"Sin" Taxes Lead Brownback's Plan To Close Budget Gap

TOPEKA, Kan. (WIBW/AP) — Kansas Gov. Sam Brownback has proposed raising tobacco and liquor taxes and slowing down future income tax cuts to help close projected budget shortfalls.

The House and Senate budget committees heard details of the two-year plan Friday and how it closes a gap topping $700 million in the current and upcoming fiscal year.

On the revenue side, Brownback proposes raising cigarette taxes would from $0.79 to $2.29 a pack and alcohol tax is hiked four percent, from 8 percent to 12 percent. In addition, scheduled income tax cuts for 2016 would happen, but previously enacted for 2017 and 2018 would not.

The tax changes would raise an additional $394 million over the two years, starting in July.

Despite the freeze, administration officials still say the state is continuing its march toward zero income taxes. The governor's proposal also establishes special funds to stabilize the budget and to provide for further reductions should revenues exceed a certain amount.

Budget Director Shawn Sullivan and Revenue Secretary Nick Jordan say the budget plan reflects a shift from taxing earnings to consumption. They say the approach is working.

"There's several indicators that show us growth is happening in the state, even with some of the struggles some areas have had," Jordan said. "We think, by lowering taxes, people are going to have more money to put into the Kansas economy."

But Democrats say the administration is targeting the wrong taxes.

"The significant increase (in tobacco tax) that we're doing will change behavior and I don't think we'll see the kind of revenue they're expecting," said Sen. Laura Kelly, D-Topeka and ranking minority on the Senate Ways and Means Committee.

She says a higher price tag will keep younger people from picking up the smoking habit and older adults will simply go to Missouri or Oklahoma to buy their tobacco products.

Sullivan, though, maintains that the state's sales and use tax receipts have been more predictable than income and corporate tax collections, even with a public health focus on reducing tobacco use.

"In our budget assumptions, we assume there's going to be less volume of cigarettes and tobacco sold, so that's built into our model," Sullivan said.

Kelly is even more concerned about the governor's proposal to move K-thru-12 schools to a block grant approach the next two years. The proposal would keep school districts at their 2015 funding level by collapsing general state aid, capital outlay and supplemental state aid into a single block. Lawmakers would then rewrite the current finance formula.

"I pity our schools," Kelly said of her first impressions of the proposal. "If you look at what's happening in this budget to our schools, they're essentially flatlining it and then adding some additional expense, some pretty significant additional expense, like having the school districts pay for their KPERS."

Scott Rothschild, communications director for the Kansas Association of School Boards, shared Kelly's concern. He says it appears schools would be locked at their current funding levels, even as operating expenses rise.

"Public schools make up 50 percent of the budget. We understand those dollars are going to be scrutinized," Rothschild said. "At the same time, we have evidence, we have research that shows Kansas schools are doing a good job. We are producing successful students and it takes money to do that."

Brownback was visiting with a group of school children at the Statehouse shortly after the committees' hearing when he defended the proposal to 13 News. Brownback acknowledged some districts may end up with decreases in the two-year interim while lawmakers develop the new formula, but he's focused on the end result.

"It's two years and there will be some up and down, so I suppose you'll have some people who win or lose in it, but it gives us a chance to get a timeout in the school finance wars and write a new formula," Brownback said. "We need to get a new formula."

Brownback's budget also continues a four-percent cut to most state agency budgets. Areas such as K-thru-12 education, higher education, and corrections institution are not part of those cuts. It also takes $100 million from the state highway fund each of the next two years, which KDOT says may lead to some project delays in the later years of the state current transportation plan.

Other proposals include recouping $30 million in unpaid taxes with an amnesty day this fall and suggests $50 million in savings through policy and contractual changes to the state's Medicaid programs, known as KanCare. While the plan does not suggest expanding Medicaid, it does allocate money to reduce current waiting lists. The governor also proposes issuing bonds and extending payments to shore up the public employee retirement fund.

“At first glance, there are several components of Governor Brownback's budget proposal that give us concern," said House Democratic Leader Tom Burroughs & Senate Democratic Leader Anthony Hensley in a joint statement following the announcement. "(B)ut we will review it carefully and provide official comment when the Legislature reconvenes next week."

While lawmakers begin their debate, Brownback says he believes he is offering compromise.

"I think we're bending a lot all over the place to try to get everything to fit," he said.

The Associated Press contributed to this report.