SUBSCRIBE NOW

Gov. Laura Kelly has released her budget proposal. Here's what you need to know

Andrew Bahl
Topeka Capital-Journal
Gov. Laura Kelly introduced her annual budget proposal Wednesday. It includes many items she previously touted in the past with no support from Republican legislators.

There was no shortage of familiar items in Gov. Laura Kelly's budget proposal, released Wednesday to lawmakers and the general public, with some of the governor's flagship policies unlikely to gain traction in the Republican-controlled Legislature.

Kelly's plan is just the starting point for budget discussions, and legislators have wide latitude to go their own way, although the governor's plan is a powerful starting point for debate.

Here are the top takeaways for Kelly's proposed spending plan and where the budget discussion is likely to head in the coming months.

No tax increases amid pandemic

The budget doesn't call for any sales or income tax increases in light of the economic woes encountered by many Kansans because of the COVID-19 pandemic.

Kelly alluded to that fact in her State of the State address Tuesday, and Republicans have been adamant that Kansans should be seeing their tax bills shrink, not rise.

In fact, conservative lawmakers are already rolling out plans to slash taxes, particularly for those who have had to pay higher income taxes in light of the sweeping 2017 federal tax law.

And Republicans are saying one of Kelly's proposals, applying the sales tax to digital purchases, effectively amounts to a new tax.

Currently, sales tax isn't assessed on digital purchases, such as a Netflix subscription, iTunes download or Kindle book. The governor sought to change that in 2019 and lawmakers relented, if the increase was offset with tax cuts elsewhere. The final bill was unacceptable to Kelly, however, and she vetoed it.

Proponents have said a digital sales tax would level the playing field for brick-and-mortar retailers, who are forced to charge tax on DVD, CD and book purchases.

"That immediately puts that local business, who has invested in Kansas, has real estate here and has employees here, at a disadvantage," said Adam Proffitt, Kelly's budget director.

She is also proposing a tax on online retailers like eBay, Etsy and Amazon, which allow buyers to purchase goods from a third-party vendor. 

Legislators indicated they will again seek to offset the proposals with cuts elsewhere.

"Are we going to put this on top of what everyone is already paying?" said Rep. Sean Tarwater, R-Stilwell.

If at first you don't succeed ...

There were other items that Kelly is resurrecting from previous proposals, most of which Republicans have balked at in the past, and they appear set to do so again.

"It just seems like we keep going back to the same methods ... that have been rejected by the legislature in the past," said Rep. Troy Waymaster, R-Bunker Hill. "So why are we trying to resurrect the components of a budget that, for the most part, is not going to pass the Legislature?"

Most notably, that includes expanding the state's Medicaid program to cover an additional 165,000 low-income residents. The policy has been a top wish for Democrats, and some Republicans, for some time.

But Tarwater said the plan's cost was "voodoo accounting" and conservative leaders have long objected to the cost increase for the state, even though the bulk of the expansion would be covered by federal dollars.

Kelly is also once again attempting to refinance the state's pension system, saying it would free up over $150 million this year.

But Republicans aren't sold on the plan, as they weren't when Kelly first proposed it last year. They argue it would jack up the state's pension liability by billions of dollars in the long term, although Kelly has maintained that the system is likely to be refinanced eventually anyway.

"I don't see that moving forward," Waymaster said. "But you never know, it could surprise us."

Deviating from Kelly's plans could mean that other priorities, such as a 2.5% pay raise for all state employees, might be cut because their funding source disappeared.

Gov. Laura Kelly, pictured here at a media briefing last week, on Wednesday released her annual budget proposal, which includes maintaining education funding and not increasing sales and income taxes. (January file photo/The Capital-Journal)

More money for higher education, K-12 spending maintained

Kelly remained true to her desire to maintain the constitutionally required spending on K-12 education, with her budget continuing funding mandated by a 2019 court decision.

Some Republicans have chafed at the ruling, although many members have also argued that it makes little sense to upturn the apple cart at this time to adjust funding levels.

Kelly's budget includes more money for higher education, restoring funding cut last year in the wake of COVID-19. It also protects $2.4 million in funding for financial aid and gives the Kansas Board of Regents $10 million more to spend on administrative priorities.

Substance abuse treatment expanded in prisons

$13 million is set aside for expansions at Winfield and Lansing correctional facilities, which also was partially slashed from last year's budget after revenues dipped during the pandemic.

This would mean more treatment for geriatric inmates or those requiring care for more serious conditions. It also would convert part of Lansing into more substance abuse support for inmates in an effort to reduce the number of individuals who reoffend upon leaving prison.

"This actually frees up our budget down the road because we spend less on corrections as we cycle less folks back in the system," Proffitt said.

The budget also calls for $16 million in upgrades to the Kansas Highway Patrol's air units, including two new helicopters and one new plane.

Uncertainty remains, despite improving outlook

The state's fiscal picture is better than it looked in the spring when it was staring down the barrel of a $1 billion-plus shortfall due to declining tax revenues brought on by the pandemic.

That number has shrunk considerably, but there are still many unknowns about where the pandemic is headed, as well as what a new presidential administration will mean for economic policy.

Proffitt said the governor attempted to account for that in her proposal. 

That includes delaying repayment of a $132 million loan from the Pooled Money Investment Board in an effort to free up more money to spend this year, although this plan is also likely to come under scrutiny from Republicans. 

Kelly touted the fact that the plan leaves the state with an ending balance of $767.5 million, a cushion that meets the threshold the state likes to have in the event of a further economic downturn.

But things can still change quickly.

"Do we think things are good? Not yet," said J.G. Scott, director of the Legislature's nonpartisan research department. "We still have lots of concerns, lots of problems. The concern we still have is around that uncertainty."