Gov. Sam Brownback is proposing to have tax cuts and keep state services, too.
Brownback banks on a Legislature of conservative allies backing a plan to keep a controversial sales tax and eliminating the home mortgage interest deduction. Together, he figures the moves can avert a fiscal wreck.
Overall, Brownback needs support on both measures to dodge a $500 million hole in the state budget while cutting income taxes even deeper than what he signed into law last year.
It's all part of an ambitious drive, illuminated in his budget proposal Wednesday, to eliminate the state income tax. It starts with an immediate plan to steadily dial down income tax rates beginning next year.
Under Brownback's plan, the state's highest tax bracket would be reduced to 3.5 percent from 4.9 percent starting in 2017. The lowest bracket would be cut from 3 percent to 2.5 percent starting next year. It would be pared to 1.9 percent in 2016.
The proposed $14.6 billion budget for fiscal year 2014 depends heavily on keeping all of a penny sales tax increase that the Legislature approved in 2010.
State spending would grow $200 million for one year, an increase driven by highway projects. But in the second half of the two-year plan, the budget would return to existing levels.
That means essentially no growth in the state spending, and no across-the-board pay increases for state employees.
Six-tenths of the penny tax is supposed to expire this summer. Brownback has called on the Legislature to renew the tax, which is worth about $265 million to state coffers.
Brownback's budget covers fiscal years 2014 and 2015. Among other things it would:
Add $14 to base state aid per pupil for Kansas schools. That would raise the funding level to $3,852 per student. Yet Brownback's budget presumes the Legislature doesn't have to increase funding for schools far more, as recently ordered by a district court. The governor hopes to redefine education funding with a constitutional amendment.
Add $10 million over the next two years to construct a $75 million, 200,000-square-foot training building at the University of Kansas Medical Center.
Spend $3.5 million in state highway money to replace the Kansas Bureau of Investigation forensics lab at Washburn University in Topeka. The governor also wants to spend about $200,000 to pay for utilities at the Adjutant General's Wichita Readiness Center.
Save a projected $15 million by having the Kansas Department of Transportation take over daily operations of the Kansas Turnpike Authority. Brownback wants to channel that money to general state services. Administration officials say they may spend some of that money to maintain roads feeding into the turnpike.
Reduce funding for public broadcasting by about $400,000.
Include no state money to expand Medicaid services to more Kansans under the federal Affordable Care Act, or Obamacare.
Leave funding for higher education roughly flat at $771.8 million from the state's general fund for the regents' system.
"It doesn't take rocket science to know that costs are going up," said Tim Emert, chairman of the Kansas Board of Regents.
For the schools to make ends meet, Emert said they will have to raise more money privately or charge more for tuition.
Brownback, meanwhile, spiced up the tax debate Tuesday when he renewed a lost battle from last year to get the Legislature to eliminate the home mortgage deduction.
Real estate agents immediately promised a vigorous battle. Last year, the group spent more than $150,000 defeating Brownback's proposal to eliminate the deduction on home mortgage interest.
"It is an example of very poor policy to eliminate a deduction that encourages home ownership and provides tax relief for middle-income families," said Luke Bell, lobbyist for the Kansas Association of Realtors.
About 317,000 Kansans, or 22 percent of tax filers, deduct the interest paid on their home mortgages when they file their taxes. The deduction has averaged about $390.49, costing the state $162 million.
Budget director Steve Anderson said the home mortgage deduction tends to help the more affluent with large loans and big interest payments, something Bell disputed.
As the state reduces the income tax, Anderson said, the deduction becomes less valuable to homeowners.
Brownback's plan forces the Legislature to decide on a pair of politically dicey issues in order to pass a budget that doesn't inflict deep cuts in state services.
"There will be some very difficult decisions," said state Sen. Pat Apple, a Louisburg Republican.
In the House, the budget's prospects seemed more uncertain. That chamber killed the governor's proposal to end the home mortgage deduction last year.
State Rep. Marvin Kleeb, an Overland Park Republican, said the governor had "reasonable" proposals that needed to be considered.
Under Brownback's plan, the state would still keep a few deductions and credits that the governor wanted to eliminate last year: the deduction for charitable contributions and the earned income tax credit.
