Kelly’s budget allows early retirement of $586 million in debt, drops $600 million into reserve

Plan offers state workers 5% raise, ends annual raids on ‘Bank of KDOT’

By: - January 12, 2022 3:04 pm
Manhattan Democratic Sen. Tom Hawk, right, poses a question Wednesday during the briefing to the House and Senate budget committees on Gov. Laura Kelly's plan for dealing with a $2.9 billion surplus. (Screen capture/Kansas Reflector)

Manhattan Democratic Sen. Tom Hawk, right, poses a question Wednesday during the briefing to the House and Senate budget committees on Gov. Laura Kelly’s plan for dealing with a $2.9 billion surplus. (Screen capture/Kansas Reflector)

TOPEKA — Details of Gov. Laura Kelly’s budget proposal elicited bipartisan excitement Wednesday among members of the House and Senate contemplating options for handling an unprecedented $2.9 billion surplus in the state government treasury.

The Democratic governor’s budget director plowed through fine print of a strategy to save millions of dollars in interest costs by paying off early $586 million in bonds and avoiding issuance of bonds to cover $224 million in proposed building projects.

She recommended the Legislature eliminate the sales tax on groceries at a cost of $450 million, issue one-time $250 rebates to resident tax filers, stop the $66 million annual raid on the state highway fund, offer state employees a 5% raise and invest in education, public safety and mental health. In addition, the governor renewed a call for expansion of Medicaid to lower-income Kansans and asserted the start-up costs could be covered by federal aid.

Adam Proffitt, the governor’s budget director, told the Legislature’s budget committee members the governor was intent on eliminating a bundle of accounting gimmicks added to the budget framework over the years to mask financial problems.

“There’s a lot to get to with this budget in a very responsible and fiscally prudent manner,” Proffitt said. “We’re in much better position economically and fiscally.”

The Republican-controlled Legislature can be expected to devote the next few months to deleting, recasting or embracing ideas put forward by Kelly. It’s a certainty the complete blueprint offered by the governor won’t survive the legislative process led by Republicans, but paying off and avoiding debt, reducing taxes and socking away cash in a rainy-day account hold bipartisan appeal.

Members of both political parties shared appreciation for clarification of the state’s financial situation and establishment of a starting point for debate.

“I enjoyed this a lot more than I thought I was going to,” said Rep. William Sutton, a Republican from Gardner. “There’s some good stuff in here.”

 

Sen. Rick Billinger, a Goodland Republican and chairman of the Senate Ways and Means Committee, urged peers in the House and Senate to avoid reckless spending despite the state's unprecedented $2.9 billion revenue surplus. (Tim Carpenter/Kansas Reflector)
Sen. Rick Billinger, a Goodland Republican and chairman of the Senate Ways and Means Committee, urged peers in the House and Senate on Wednesday to avoid reckless spending despite emergence in Kansas of an unprecedented $2.9 billion revenue surplus. (Tim Carpenter/Kansas Reflector)

 

‘Got to be responsible’

J.G. Scott, director of the Kansas Legislative Research Department, said the estimate for state revenue in the current fiscal year that started in July escalated by $1.5 billion in less than one year. Federal stimulus funding distributed to states during the COVID-19 pandemic, falling unemployment rates and rebounding business activity supercharged the state’s economy, which has experienced strong inflationary pressures.

Scott urged legislators to be careful not to adopt legislation spending more than was being collected in revenue or risk the kind of budget collapse experienced in 2010 during a national recession and in 2014 after Gov. Sam Brownback signed into law aggressive income tax cuts.

“The more one-time changes we can implement in the current budget, the better off we will be. I think we’ll still have room to make some adjustments in both revenue and expenditures,” he said.

Sen. Rick Billinger, a Goodland Republican and chairman of the Senate Ways and Means Committee, picked up that thread to admonish his peers to focus on one-time expenditures, including paying debt, that wouldn’t tie hands of the Legislature in perpetuity.

“I’m cautioning everyone here to remember these dollars can disappear really, really quick,” he said. “Yes, we’ve got a lot of money. I know everybody in here has a good idea on how to spend this. I just want to caution people that these are balances we’ve never ever seen. We cannot afford reckless spending. We’ve got to be responsible. We need to have money for the future.”

Under Kelly’s budget presented to the Legislature, she would end the state’s sales tax on groceries July 1. It would cost $450 million to $490 million annually to do away with the state sales tax applicable to grocery food purchases — not meals at restaurants. The governor’s proposal wouldn’t alter city or county sales tax policy.

“I think that’s important. I don’t think we want to spend their money,” said Rep. Kathy Wolfe Moore, a Democrat from Kansas City, Kan.

Kelly’s one-time payment of $250 to every Kansan who filed an income tax return last year would cost the state $460 million. In addition, the governor would pull the plug on the state Department of Revenue’s $4 fee on vehicle renewals. She said the $12.5 million surcharge was initiated to modernize modernize technology in the vehicle division, but was extended after modernization to help the state grapple with budget woes.

The state’s rainy day fund has no money in it, but the $600 million recommended by Kelly would provide a cash-flow cushion equivalent to 25 days.

Rep. Troy Waymaster, the Bunker Hill Republican who chairs the House Appropriations Committee, said the Legislature could consider a $480 million reserve fund offering 20 days of operating cash.

 

Adam Proffitt, budget director for Gov. Laura Kelly, said Wednesday the state was in "much better position economically and fiscally" than one year ago and Kelly's spending blueprint was responsible and prudent. (Screen capture/Kansas Reflector)
Adam Proffitt, budget director for Gov. Laura Kelly, told Senate and House legislators Wednesday the state was in “much better position economically and fiscally” than one year ago and Kelly’s new budget blueprint was responsible and prudent. (Screen capture/Kansas Reflector)

Debt repayment, avoidance

The governor proposed paying off early $586 million in debt, including $160 million owed for dredging at John Redmond Reservoir and construction of a building at KU Medical Center in Kansas City, Kan. She recommended paying off early $171 million in bonds issued in support of the National Bio and Agro-Defense Facility in Manhattan. Kelly offered to make a bulk payment of $253 million in skipped state contributions to the Kansas Public Employees Retirement System that were scheduled to be made over many years.

In all, debt adjustments contained in Kelly’s budget would save the state general fund an estimated quarter of a billion dollars over the next 16 years.

Proffitt said debt-avoidance ideas endorsed by the governor called for using cash to cover the $185 million renovation of Docking State Office Building and construction of a new laboratory for the Kansas Department of Health and Environment. She suggested the state avoid bonding for the $20 million remodeling of the state’s central emergency management facility and $18 million to construct a new armory in Hays. Over a 30-year period, he said, the state would avoid $118 million in interest costs.

He said Kelly wanted to end the practice of delaying half of the state’s final monthly payment to public school districts. It’s a budget trick beneficial to the state, which can push that half payment of about $200 million to July in the next fiscal year.

“It’s, candidly, an accounting maneuver we should not be doing,” Profitt said.

Kelly recommended funding of K-12 schools based on existing law, but urged consideration of adding $3 million for student mental health services, $1.8 million for staff professional development and $1.5 million in transportation aid for technical education students.

In terms of the Kansas Board of Regents system of public universities, Kelly said the state should earmark $45 million in new funding to prevent tuition increases.

Closure of the “Bank of KDOT,” so called because the state raided the highway fund for years, would come in the next fiscal year by not diverting $66 million to general government uses. The governor proposed a 39% increase in state support to the Kansas water plan — the first time that program would be fully funded since 2008.

Kelly recommended $20 million in one-time spending in support of moderate-income housing, $29 million to increase patient capacity at state hospitals and $4 million to upgrade security at those hospitals. She suggested spending $18 million to upgrade aircraft used by the Kansas Highway Patrol and proposed state funding to buy new stab vests and uniforms for employees of the Kansas Department of Corrections.

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Tim Carpenter
Tim Carpenter

Tim Carpenter has reported on Kansas for 35 years. He covered the Capitol for 16 years at the Topeka Capital-Journal and previously worked for the Lawrence Journal-World and United Press International. He has been recognized for investigative reporting on Kansas government and politics. He won the Kansas Press Association's Victor Murdock Award six times. The William Allen White Foundation honored him four times with its Burton Marvin News Enterprise Award. The Kansas City Press Club twice presented him its Journalist of the Year Award and more recently its Lifetime Achievement Award. He earned an agriculture degree at Kansas State University and grew up on a small dairy and beef cattle farm in Missouri. He is an amateur woodworker and drives Studebaker cars.

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