Gov. Laura Kelly's council on tax reform on Tuesday launched into the work of developing a new revenue structure that can sustain state spending figures that are projected to balloon within three years, plunging the budget into the red.
The council, which includes current and former legislators, representatives of advocacy groups, and members of Kelly's administration, plans to meet four times before the end of the year and is tasked with making preliminary recommendations before lawmakers return in January.
Kelly kicked off the inaugural two-day meeting with an appeal to the council to engage in lively debate as members craft a tax system "that is truly fair to all Kansans" and keeps the burden as low as possible.
The Democratic governor — who won election last year with a campaign that attacked the fiscal policies of her GOP predecessors — said the final product should ensure adequate investment in public safety, education at all levels, infrastructure and other core services.
"It is a lofty challenge," Kelly said, "but I'm confident the group here today is up for the task."
The panel is led by former Senate President Steve Morris, a Republican from Hugoton, and former state Sen. Janis Lee, a Democrat from Kensington.
Morris applauded the governor's willingness to invite a bipartisan group to the discussion, an approach he said was "sorely missed" in recent years. The goals of tax reform, Morris said, should include strengthening schools, creating opportunities for business, adding good jobs and allowing for healthy communities.
"I'm a lifelong Kansan and a lifelong Republican, so I consider fiscal responsibility paramount," Morris said.
The sprawling tentacles of the council's domain reach from the often celebrated "three-legged stool" of property, sales and income tax to the possibility of an economic recession and responsibilities that include overcrowded prisons and an unfunded liability in the state pension system.
Revenue and budget officials delivered an overview for council members of recent changes in tax policy and budget projections through 2023.
A 2012 tax bill signed by former Republican Gov. Sam Brownback produced years of budget turmoil and became the catalyst for subsequent adjustments to the tax structure.
At Brownback's urging, Morris persuaded fellow senators in 2012 to advance an unrefined plan that was intended to produce negotiations between the Senate and House. Instead, the House adopted the Senate plan, which produced the largest income tax cut in state history. The legislation exempted LLCs from income tax and lowered rates for couples and individuals.
From 1992 to 2012, married couples earning less than $30,000 were taxed at 3.5%. The tax rate for those earning between $30,000 and $60,000 was 6.25%, and couples making more than $60,000 were taxed at 6.45%.
The 2012 bill eliminated the middle bracket, establishing rates of 3% for low-income couples and 4.9% for the rest. Unmarried taxpayers received the same rate cuts for corresponding brackets.
Lawmakers tinkered with those rates and restored a middle bracket in the ensuing years. Currently, couples and individuals on the low end are taxed at 3.1%. The tax rate for the middle bracket is 5.25%. Couples making more than $60,000 and individuals making more than $30,000 are taxed at 5.7%.
Meanwhile, a statewide sales tax rate that was scheduled to fall from 6.3% to 5.7% in 2013 instead was set at 6.15%, then increased to 6.5% with the 2015 Legislature.
The LLC tax cuts were restored in 2017 when lawmakers ended Brownback's tax experiment and overrode his veto.
Lee, who spent 20 years in the Legislature and also served as a hearing officer for the Kansas Court of Tax Appeals, said the state historically has been fiscally responsible. The state began to veer off that path under Brownback, Lee said.
"The failed tax experiment was one such setback," Lee said. "Kansans were angry at the dismantling of core services that came as a result of the tax experiment and significant loss of revenue. Kansans also rejected the fiscal irresponsibility that led to the accumulation of unprecedented debt that will haunt Kansas for many years to come. We can and must do better."
Changes in tax policy coupled with a lawsuit over funding provided to public schools helped set the stage for the current budget outlook. The current fiscal year includes a projected surplus of $677 million, but that cash is expected to dwindle quickly as unavoidable costs for public schools and the Kansas Public Employees Retirement System increase sharply.
The budget outlook also reflects a spike in recent years in the number of children in the state-run foster care system and rising medical costs for low-income adults and children enrolled in KanCare, as Medicaid is known in Kansas. Additionally, Kelly plans to phase out annual sweeps of funding earmarked for highway repairs.
For fiscal year 2022, the projection shows the state with a $14.1 million deficit. A year later, the shortfall rises to $482.5 million.
Underscoring the challenge presented to the council on tax reform: Projected budget problems would be worsened by additional infrastructure spending, state employee raises, efforts to lower tuition at state universities, or other potential new spending.
"We can go down the list of things the state is responsible for taking care of, and those don't show up here on this profile," said Duane Goossen, a former budget director and secretary of administration who is serving on the council.