By Rod Haxton, Scott County Record
Controversy is something that legislators try to avoid like the plague during an election year. No one is anxious to provide their opponents with ammunition that can be used against them on the campaign trail.
This year may be the exception to that rule as the Kansas Legislature prepares for what Rep. Don Hineman (R-Dighton) describes as a “pivotal” session.
School finance and tax reform are two issues that will occupy a huge amount of the legislature’s attention when the three-month session begins on Jan. 9.
Add in KPERS reform, plans to reduce the cost of Medicare and Medicaid at the state level, efforts to downsize government
and redistricting of House and Senate seats and it provides the potential for a volatile session.
“It won’t be easy trying to draft a budget in an anemic economy,” says Hineman. “School finance reform and tax reform are intertwined. People will have to make some tough decisions.”
There are some tough decisions to be made, acknowledges Hineman. He wonders how many of them will be tackled during an election year.
It remains to be seen how far the legislature is willing to go in accepting or reworking the school finance reform plan that was recently rolled out by the Brownback Administration. Hineman disagrees with the administration’s assertion that the state finance plan is broken.
“I claim it only appears broken if you live in Johnson County,” says Hineman.
“A lot of time and effort has gone into developing this, and refining it, over the last 20 years. It works, other than we haven’t been able to fully fund it the last few years. Before we go in an entirely different direction we need to know what we’re trading off and getting into,” says the legislator who is completing his second term in the House.
As with other cost-cutting proposals being considered at the state level, Hineman is concerned that they are merely a means by which more responsibility for funding programs is shifted to property taxes.
“Local control is just another way of saying the state isn’t going to pay for it, local units of government will,” he says.
That’s made more difficult at the local level when sales and property taxes are the primary means of funding basic government in addition to infrastructure improvements from schools to hospitals.
“If local government has to divert more of the funding from these sources to compensate for revenue cuts at the state level, then it hamstrings what the locals can do to make their community a better place to live,” he points out.
Cutting Sales Tax
With state revenue beginning to rebound slightly from the Great Recession there is already murmuring among conservative lawmakers that the sales tax increase implemented 1-1/2 years ago needs to be phased out. It’s scheduled to sunset on June 30, 2013, but some legislators are calling for the sales tax to be cut from 6.3 percent to 5.7 percent on Jan. 1, 2013.
That rate is higher than the statewide 5.3 percent sales tax Kansans paid before 2010. The 0.4 percent difference goes to the Kansas Department of Transportation, in part to make up for funds it provided for the general fund when general fund revenue dropped.
The one percent tax hike generates about $311 million annually. Cutting the sales tax to 5.7 percent would cost the state about $113 million.
It will pose a philosophical as well as financial question for legislators.
“Is it better to reduce sales or income tax rates?” asks Hineman. “A lot of us are struggling with that question.”
Hineman feels that the sales tax has been valuable in making up for the shortfall in some state funds when income taxes and other sources of revenue were reduced during the recession. This forced major across-the-board budget cuts in a number of programs, from education to Medicare.
At the same time, as state revenues begin to rebound, he points out that “money laying around is always a temptation for any politician. Remove it and you end the temptation.”
Gov. Brownback has indicated, without giving details, his plans for reducing income tax rates. While Hineman is concerned about the overall impact on state revenue, he does favor a plan that would remove many of the tax credits and deductions available on income tax returns.
“By reducing credits and deductions it could lower tax rates for everyone,” he says.
It’s unlikely that the legislature will make an attempt to look at sales tax and property tax exemptions.
“We looked at sales tax exemptions two or three years ago and couldn’t get anything done. When you look closely at the big ticket items that would generate the most revenue you see there is a very legitimate reason why they were granted an exemption,” he says.
While he’s concerned with the shrinking property tax base, Hineman says there is reluctance to tackle exemptions because, as with sales taxes, “there are very valid reasons why these (exemptions) have been granted.” At the same time, he notes that this has made the property tax a “much less valid source of funding.”
Corporate Tax Credits
With the pending threat by Boeing to ship more than 2,000 jobs out of the Wichita area, the legislature may take up the debate over what the state can offer Boeing to keep their workforce in Kansas. Rather than cave to additional demands from Boeing, Hineman would rather reduce income tax credits and deductions given to large corporations.
“It’s easy to get caught up in the game that big corporations play. They have no allegiance to local communities or even the state,” he says. “I don’t think it’s a good long-term strategy to chase after those corporations. It’s too easy to get snookered into throwing a lot of money at something that won’t provide lasting economic benefit to the state.”
He cites the recent announcement by Rubbermaid to expand its operation at Winfield and relocate 200 employees from a factory in Greenville, Tex.
“Texas is a no-income-tax state, so that didn’t keep Rubbermaid from coming to Kansas,” emphasizes Hineman. “Infrastructure and a quality workforce, which goes back to education, apparently weighed more in Rubbermaid’s decision than income taxes.
“These are also things which are important to the citizens of our state. I’m not willing to sacrifice funding for education and infrastructure just so we can cut taxes in hopes of attracting or keeping big corporations.”
According to Hineman, the tax reform plan likely to be pushed by the governor is designed to maintain funding at current levels while increasing as the economy grows. However, many agencies are already feeling the effect of budget cuts over the past few years and have some catching up to do as revenues recover. The debate will again come down to philosophy.
“Do we meet unfunded needs such as public education, higher education or our mental health centers?” Hineman asks. “Or do we cut taxes and the state budget.”
While he may not see eye-to-eye with Gov. Brownback on all issues, Hineman credits the administration with being flexible when an idea doesn’t gain much support.
“I’m pleased that Gov. Brownback has been willing to be flexible. He’s willing to throw bold ideas out there, but when he hits a snag and it doesn’t work as intended, he’s also been willing to go another direction,” he says.