NEW LEGISLATIVE SESSION CONVENES
STATE OF THE STATE ADDRESS
The Governor presented the annual State of the State Address to the Legislature, Supreme Court, and guests Tuesday evening. He reported that the state of our state is “indeed strong and very promising,” and also unveiled his plan to inject $600 million into K-12 education over five years. However, he did not provide any method to fund such an increase. He also noted the need to hire additional teachers and increase their salaries.
I was disappointed in the State of the State, but not overly surprised given the reality of politics in Kansas right now. Governor Brownback is going to Washington DC to serve in the Trump Administration, so he has no plans to see this wish list realized. I think this speech presented things that he would “like” to see done, as opposed to things that are actually possible.
If you would like to watch the entire State of the State Address, please see the Governor’s YouTube channel here:
GOVERNOR’S BUDGET HIGHLIGHTS
The SGF profile of the Governor’s Budget shows a $300.7 million deficit for FY ’20, even assuming that the Highway Fund sweep and transfer from the Children’s Initiative Fund continue.
The governor’s education proposal is financed partially by a $13.9 million transfer from the Children’s Initiative Fund (CIF). Of the $200.8 million added for FY ’19, $87.8 million (state general fund) was included in 2017 SB 19. The Governor adds an additional $100 million SGF for the following four fiscal years.
The Governor’s Budget Report does not fully fund KPERS for FY 2019. The $194 million payment that was delayed will not be made.
The Governor’s Budget Report does not restore the four percent cuts made to Higher Education.
It does not fund enhancements requested by the Judicial Branch.
The report does contain $190.7 million of enhancement requests, which includes his new school funding proposal. This amount does not include K-12 and Health and Human Services Caseloads and KPERS School contributions.
This is all very troubling to me. Kansas has a lot of needs, Corrections, KDOT, KPERS, MedicAid and Education, to name a few. The challenge I face in Appropriations is to balance the needs against the available resources. For years, I’ve worked to make these programs as lean as they could be and still function, with the vision that when we were able to fund them more adequately. To see a plan to not only continue our austerity measures, but to actually dig the hole deeper by not fully funding KPERS even though we’ve committed to doing so, and by continuing the sweeps from KDOT. Every agency is feeling the brunt of not being protected by the Kansas Constitution.
The Appropriations Committee introduced three bills related to the Governor’s Budget Report. They are: HB 2466, HB 2467, and HB 2468. HB 2466 makes school finance appropriations for FY ’18-’23 for the Department of Education. HB 2467 makes appropriations for the Department of Education, including KPERS School contributions. HB 2468 is the Supplemental Appropriations bill for all other state agencies.
TRANSPARENCY OF THE LEGISLATIVE PROCESS
For the first time in Kansas history, the House chamber is set to be video live-streamed this session. However, the camera to accomplish this is broken. IT estimates approximately 2-3 weeks before video live streaming will be available, but has made a temporary solution. The Legislature has a YouTube link and daily sessions can now be viewed after the fact. Here is the link:
Additionally, audio live streaming is now available in all of our Committee rooms. A list of all of the committee meetings can be found here:
Last week the Committee received a briefing on the November Consensus Revenue Estimate (CRE) and the monthly revenue reports through December 2017 from Chris Courtwright, KLRD. There continues to be uncertainty regarding individual income tax estimates along with uncertainty with Federal tax law changes.
The Kansas Department of Revenue is working on analysis of Federal tax law changes, which will be made available at a later date. For the monthly reports, receipts are up $83 million for FY ’18 (July-December). Virtually that entire total is in individual income tax receipts. KLRD indicated that it will not have all the information on individual income tax until the end of the FY, especially in terms of matching the $591 million fiscal note from 2017 SB 30.
Courtwright discussed why the November forecast is less optimistic on growth than the April report. The Kansas economy is not growing quite as fast, with Gross State Product reduced significantly from 1.8 percent to 0.2.
This reduction in projected revenue stems almost entirely from income tax. The agricultural and the oil & gas sectors of our economy have been in the tank for some time. No changes occurred from April to lead us to expect otherwise. The only thing that changed was the largest income tax increase in the history of the state, passed over my objection last year. This tax increase seems to be the motivation behind reducing projected income tax revenue. The axiom holds true, “reduce taxes to accelerate an economy, increase taxes to slow down an economy.”
The Committee also heard about the consensus caseloads in human services. The FY ’18 caseloads add $16.4 million SGF, decreases AF by $4.57 million. For FY ’19, SGF increases $104.5 million and AF increases $247.1 million.
J.G. Scott provided an update on the approved budgets, noting selected changes made to budgets by the 2017 Legislature. Scott also provided a 5-year SGF profile, which was requested by the Legislative Budget Committee during the interim. The profile document is to serve more as a planning document for the outyears, as assumptions are made about components in revenue and expenditures.
On Wednesday, the Committee heard from Budget Director Shawn Sullivan. He presented an overview of the Governor’s Budget Report (GBR).
Sullivan made brief comments on the consensus estimate and provided a state comparison of various taxing sources. Much of his presentation focused on the Governor’s Education funding proposal. The Governor proposes expending $200.8 million in FY ’19 and $100 million in the following four fiscal years. Of that $200.8 million, the committee learned that $87.8 million was already part of funding provided in 2017 SB 19 bill. Some of the foundation aid increase proposed for FY ’19 uses $13.9 million CIF.
The Governor’s Education funding proposal also contains goals and objectives, which are laid out in the overview. Additional costs are associated with the objectives, including offering 15 credit hours of dual credit coursework to every Kansas high school student ($24.5 million, if all participate) and offering every Kansas high school student the ACT or Work Keys assessments ($1.4 million). When pressed as to where $600 million figure was derived, Director Sullivan said it was prevailing thought that would be the remedy.
Sullivan highlighted other proposals, which includes, but not limited to:
• More funding in: Early Childhood, Elementary and Secondary Education (includes high speed internet improvements, restores CIF reduction; eliminates Parents as Teachers wait list; JAG-K expansion)
• More funding in Higher Education (CTE initiative, ESU Nursing, KUMC Dentistry School start-up costs, but no restoration of 4% cut)
• More funding in Skilled Workforce and Advanced Manufacturing Funding (National Institute for Aviation Research; National Center for Aviation Training; Registered Apprenticeships)
• More funding in: Public Safety and Transportation (National Guard Tuition Assistance; Internet Crimes against Children Facility; 13 KBI positions; 3 Attorney General positions; sweeping additional SHF from sales tax estimates)
• More funding in Department of Children and Families (includes 20 additional child welfare staff; adding investigative staff to find missing children; funding for foster care background checks; increase family preservation funding; expanding JAG-K; expanding Work for Success Fatherhood Program)
• More funding in Employee Compensation (relates to Department of Corrections increase, increases number of Correctional Officers to El Dorado; increase certain DOC classifications; increase for staff left out of FY ’18 pay plans; KDADS adult care home surveyors)
• More funding in Healthcare Proposal (includes hospital Medicaid rate increase; seed money for GME residencies; nursing home Medicaid rate increase; Osawatomie State Hospital revenue shortfall; expansion at Larned State Hospital Sexual Predator Training Program)
The budget does contain provisions related to the Rainy Day Fund and PMIB payback. Excess receipts identified at the 2018 April CRE will be split 50/50 between the two. The Department of Administration was given $200,000 in additional funds to cover the cost of Capitol building rentals, eliminating the need to enforce the proposed fee increase. The Judicial Branch enhancements totaling $19.6 million were forwarded on to the Legislature for review.
Sullivan indicated that the ending balance for FY ’18 with the Governor’s revisions is $266.6 million and $150.3 million for FY ’19. FY ’19 ending balance remains positive as the Governor did not recommend the delayed KPERS payment of $194 million.
The Governor’s Budget does not contain an outlook beyond FY ’19, which makes it difficult to track if the budget balances in the out years. However, KLRD has provided a 5-year outlook updated with the Governor’s adjustments.
The Committee introduced the Governor’s bills for supplemental appropriations; adequacy; and school finance.
John Dickson of the IT consulting firm the Denim Group testified before the Government, Technology and Security Committee regarding state cybersecurity systems. He explained how the looming threat of cyber attacks is an issue that receive little attention until a hack or a breach takes place. Dickson detailed two attacks that significantly crippled both Utah and South Carolina, which resulted in an enormous loss of data.
“It’s not a matter of if, but a matter of when,” he clarified. He also articulated the difficulty with encouraging stronger digital security, given that governors, legislators and staff are constantly changing. Medical data, disease data, payroll, DMV, tax, and many others are the types of data that are susceptible to the attacks he described. Dickson promoted the idea of expanding Kansas’ digital infrastructure to protect taxpayer data.
Rod Blunt, Deputy Chief Information Security Officer for OITS, updated the committee on a sampling of reported digital attacks since 2012, which included ransomware, a few incidents of servers, workstations, and firewalls having been compromised, and most notably the breach of the Dept. of Commerce last March.
He stated that the actual cost of a successful cyber-attack against the Kansas government remains unknown. Blunt was then questioned by the committee regarding these attacks, and what efforts the state can take to thwart any incoming threats.
OITS has been able to collect information regarding threats since 2012, however, it was revealed that agencies still are not following the proper protocol to report such attacks. Dickson said that each agency lacks the proper staff and training to even detect simple attacks, and explained that the decentralized IT system perpetuates that problem. The committee will continue to examine this issue during the 2018 Session, and will find ways to improve the security of the state’s sensitive data.
Kansas Lottery Update
In the Federal and State Affairs Committee, Terry Presta, Executive Director of the Kansas Lottery, reported that net sales for the lottery for FY 2017 had reached the second highest annual sales totaling $258 million. He also stated that the current sales of the lottery for FY 2018 was $6.9 million, or 5.42%, ahead of the same period in FY 2017. Net sales from the Lottery since its inception have reached nearly $5.7 billion with more than $1.7 billion having been transferred to the state.
In 2017, Governor Brownback vetoed HB 2313, a bill that would have extended the lottery while also legalizing the use of lottery vending machines. A new bill is expected to be introduced this year for the purpose of extending the sunset of the lottery. I fully expect the lottery vending machines to be amended to this bill.
NEXT WEEK’S HIGHLIGHTS
Tuesday, January 16:
• 9:00 a.m. – KPERS informational briefing, Appropriations Committee
• 3:30 p.m. – Consensus Revenue Estimates and receipts through December, Tax Committee
Wednesday, January 17:
• 8:00 a.m. – Caucus, Sexual Harassment Prevention Training, Old Supreme Court Room
• 9:00 a.m. – Informational briefing on the Special Committee on a Comprehensive Response to the School Finance Decision, Appropriations Committee
• 9:00 a.m. – KPERS valuation overview, Financial Institutions and Pensions Committee
• 3:30 p.m. – Review of state tax credits and exemptions, Tax Committee
Thursday, January 18:
• 1:30 p.m. – Joint meeting with the Senate Education Committee, presentation by Commissioner Randy Watson, K-12 Education Budget
To view a complete list and status of all pending legislation for the 2018 session, visit this link: http://kslegislature.org/li/b2017_18/measures/bills/house/
REMINDER OF DATES
Monday, January 15th Martin Luther King Day, No Session
Monday, January 29th Last day of members to request bill drafts from Revisor’s Office
Monday, February 5th Last day for non-exempt Committees to request bill drafts from Revisor’s Office. This is the last day requests for introduction can be on non-exempt Committee agendas.
Wednesday, February 7th Last day for individuals to introduce bills in house of origin. Bills must be submitted to chamber staff during daily session for introduction.
Friday, February 9th Last day for non-exempt Committees to introduce bills in originating chamber. Bills must be submitted to chamber staff during daily session for introduction.
Thursday, February 22nd Turnaround – Last day to consider non-exempt bills in house of origin.
Thursday, March 29th Last day to consider non-exempt bills not in originating chamber.
Friday, April 6th Drop Dead Day. No bills considered after this date except bills vetoed by the Governor or Omnibus Appropriations bills.
Thursday, April 26th Veto Session begins.
Friday, May 4th Day 90.