Kansas House rejects budget fix; new tax plan emerges

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Posted: Jun 12, 2015 1:05 AM
Kansas House rejects budget fix; new tax plan emerges

TOPEKA, Kan. (AP) — Kansas faced the prospect of deep cuts to schools, prisons and other programs after the Republican-controlled House soundly rejected Thursday a proposal supported by Gov. Sam Brownback that would hike sales and cigarette taxes to close a budget deficit.

But Brownback pleaded publicly with GOP legislators to avoid those cuts and other fiscal problems, and Republican legislators drafted a new plan late Thursday night.

In past years, legislators backed the GOP governor by slashing personal income taxes in an effort to stimulate the economy, but those policies contributed to a deficit that ballooned this year.

With a constitutional mandate against operating in the red, Brownback's preferred solution got little support this time, even from his own party. Early Thursday, the House voted 95-20 against a plan that would generate more than $400 million in revenue over the fiscal year beginning July 1, largely by increasing the state's sales tax from 6.15 percent to 6.55 percent and imposing a 50 cents-per-pack hike on cigarettes.

Brownback spoke to an afternoon meeting of GOP legislators, with aides laying out potential fiscal problems, including a possible downgrade of the state's bond ratings, if the budget isn't balanced by Monday.

"You've just got to act," Brownback said. "I'm pleading with you, really, to just one more time, just get in the saddle."

The new plan calls for increasing the sales tax to 6.5 percent, but it could fall short of balancing the budget by $50 million. GOP leaders were having the House meet past midnight to consider the two bills containing the plan.

Brownback's budget director has warned lawmakers that if the governor is forced to cut the deficit entirely on his own it will come with a steep price to programs. The cuts would include the loss of $197 million in state aid to schools that would likely lead to more crowded classrooms and higher fees for parents for textbooks and other items.

"Nationally, Kansas is not the model any state is looking to follow right now," said Joseph Henchman, a vice president at the Washington-based Tax Foundation. "What have you gained if you've cut taxes and the state becomes insolvent?"

Other states have seen a cautionary tale. In February, when South Carolina Gov. Nikki Haley outlined proposals for slashing income taxes, she said, "We are not doing what Kansas did."

In Nebraska, the unicameral Legislature flirted with following Kansas in 2013 but rejected the idea in favor of a tax study — which recommended against big tax cuts.

"If Kansas had done theirs slowly, they might have been able to minimize the effects," said Nebraska state Sen. Mike Gloor, a Grand Island Republican and chairman of the Legislature's Revenue Committee.

Brownback argues that Kansas will still have "pro-growth" economic policies if it preserves most of the income tax cuts enacted by legislators at his urging in 2012 and 2013, even if it raises sales and cigarette taxes to close the budget gap.

He said he and legislative allies have resisted spending cuts because the state must bolster its public pension system, cover rising Medicaid costs and meet court mandates on public school funding. During his successful re-election campaign last year, Brownback rejected critics' arguments that the tax cuts would create long-term budget problems endangering aid to schools or state programs.

"The model works for growth," Brownback said Thursday. "We had to spend while shifting to growth, and that's a difficult set of circumstances."

Republicans acknowledged that their divisions are deep and that their majorities are fractured, partly because of the party's anti-tax, small-government rhetoric in campaigns. Lawmakers were meeting Thursday for a record 112th day of their annual session, the longest in state history.

Democrats have been left out of tax negotiations because they oppose increasing the state's sales tax. They argue the move will hurt poor and middle-class families.

Democrats also contend that the state should reverse a key 2012 policy from Brownback that ended income taxes on the profits of 281,000 business owners and 53,000 farmers. Many Republicans agree it's unfair to allow business owners to pay no income taxes while the wages of their employees remain taxed.

Brownback is willing to accept a modest tax increase for those business owners and farmers, while some GOP lawmakers want a more aggressive plan.

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Associated Press writer Grant Schulte in Lincoln, Nebraska, also contributed to this report.

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Online:

Tax plan approved by the Senate: http://bit.ly/1c5Wxty

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Follow John Hanna on Twitter at https://twitter.com/apjdhanna and Nicholas Clayton at https://twitter.com/ClaytonNicholas