors that are constantly in flux. In fact only a handful of individuals in the entire state understand the current, complete formula. The administration believes their plan sets a floor for state spending on education, both statewide and by individual districts and ensures more money will be allocated to school districts when the new formula takes effect.

Funding KPERS
One of the more critical issues we face this session is addressing our chronically underfunded Kansas Public Employee Retirement System (KPERS). The economy hit pension programs nationwide hard in recent years and locally, has compounded the structural deficiencies within our own KPERS system. Unless substantive reform measures in Kansas are taken to improve the stability of the pension fund, the issues in KPERS will only worsen.

Over the interim break, a bi-partisan KPERS Study Commission, comprised of both House and Senate members, met to review a variety of options for how to address KPERS. The key recommendation made by the Commission was to put all new state employees hired after July 1, 2013, and all unvested KPERS members into a defined benefit plan. New employees would be required to pay six percent of their salary to KPERS while the state contribution would start at one percent and rise by half a percent each year until five percent of the employee’s annual pay is paid into a KPERS investment fund or a separate investment plan. Ultimately, the five percent contribution from the state with the six percent employee contribution will determine the pension amount. Retirees have the option of taking a lump sum payment or placing their money in an annuity for retirement income.

In addition, the Commission recommended reducing legislative pensions based on the actual salary of legislators rather than their theoretical salary. Currently, while in session legislators are paid $88.66 a day for their work plus $123 a day in expense allowances. When not in session, legislators receive $354 in biweekly expense payments. Combined this creates a theoretical salary of approximately $85,000 upon which KPERS payments are calculated. The action made by the commission would have lawmakers earn pensions based on their actual salaries (averaging $8,000 or $19,000 if they reside more than 50 miles from the Statehouse and collect mileage).

Current KPERS plans are based on a worker’s salary and the years of service to the state. If revenues do not keep up with the payout of benefits, the state is required to make up the difference. However, the state has failed to pay the difference for several years thus creating the $8 billion in unfunded liability.

Work on this overhaul will continue throughout the session, and many changes are still in the early stages. The KPERS system has been in place for such an extended period of time that any change, even a relatively minor adjustment, can create a major actuarial shift and tilt the discussion. The interim committee’s work provided the full body with a reliable foundation for change, which will speed up work on a complex and far-reaching solution.

Water Policy Changes
Impacting many communities in the western half of the state, Kansas water policy has become one of the main focuses of the 2012 legislative session and the executive branch priorities. Accordingly, the House will be considering a number of changes to existing law designed to help sustain one of our most precious and declining resources. Without careful planning, we risk endangering the livelihood, and ultimately the economic stability, of Kansas’ agricultural economy.

The Ogallala aquifer is the primary source of water in the western third of Kansas. Counties located above the Aquifer account for approximately two-thirds of the state’s agriculture economy and preserving the Aquifer is key to the economic future of Western Kansas and entire state. Without water from the Aquifer, agriculture and related business would not be sustained, manufacturing would slow and towns in the area of the Ogallala would struggle to survive.

Legislation has been introduced (HB 2451) to update the state’s water policy that incentivizes the conservation of the Aquifer. Of particular concern is the current “use it or lose it” state water law concept, that in some cases, disincentivizes water conservation efforts. Currently, water rights holders are given an allocation of water to use if this allocation is not completely used the individual stands to lose their water rights. The policy put forward by the administration would not force the water to be used and prevents water rights from being taken away. Actual water savings are hard to determine but the conservation impact is expected to be substantial.

Other pieces of water conservation legislation include:

• Providing a process for proactive conservation plans (LEMAs) to be put forth by local citizens for approval by the local Groundwater Management District engineer in times of shortages. Allows affected parties to chose how to address the shortage and avoid the political process involved with the current process;
• Allowing for multi-year flex accounts (SB 272) to assist irrigators, landowners and other affected parties in periods of drought. This would give parties flexibility in using their water allocation over a five year period. Years where individuals use more water than allocated can be set off by other years where the full allocation is not used; and
• Extending the availability and permanency of the Water Bank Act. In the late 1990’s, the Legislature passed the Water Bank Act allowing for two water banks in the state. A person with water rights can deposit a portion of their usage rights into the water bank for purchase. Currently, there is only one bank operating in central Kansas and it has not been put to great use. However, the potential for fracking in Kansas makes this a useful tool in ensuring oil producers have the water they need for the fracking procedures.