GUEST COLUMN, Ganon Evans, Kansas Policy Institute

 

The writing was on the wall for weeks, so it wasn’t a surprise when Governor Kelly vetoed SB 37 on Thursday, the 2024 Legislature’s latest, and ultimately the last, tax reform bill to reach her desk. However, there will be a special session called in the near future to bring legislators back to sign off on a tax reform bill.

Her rhetoric has been the same as always: any opposing bills “[jeopardize] our state’s future fiscal stability” while her own proposals are conveniently the most secure. For instance, even though Governor Kelly’s plan differed from the earlier tax bill HB 2036 by $146.5 million over four years. The cost of $36.6 million is a meager 0.35% of the state’s $10.5 billion General budget average – it was radically different enough not to bankrupt the state and its $4.5 billion in savings.

Governor Kelly spends significantly more than the difference in tax plans

The difference between each Legislative plan and Governor Kelly’s ever-changing proposals has come down to between $25 to $50 million. Plenty of programs and initiatives Governor Kelly signed or proposed as part of the omnibus budget make up this difference. For instance, the bill contains $28 million in funding for the 2026 World Cup Games, $25 million for a match for an agriculture innovation initiative at Kansas State University, $157.4 million to increase Medicaid outpatient hospital reimbursement rates, $35.7 million to state universities as a reward for eliminating Diversity, Equity, and Inclusion requirements, and $20 million for a new Highway Patrol Central Dispatch facility and firing range.

On their own, some of these may be good ideas but does this spending warrant keeping taxpayers from keeping more of the money they earn?

The Legislature’s tax bills would have eliminated the defunct Local Ad Valorem Tax Reduction (LAVTR), but instead, Governor Kelly wants to give $175 million in this fund intended to help cities and counties reduce their property taxes. The actual effect of this fund is that counties increased their property tax revenue by an average of 7.6% during the last five years that LAVTR was funded, compared to just 3.9% over the most recent five years.

These programs listed above are highlighted as new components of the omnibus budget, but every single agency and its actions have millions of dollars that could be scrutinized or adjusted to come up with the comparatively minor difference between Governor Kelly’s and the Legislature’s tax bill. The point is that Governor Kelly can’t stand on a soapbox about responsible budgeting when she enacts hundreds of millions of dollars worth of spending elsewhere. Never mind her desire to expand Medicaid.

And that’s just a sampling of the small-scale spending from this last year. Over Governor Kelly’s time in office since 2018, she has routinely passed multi-million dollar subsidies and tax breaks for corporations, yet routinely halts tax reform for all Kansas. Her policies include:

More than $3 billion in HPIP tax credits to companies 2018-2020.

$829 million to Panasonic

$1.1 billion in HPIP tax credits for 2022 (per email to legislators from KLRD).

$400 million in PEAK incentives to companies 2017-2021 (most current data).

$304 million to Integra if it builds a chip manufacturing plant in Wichita.

Between 2005 and 2023, Kansas’s State Funds Budget –  that is, the All Funds budget without federal funds and spending – grew at an annual rate of 5.2%, while Kansas’s rate of population growth plus inflation – a common measurement of dollar increases in government spending – grew by only 2.6%. If State Fund spending grew at the same rate as population growth and inflation since 2005, the State Fund budget would be only $11.4 billion compared to the whopping $17.1 billion it was in 2023.

Credit is due to Governor Kelly, though: she also vetoed HB 2097, a bill that would have established inefficient film subsidies but was packaged with National Guard employment and local theater credits to see more palpable. Across the 40 states that offered film incentives by 2012, none of them have seen more than 30 cents returned for every dollar invested – Connecticut saw only 7 cents of return from every taxpayer dollar put in. 14 out of 29 film production programs across the country did not even disclose the recipients of the incentives. Of Georgia’s $5 billion in film subsidies, 88% of the film tax credits went to non-Georgia companies, and 53% of the labor income went to workers from outside of the state. Little economic return to states comes from these subsidies either. The bill is one that should not be brought back during the special session.

But for as much as Governor Kelly followed through with her word on wanting to be fiscally responsible in vetoing this bill, she signed several other multi-million dollar budget items into law while repeatedly vetoing tax relief for being “too unsustainable.” Kansans deserve relief, not the political squabbles that have delayed it thus far.

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