Brownback's budget fix: higher taxes, tobacco funds

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TOPEKA (AP) -- Republican Gov. Sam Brownback proposed budget-balancing tactics Wednesday, including higher taxes on Kansas business owners, cigarettes, beer and liquor.

Gov. Sam Brownback delivers his state of the state address to a joint session of the Kansas legislature in Topeka, Kan., Tuesday, Jan. 10, 2017. (AP Photo/Orlin Wagner)

He also submitted a proposal to the GOP-controlled Legislature to sell off the state's right to collect a share of revenues from a 1990s legal settlement between states and tobacco companies. On top of that, he suggested diverting funds for highway projects to general government programs, scaling back the state's contributions to public employees' pensions and liquidating a $317 million state investment fund.

Kansas faces a projected $342 million shortfall in its current budget and gaps in funding for existing programs totaling $1.1 billion through June 2019. The state has struggled to balance its budget since GOP lawmakers slashed personal income taxes in 2012 and 2013 at Brownback's urging in what even some Republican voters now see as a disappointing economic stimulus effort.

Brownback has argued that slumps in key parts of the economy, including agriculture and energy production, are to blame for the state's budget woes — not his tax policies. He also defended them in his annual State of the State address Tuesday evening, particularly a 2012 income tax exemption for 330,000 farmers and business owners that many legislators want to end.

"I've had the benefit of talking to colleagues around the country about the challenges they face, and we're not the only state to experience these types of challenges," Budget Director Shawn Sullivan said in presenting the governor's proposals to the Kansas House's budget and tax committees Wednesday.

Brownback's proposals would raise taxes and fees for business owners by nearly $74 million a year, starting in 2018. They would start paying taxes on royalties and rents exempted under the 2012 tax break, and the annual filing fee for for-profit companies would rise to $200 from $40.

He's aiming to increase the state's cigarette tax by $1 a pack, to $2.29. The state would double its liquor enforcement tax — which consumers pay when they buy liquor, wine and beer — to 16 percent.

The governor's proposals are designed also to ensure the state has a cushion of cash reserves. His budget assumes Kansas can raise $530 million by selling off its rights to tobacco settlement dollars, which amount to between $55 million and $60 million a year.

Legislators have been talking for weeks about the possibility of liquidating a state investment fund that was set up with idle tax and fee dollars in 2000 to boost the state's interest earnings. Brownback's plan would do just that, then make an internal loan to education, social service, public safety and other general government programs to help close the shortfall in the current budget. The state would then pay the loan back over seven years.