2023 Kansas Capitol Review – Week 09

2023 Kansas Capitol Review Week Nine

2023 Kansas Capitol Review – Week 09

This week, the legislature continued its consideration of bills that had passed in the opposite chamber and began finalizing work on general agency budget bills for fiscal years 2024, 2025, and 2026. Most committees only have two weeks remaining this session to meet and consider bills before the full House and Senate begin deliberation.

Water Bank Participation in MYFA

Senate Bill 205 would amend the Kansas water banking act to authorize certain water rights in a water bank to temporarily participate in multi-year flex accounts. In a Senate Agriculture Committee hearing, Big Bend GMD5 testified that the proposed language in Section 1 would address an issue from a Kansas Attorney General’s opinion during the 2022 calendar year, and that language in Section 2 of the bill worked to partially address the issue from the AG’s opinion. The bill was necessary when the 2022 drought created challenges for water users within GMD5 who had utilized the water bank in prior years and had exceeded their water right’s authorized annual quantity. Those irrigators then filed applications to enroll into a multi-year flex account. After passing the Senate on a vote of 39-0, the House Water Committee held a hearing on the bill. During the hearing, the Kansas Dep. of Agriculture testified in support, indicating that the bill would allow for a one-time fix for irrigators enrolled in the Central Kansas Water Bank by allowing them to enroll unused portions of their authorized water into a multi-year flex account. Big Bend GMD#5 was also a proponent to the bill. The House Water Committee will likely take final action on the bill next week.

Water Policy Bill Placing New Requirements on GMDs

House Bill 2279, introduced by House Water Committee Ranking Member Rep. Lindsay Vaughn (D-Overland Park), would amend the Groundwater Management District act to place new annual reporting and conservation action plan requirements on the districts. Kansas Agribusiness Retailers Association joined other stakeholders in successfully amending the bill to make it more reasonable for the districts. The full House passed the amended bill 116-6. The Senate Committee on Agriculture and Natural Resources has scheduled the bill for hearing on Tuesday, March 14, with final action scheduled for Thursday, March 16.

State Water Plan Funding Bill

House Bill 2302, introduced by House Water Committee Chairman Jim Minnix (R-Scott City), would enhance funding for the state water plan fund by crediting 1.231 percent of current state sales tax revenues (approximately $53 million) directly to the fund. The bill would also modify the distribution of revenue into the fund and create a water technical assistance fund and a water projects grant fund for water infrastructure projects. The dedicated state sales tax revenue would be added to the current fees collected from agricultural and municipal water users. The bill would sunset in 5 years. Specifically, the bill would set aside the following funds, annually, from the state water plan fund for three years: $5M to a water technical assistance fund, $15M to a water projects grant fund, and at least $15M to the retirement of water supply storage debt for two state reservoirs until the debt is retired. The House passed the bill 119-3. The Senate Committee on Agriculture and Natural Resources has scheduled the bill for hearing on Wednesday, March 15, with final action scheduled for Friday, March 17.

LPA Groundwater Management District Report

This week, the Senate Committee on Agriculture and Natural Resources received a report from Legislative Post Audit on its Audit of Groundwater Management Districts, to include the purpose and authorities of GMDs, and the adoption of groundwater management plans by GMD boards. This was the same report that LPA presented to the Legislative Post Audit Committee in February. Committee questions to the LPA focused on how the GMDs were funded and how the fees on water users were assessed and collected.

Quivira National Wildlife Refuge Report

This week, the House Water Committee received a report on Rattlesnake Creek and water shortages in the Quivira National Wildlife Refuge (QNWR) from Earl Lewis, Chief Engineer, Kansas Department of Agriculture, Division of Water Conservation. Orrin Feril, Manager of Big Bend GMD5 also participated in the hearing and provided information about the conservation activities of the GMD. Lewis explained that QNWR’s water right permit for 14.6k acre feet (AF) was filed in 1957 and perfected in 1996. Lewis stated that KDA would not revisit the issue of whether the 14.6 AF was the accurate amount of the authorized water right. Lewis explained the “first in time, first in right” priority system established by Kansas law, and that the law requires the Chief Engineer to take action to secure water to protect senior water rights from junior water rights. According to Lewis, stream flow from Rattlesnake Creek into the QWNR had slowed due to a lowering of the surrounding water table from both drought and increased irrigation in the area, where water right development in the area has been correlated with reduced streams flows in Rattlesnake Creek which feeds the QNWR. In 1957, there were 60 water rights in the area, and now there are more than 1400 wells that are junior to the QNWR. KDA previously contracted with professional modelers to interpret the effect groundwater use in the area has on the QNWR. Lewis said KDA supports its model and believes it to be valid and generally accepted as accurate. Lewis clarified that augmentation was an authorized measure to resolve an impairment, and that while KDA supports all private projects designed to conserve water in the area, they hope the impairment can be satisfied by augmentation alone. According to Lewis, if KDA just shut off junior water rights to satisfy the impairment, it would require 810 junior water rights to shut off completely for two years to fully regenerate the aquifer to meet the needs of QNWR at 8,000 AF. Both Lewis and Feril explained that one of the main hurdles is that both the QNWR and agricultural irrigators need the bulk of the water at the same time of the year, and that use of a Local Enhanced Management Area as a remedy would be very difficult. KDA will likely release a conservation plan this summer to become effective in 2024. The agency’s goal is to allow parties time to react and implement strategies to achieve water conservation.

Retailer Collection of Credit Card Fees

Kansas law prohibits the seller or lessor in a retail sales or lease transaction from imposing a surcharge on a person who elects to use a credit or debit card to make the purchase. House Bill 2133 would eliminate this prohibition and allow the imposition of the surcharge. Kansas Grain and Feed Association and Kansas Agribusiness Retailers Association supported the bill which passed the House on a vote of 87-35. The bill has been referred to the Senate Committee on Financial Institutions and Insurance which had previously passed out a Senate companion bill Senate Bill 104 favorably.

Retailer Credits

Senate Bill 41 would provide a credit for Kansas retailers, up to $300 per month, to help offset, to some degree, the administrative expenses accrued by retailers in collecting and remitting state sales and compensating use taxes for the state. Kansas Agribusiness Retailers Association testified that these administrative costs on behalf of the state are real expenses for Kansas retailers that are not currently compensated. The Senate Tax Committee advanced the bill out of committee with a favorable recommendation.

Prohibiting Foreign Ownership of Real Property

Senate Bill 283 would prohibit the future conveyance of real property in Kansas to “foreign adversaries”, as the term is defined by federal law. The bill was referred to the Senate Judiciary Committee. It will likely be given a hearing on March 21, and then receive committee action the following day. Two similar bills were previously introduced this year in Senate Bill 100 and House Bill 2397. The House Committee on Agriculture held a hearing on House Bill 2397 but did not act on the bill. Senate Bill 100 was referred to the Senate Judiciary committee where it did not receive a hearing. This issue is a high priority item of new Kansas Attorney General Kris Kobach.

Kansas Apprenticeship Tax Credit Act

HB 2292 would establish a three-year Kansas apprenticeship tax credit to encourage the development of apprenticeship programs by participating businesses. The credit would be up to $2,500 for each apprentice so employed, and the tax credit may be awarded up to 20 apprentices per year. The program would be administered by the Kansas Department of Commerce. The House passed the bill favorably on a vote of 115-7. The Senate Commerce Committee held a hearing on the bill on Thursday, March 9, where Kansas Grain and Feed Association and Kansas Agribusiness Retailers Association joined other stakeholders in support of the measure.

Third-Party Funded Litigation

Senate Bill 74 would provide for joint liability of costs for third-party funded litigants and also allow for sanctions on third-party funded litigants. The bill would also require certain discovery disclosures and payment of certain costs for nonparty subpoenas. The bill was heard in the Senate Judiciary Committee. The bill was referred to an exempt committee to keep it alive for further action this session and stakeholders are working on a possible amendment to address specific concerns.

Corporate Income Tax Apportionment

As introduced, House Bill 2110 would allow corporate taxpayers, based on NAICS codes included in the bill, to elect to use a single-factor apportionment formula, based on sales in the state, to determine their income tax liability. The bill is estimated to have a cost to the state of approximately $20 million. The House Tax Committee held a hearing on the bill, where Kansas Grain and Feed Association joined the Kansas Chamber as the only proponents. The committee declined to take further action on the bill while it considered whether to adopt an amendment requested by the Kansas Dept. of Revenue to require all corporations in the state to use the sales single-factor apportionment formula. Most states require use of this apportionment methodology. As industry stakeholders weighed in with varying positions on whether the bill should be made mandatory for all corporate filers, it was decided to hold off on further action on the bill until next year.

Required Property Valuation Methodology for Grain Elevators and Special Purpose Properties

Senate Bill 274 would require the use of the cost approach for valuing special purpose property for property tax valuation purposes. The bill specifically includes grain elevators in its definition of special purpose properties. The Senate Tax Committee has scheduled a hearing on the bill for Wednesday, March 15. However, the committee is not likely to take action on the bill due to concerns raised by Kansas Grain and Feed Association and other organizations that would be impacted by the bill.

Various Tax Bills

The Senate passed three tax bills that, together, would provide more than $1.1 billion in tax cuts. The bills are scheduled for hearing in the House Tax Committee.

  • Income Tax– The Senate passed Senate Bill 169 to create a single 4.75 percent individual income tax rate and eliminate the current progressive three-tier rates. The measure drops the rate on middle (5.25 percent) and high-income (5.7 percent) taxpayers to 4.75 percent and increases the 3.1 percent rate on lower-income Kansans, while increasing the standard deduction. The bill is projected to cost the state more than $550 million a year, and more than $1.3 billion over a three-year period. The bill passed the Senate 22-17, short of the 27 votes needed to override a veto from the Governor.
  • Social Security Income Tax– The Senate passed Senate Bill 33 on a vote of 36-3. The bill would eliminate state income tax on Social Security payments and is projected to cost the state $147 million annually. The bill is more costly than what Governor Laura Kelly had proposed. The bill was amended to include other tax cuts, further increasing the cost of the bill.
  • Food Sale Tax – Senate Bill 248 would eliminate state and local sales tax on all food and food ingredients beginning next year. The bill, which passed 22-16, would cost the state about $277 million a year.

Short Line Rail Grant Program

In 2020, the legislature passed the Eisenhower Legacy Transportation Program which included a $15 million, three-year, cost-share grant program for qualified track maintenance and improvements to short line rail and rail siding. In 2020, 2021, and 2022 the Kansas Dept. of Transportation (KDOT) set aside a percentage of the $5 million program funds specifically for rail siding projects. This year’s approved projects were announced this week by the Governor’s office. Kansas agribusiness infrastructure has greatly benefited from this program. In coordination with KDOT, Kansas Grain and Feed Association introduced House Bill 2335 to restructure the Short Line Rail Improvement Fund program to combine it with KDOT’s Rail Service Improvement Fund Program. The bill makes it easier to administer the cost-share grant program and would dedicate $10 million annually from the state highway fund for the program. Under the bill, grain shippers and other owners of rail siding adjacent to short line rail, would be able to directly apply for program funding. KGFA joined the Kansas Agribusiness Retailers Association and the Kansas Cooperative Council in supporting the measure which passed the House 117-5. The Senate Transportation Committee scheduled a hearing on the bill for Thursday, March 16.

Maximum Train Length and Minimum Set Back on Rolling Stock

Senate Bill 271 was introduced and referred to the Senate Committee on Transportation. The bill would limit the length of trains on any main line or branch line to 8,500 feet and establish a for minimum distance for storage rolling stock of 250 feet from an intersection. The Senate Transportation Committee held a hearing on the bill on Tuesday, March 7, where the committee chairman stood as a proponent to the bill. There was significant committee discussion on whether, and to what extent, this area of law might be preempted by federal regulations.

Hemp Grain

House Bill 2168 would add industrial hemp seed to the statutory definition of grain in the Kansas grain warehouse law. The Kansas Department of Agriculture is reviewing the bill for other impacts the designation might have. No hemp ingredients have been federally approved for use in animal feed, and it is unknown whether hemp ingredients are safe for animals or can be utilized as a source of nutrition when consumed for extended periods of time. These questions should be answered before hemp is used for commercial feed purposes to ensure the safety of the public, animals, and the agricultural industry. The bill is scheduled for hearing in the House Committee on Agriculture on Wednesday, March 15, where Kansas Grain and Feed Association will oppose.

Penalties for Failing to Timely Remit Withholding Taxes

House Bill 2411 would decrease statutory penalties for employer failing to timely remit employee withholding income taxes. Under current law, the penalty for the failure of an employer to remit any amount of withholding taxes is 15.0 percent of the amount of underpayment. The bill would set the penalty as a percentage of the amount of the underpayment as follows: 2 percent if remitted within one to five days; 5 percent if remitted within six to 15 days; 10 percent if remitted after 15 days; and 15 percent if remitted after 15 days and the Department has issued a notice to the person regarding the underpayment, but the amount of the underpayment was not remitted within ten days of issuance of the notice. A hearing was held on the bill in the House Tax Committee.

Electric Utility Rates

Kansas has the highest energy rates in our region, and multiple bills have been introduced to address high electric utility rates while ensuring reliable service:

  • House Bill 2154 would reform the Kansas Corporation Commission by allowing for the election of commissioners and establishing a utilities regulation division in the office of the attorney general to represent and protect the collective interests of utility customers in utility rate-related proceedings. A hearing was held on the bill, and the Senate Utilities Committee held a hearing on its companion bill, Senate Bill 88.
  • Senate Bill 54 allowing a 0 percent sales tax rate on commercial utilities, was passed out favorably by the Senate Tax Committee. House companion bill House Bill 2221 has not been scheduled for hearing.
  • Senate Bill 68 would allow state energy producers a Right-of-First-Refusal to build out new electric transmission line assets in the state. Renew Kansas, Kansas Grain and Feed Association, and Kansas Agribusiness Retailers Association joined other commercial and residential utility rate payers in opposing the measure during multi-day hearings, arguing that the bill would remove competition from the build process and result in higher electric energy rates. The Senate Utilities Committee advanced the bill out of committee, but the bill has not been brought up for debate by the full Senate.

Transmission Delivery Charges on Energy Users

House Bill 2225 was introduced in an attempt to limit Evergy’s direct recovery of costs related to electric public utility transmission projects. The House Utilities Committee passed the bill out favorably, but stakeholders were asked to work with Evergy to find a compromise position. The bill was then referred back to committee and, on Thursday, an agreed amendment was added to the bill before being passed out favorably. As amended, the bill (1) reduces Evergy’s authorized return on equity (ROE) on local transmission projects, (2) sets up a project review process at the KCC, and (3) requires Evergy to submit testimony on competitive rates and impacts on economic development during any rate case. The major consumer concession was allowing Evergy to continue to assess annual increases through its transmission delivery charge (TDC). The KCC estimates the bill will provide ratepayer savings of $40M to $45M over three years. That includes the cumulative impacts of about $10M/year in upfront savings and approximately $2M/year in annual savings from new projects at the lower ROE. A full House vote on the bill is expected next week. Many thanks to the Kansas Industrial Consumers Group that negotiated for all industrial energy users during this process.

Scrap Metal Act Extension

House Bill 2326 would extend the sunset date on the current scrap metal theft reduction act and clarify that catalytic converters are covered by the act. Kansas Grain and Feed Association, Kansas Agribusiness Retailers Association, and Renew Kansas Biofuels Association joined other affected industries in supporting the measure. Agribusiness groups supported the initial passage of the measure when it was passed five years ago. The House passed the bill 120-1, and the Senate Judiciary Committee has scheduled the bill for hearing on Tuesday, March 14.

Cotton Bale Secure Load Requirements

HB 2160 would exempt the transport of cotton bales from certain secured load requirements. The House passed the bill on a vote of 121-3. The bill has been referred to the Senate Committee on Transportation for consideration.

State Preemption of Local Plastic Regulations

House Bill 2446 would prohibit cities and counties from regulating plastic and other containers. The bill is scheduled for hearing in the House Committee on Federal and State Affairs on Wednesday, March 15.

Motor Carrier Independent Driver Status

House Bill 2020 was introduced to clarify that the employment status of a driver of a motor carrier does not change as a result of the inclusion of safety improvements made to the vehicle. The House passed the bill 122-0. The Senate Transportation Committee held a hearing on the bill on Thursday, March 9.

Cannabis Legislation

The following cannabis bills have been introduced this year:

Senate Bill 135 would create the medical cannabis regulation act to regulate the cultivation, processing, distribution, sale, and use of medical cannabis. The bill is scheduled for hearing in the Senate Committee on Federal and State Affairs on Wednesday, March 15.

Senate Bill 171 would create the veterans first medical cannabis act to regulate the cultivation, distribution, sale, possession and use of medical cannabis.

Senate Bill 276 would specify the delta-9 tetrahydrocannabinol concentration amount for final hemp products and allow hemp products to be manufactured, marketed, or sold.

House Bill 2367 would establish the adult use cannabis regulation act to allow for the lawful cultivation, manufacture, possession, and sale of cannabis in this state.

House Bill 2417 creating the medical cannabis regulation act to regulate the cultivation, processing, distribution, sale and use of medical cannabis.

Other Bills We Are Monitoring:

SB 79 authorizing counties to impose a county earnings tax. Hearing held in Senate Tax.

SB 166 requiring public disclosure of a transmission line siting permit. Passed out of Senate Utilities. Blessed.

SB 273 eliminating city planning and zoning authority for land outside a city. Sen Local Gov, no hearing held.

SCR 1606 establishing an initiative and referendum Constitutional Amendment. No hearing, blessed.

HB 2192 creating a Kansas Secretary of State website for grants, applications, awards. No hearing.

HB 2350 establishing the crime of human smuggling. Passed House, hearing in Sen Judiciary.

HB 2388 requiring licensing bodies to provide electronic credentials. Passed from House Commerce.

HB 2436 prohibiting public contracts from giving preferential treatment based on ESG criteria. House FII. Hearing March 8.