News from the Capitol--May 12, 2015

The 2015 Session is proving to be one of the most challenging legislative sessions in memory. Lawmakers are working on an array of issues during the “veto session” but much of the focus and energy is, of course, on the budget and tax policy, which are directly tied together. That relationship between spending and taxes has never been more evident than this year, as we try to make up for a decline in projected revenues.

Proposals are being discussed but we have yet to see anything concrete and no formal floor votes have been taken on the House side. A proposal for a large increase in the tobacco tax was tabled on a motion by Senator Mary-Pilcher Cook in the Senate, which is the first major floor vote taken on taxes. Getting to 63 votes in the House and 21 in the Senate, along with the governor’s signature, will be a profound challenge, which highlights the difficulty of what we are facing.

I feel we must be very cautious about raising taxes, particularly on income, as Kansas has already seen economic growth in just the short period of time since the new paradigm of “going to zero” was enacted. Some have advanced the notion of perhaps repealing the exemption for small business owners that occurred when we adopted the tax cuts two years ago.

We need to remember that the goal is eventually to be a 0% income tax state, so we should not be troubled by the fact that some small business owners are already paying zero. Only in government is the solution to make things equitable by raising that person’s taxes – the best solution is to work towards our professed original goal, which is to get everyone to zero income tax.

In the wake of the dip in revenues, the road to zero might take longer than anticipated, but we should do all we can proceed to zero income tax, and not go backwards. The financial situation we inherited from the previous administration was unsustainable, and this action had to be taken. We are transitioning to emulating the top 10 most economically successful states in America, which have consumption based revenue streams. To do otherwise would undermine the efforts and energy we put forth to adopt those important tax reductions.

Other proposals for revenue enhancements include raising taxes on tobacco, alcohol and consumption, or perhaps doing something regarding sales tax exemptions. There may be other proposals as well. I will refrain from taking a formal position until the actual proposals are in front of me, but I will relay my decision on those matters in a newsletter to follow. From “Rich States, Poor States” (Laffer, Moore, and Williams) we understand that Kansas ranks 48th place in the number of public employees per 10,000, which is 708.2. (i.e. second from the worst). We are confident the consultants who specialize in fortune 100 companies and government entities will be able to find the efficiencies we need. We spend way too much for a Midwestern agrarian state with our population.

The Department of Revenue will finish opening income tax receipts from the April 15th filing deadline by next week. Lawmakers will then have a more complete understanding of the amount of new revenue needed to fill the budget hole.

We did take care of the Judiciary Budget.
The House approved a budget for the Judicial Branch that spends $131 million--$18 million less than the judiciary had requested.

The House Appropriations conferees will now take the Judiciary budget to conference with the Senate.

With the completion of the Judicial budget, plus funding for the K-12 schools already finalized through the block grant law, the House has completed approximately 53 percent of the budget.

More work on finding solutions that will fill the budget hole and fund core state services continues next week.

Uber
The budget wasn’t the only thing receiving a significant amount of media attention this past week. The legislature also voted overwhelmingly to override Governor Brownback’s veto of the legislation establishing regulations on ride-sharing services such as Uber.

The bill, which will now become law, is SB 117, which ensures that drivers contracted with Transportation Network Companies do not have a criminal history, and that they have necessary insurance, like other Kansas entities.

Now that the bill is law, ride sharing company Uber has finally entered into negotiations for the first time this year. The goal is to find compromise language that is acceptable to Uber that meets public safety needs and includes best business practices.

Although lawmakers made a good-faith effort to engage with Uber during the development of the bill, Uber’s unsavory tactics became increasingly hostile. The Legislature did not feel it was necessary to give special exemptions to one company to which other Kansas businesses are not entitled.

SB 117 is much less restrictive than the bill Uber originally supported, which would have driven out smaller players in the Transportation Network industry. Uber ceased operations in Kansas before the veto override passed, even though their current drivers would not have been affected by the requirements of the bill.

Republicans are committed to encouraging free-enterprise within the state, and were more than willing to work with Uber on multiple occasions to find compromise policy.

By ceasing operations before the law took effect and using their network to try to overwhelm lawmakers into caving to their demands, this company clearly demonstrated it is more interested in sharp practice and political theater than working together in good-faith negotiations to find effective and reasonable policy.

It important to note that other ride companies already operating in Kansas, such as Lyft, zTrip, and 1010 did not raise issues with the requirements of the law.


Remainder of Session
I will continue to keep you apprised of developments during the veto session. We should be taking formal votes on the various tax proposals soon. If you have any questions on the budget, taxes, or any of the other issues we’ve voted on, do not hesitate to contact me.