TOPEKA, Kan. -- Kansas Gov. Sam Brownback wants to double the tax on alcohol and hike the tax on cigarettes by a dollar to help fill a budget shortfall.
The Republican governor is also proposing liquidating a long-term investment fund and selling off the state's future proceeds from a settlement with the tobacco companies to get cash now in the face of the more than $900 million budget shortfall the state faces for the next 18 months.
Brownback's budget director, Shawn Sullivan, unveiled the governor's tax and budget proposals to lawmakers Wednesday morning.
The governor wants to increase taxes by $377.7 million over two years.
That includes doubling the tax on liquor in July from 8 percent to 16 percent, which would bring in about $107 million over two years, and increasing the tax on cigarettes from $1.29 a pack to $2.29 to bring in an additional $88.5 million over two years.
The governor would also double the tax rate on other tobacco products from 10 percent to 20 percent for an additional $14 million over two years.
Brownback offered a small compromise on his signature business income tax exemption. The governor would preserve the exemption for limited liability companies, S corporations and other closely held businesses, but he proposed taxing income from rents and royalties, which is currently exempt under the law.
The tax would go into effect in next January.
Repealing the exemption in its entirety would bring in about $250 million, according to House Tax chairman Rep. Steve Johnson, a Republican from Assaria.
Brownback also proposed increasing the annual filing fee for for-profit entities from $40 to $200, which would bring in about $33.6 million a year. Business owners would pay the fee regardless of the size of their business.
The tax proposals would go toward shoring up the state's finances for the next fiscal year, which begins in July.
Sullivan joked that the budget could be called "the lobbyist job protection act," anticipating the fight that will take place over the governor's proposals.
To fill the current fiscal year's shortfall of more than $340 million, Brownback is proposing liquidating the state's long-term investment fund.
The state invests idle funds from state agencies every year. Brownback can already tap roughly $45 million from the fund, which represents the profit from investment, but will need the Legislature to approve legislation in order to pull back the remaining $317 million in the fund, which represents the principal.
Brownback proposes paying back the fund over seven years.
The governor is also proposing freezing the state's contribution to the state employees' pension fund at 2016 rates, which will allow the state to save $85.9 million by avoiding the increased contribution rate.
If lawmakers agree to these proposals, the state would have roughly $99.6 million in its general fund at the end of June. Brownback asked lawmakers in his State of the State address to pass a bill making the current year's budget adjustments before the end of January.
Brownback's budget proposals for the following fiscal year could prove more controversial.
The governor wants to sell off the state's future proceeds from a legal settlement with the tobacco companies.
The state currently receives an approximately $60 million payment from the settlement. Under Brownback's plan the state would be forgoing that payment for the next 30 years in exchange for cash now.
The governor's administration estimates that the state could get $530 million over two years by selling off the rights to the proceeds.
Lawmakers balked at the idea last year because the money is currently committed to funding children's programs, such as Early Head Start. The governor's budget proposal would fund these programs through the general fund through 2019.
In addition to the tobacco settlement, the governor wants to sweep $596.8 million from the state's highway fund over a 2 1/2-year period.
Brownback has repeatedly swept money from the highway fund in recent years, which has forced the Kansas Department of Transportation to cancel and delay projects.
Brownback also hopes to save $120 million over a two-year period by merging school district health plans under one state-run plan, a change that was recommended by efficiency consultants last year.
Brownback's proposal, which would be mandatory, could face backlash from educators.
Right now most school districts control their own health plans and some districts have used more generous health benefits as a recruitment tool.
Brownback also hopes to save $16 million over two years by requiring school districts to purchase goods through a joint procurement program.
The governor hopes to save about $750,000 over two years by merging the state's securities commissioner's office with the Kansas Insurance Department.
Brownback is also proposing increasing the privilege fee for managed care organizations from 3.31 percent to 5.77 percent and the hospital provider tax from 1.83 percent to 4.65 percent.
This will allow the state to draw down more federal Medicaid dollars, which the governor wants to use to increase reimbursement rates for medical providers after cutting rates in May and to increase reimbursements to rural hospitals.
The governor would also used the money to go toward implementing his rural health care agenda, including dedicating $5 million toward establishing more medical residency training programs in rural Kansas.
One area where the governor is proposing new spending is higher education. His budget includes $3 million in fiscal year 2018 and another $6 million in fiscal year 2019 to go toward a scholarship program to train teachers who agree to work in rural areas.
He has also pledged $1 million a year, starting in 2018, to go toward funding 50 scholarships for any university that is able to offer a bachelor's degree for $15,000 or less and another $800,000 to go toward the initial planning costs for building a dental school at the University of Kansas Medical Center.
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