12 Jan 2024 Kansas Capitol Review – Week One
The 2024 Kansas legislative session began on January 8, and we were honored to be at the capitol throughout the week to greet new members and welcome back returning legislators on your behalf. This year marks the second year of our legislative biennium, meaning all bills introduced in 2023 will still be alive and actionable, in addition to any new bills introduced this year.
Republicans still hold a supermajority in the House under Speaker Dan Hawkins (R-Wichita) and in the Senate under Senate President Ty Masterson (R-Andover). A handful of Republican Senators, however, have already shown they are willing to separate from the majority on certain issues.
Governor Laura Kelly’s main priority this year will be to push for Medicaid expansion in Kansas. The legislature meanwhile looks to quickly pass tax legislation to move to a single rate individual income tax system – a proposal that was vetoed by Governor Kelly last year.
Both the legislature and the governor are seeking to pass legislation offering property tax relief, which would make for a popular campaign item this summer when all 125 members of the House and the 40 members of the Senate will stand for reelection.
Other key issues we anticipate this session include a removal of sales tax on food products, funding for water conservation and infrastructure, workforce development, worker’s compensation maximum benefits, early childhood care and how to smartly spend down the state’s growing projected ending balance.
Kansas Agricultural Remediation Reimbursement
House Bill 2477 was pre-filed at the request of the Kansas Grain and Feed Association and Kansas Agribusiness Retailers Association. The bill seeks to amend the agricultural chemical environmental remediation reimbursement program by increasing the maximum reimbursement from the fund from $200,000 to $300,000 for an eligible person. The bill was referred to the House Committee on Agriculture and Natural Resources and a hearing is anticipated soon.
Prohibiting Foreign Ownership of Real Property
Last session, multiple bills were introduced that would prohibit the future conveyance of real property in Kansas to “Foreign adversaries,” as the term is defined by federal law (Senate Bill 283, and House Bill 2397). This issue is a high priority item for Kansas Attorney General Kris Kobach and House and Senate leadership. The Senate Judiciary Committee held a hearing on SB 283 before amending it and placing the contents of the bill into Senate Substitute for House Bill 2069. While no further action was taken on the bills last session, similar legislation has been passed in multiple states, including Arkansas, which last year required an agricultural chemical company to divest from cropland used for product research and development. An interim hearing was held on the issue last summer, and further action will be taken this session. One key provision being debated is whether the legislation will be retroactive, which would potentially require the divestment of properties in our state currently owned by companies located in certain foreign nations. The House will be considering various foreign adversary bills, including prohibiting entities deemed, “Countries of concern,” from purchasing land located within 150 miles of a military installation. There may also be legislation prohibiting the selling of drones in the state that are from a country of concern or made with parts from a country of concern. Heightened attention on this issue comes hard on the heels of a cyberattack on the Kansas state judicial computer system last fall by Russian hackers.
Private Pesticide Applicator Certification
The Kansas Dept. of Agriculture (KDA) will be introducing legislation to amend the Kansas pesticide law following changes made by the EPA to its agency pesticide applicator requirements. The bill will establish new training and supervision requirements for pesticide applicators of restricted use pesticides, and it will also grant KDA civil penalty authority on all commercial and private applicators.
Upcoming House Water Committee Agenda
Agenda for upcoming meetings of the House Water Committee:
Tuesday, Jan. 16, 2024: Dam Safety Informational Briefing, Earl Lewis, Chief Water Engineer, Kansas Dept. of Agriculture
Thursday, Jan. 18, 2024: Kansas Water Office Update, Connie Owen, Director, Kansas Water Office
State Water Plan Funding
House Bill 2302 last year increased funding to the state water plan fund by $35 million each year, for five years. The House Water Committee may ask the Kansas Water Authority to report to the committee on how the additional funding was used. Regarding conservation, look for legislation that would put additional funding toward helping groundwater management districts hire or contract with irrigation engineers to assist with water conservation.
Water Conservation Plan Reporting
Passage of HB 2279 last year placed additional conservation action plan and annual reporting requirements on the GMDs. This session, House Water Committee Chairman Representative Jim Minnix (R-Scott City) is tentatively planning on having the GMDs provide their annual update to the Committee the week of Jan. 22, 2024 with GMD1, GMD2 and GMD3 appearing on Tuesday, Jan. 23, 2024, and GMD4 and GMD5 on Thursday, Jan. 25, 2024.
During an interim water committee hearing this summer, the ranking minority party member commented that the committee should focus on water quality and a state water quality plan. We anticipate legislation on water quality possibly being introduced. We also anticipate legislation to assist rural water district managers comply with certification and training requirements, and funding directed toward assisting rural towns to replace lead pipes in their infrastructure.
Point of Diversion
Last session, Representative Kenny Titus (R-Manhattan) introduced House Bill 2459 to amend the Kansas Water Appropriation Act. The bill would prohibit changing the point of diversion of a water right if such change would cause the safe yield of the source of water supply to be exceeded. The bill will likely have a hearing this year, but it is understood that the Chief Engineer could also accomplish this through a DWR regulation.
Water Structure Licensing Fees
Kansas Dept. of Agriculture (KDA) has indicated it will introduce legislation to amend the Stream Obstruction Act. The legislation would install graduated agency inspections based on hazard level, provide KDA authority to assess civil penalties for lack of action on non-compliance issues, and allow KDA to assess registration fees and increase permit fees. This is likely to be the only bill proposed by the Division of Water Resources.
State Revenue Estimates
Of significant interest this session will be how to smartly spend the estimated $2.6 billion in excess state funds by the end of the fiscal year in June 2024. This would be the largest ending balance in state history. Barring large reductions in the state income tax, this ending balance is forecast to increase to more than $3.5 billion by the end of June 2025. In addition, last session, the legislature transferred $600 million into the Budget Stabilization Fund (our state’s “rainy day fund”), which increased the fund balance to more than $1.6 billion.
Governor Sets Forth 2024 Priorities in State of State Address
On Wednesday, Governor Laura Kelly’s State of the State Address focused on growing Kansas by strengthening rural areas of the state through a five-point plan:
1) Expand Medicaid to 150,000 Kansans;
2) Fund rural water infrastructure projects, fully funding the state water plan, and funding water conservation projects;
3) Fully fund public schools, special education, and higher education;
4) Increasing funding for early childhood care, and;
5) Lowering property taxes by increasing the residential property tax exemption to the first $100,000 of valuation. Other tax relief proposals included completely removing the sales tax on food this year rather than waiting until 2025, entirely removing state income taxes on social security and allowing a back-to-school sales tax holiday.
Governor’s 2025 Proposed Budget
On Thursday, Governor Kelly introduced her administration’s $25.2 billion budget for fiscal year 2025 that proposes to increase investment in early child care, restore state revenues to local governments, raise state employee pay, fund special education, cut taxes and expand Medicaid. The budget directs more than $700 million into capital projects for corrections, higher education and law enforcement, and $80 million into community projects such as the World Cup. The budget would appropriate $53 million for water infrastructure and other projects, including the new funding level of $43 million from House Bill 2302. The budget includes an additional $10 million for grants to rural communities for improving local water infrastructure. The proposed budget would have total one-time spending of over $1.3 billion. It would leave the state with an ending balance of about $1.4 billion in fiscal 2025 and a rainy-day fund of $1.7 billion. You can find more details on the proposed budget here.
GOP Response to State of the State
In response to Governor Kelly’s message, Republican Speaker of the House Dan Hawkins (R-Wichita) provided his vision for the 2024 legislative session, stating that the governor’s proposals are too costly, grew government, and were not, “Middle of the road,” policy positions. Hawkins proposed adopting legislation that would cut taxes, reduce costs, boost household income and take-home pay and expand personal freedoms. He also pushed for legislation that would provide for public safety, improve highways, support community mental health centers and eliminate waiting lists for people with intellectual and developmental disabilities. Hawkins also stated the legislature should pass legislation to help lower utility costs for Kansans. Finally, Hawkins indicated that legislation this session must combat dangers posed by Communist China by cracking down on espionage conducted by drones in the state, and by safeguarding our farmland from foreign communist ownership.
Individual Income Tax Single Rate
Last year, House and Senate leadership pushed for passage of legislation that would have created a single individual income tax rate, or flat tax. Kansas currently has three tax brackets for individuals. The corporate income tax consists of 4 percent of all taxable income plus a 3 percent surtax on all taxable income above $50,000. Proponents say a single income tax rate would make the state’s business climate more competitive and provide a more simple and transparent tax code to taxpayers. On Thursday, a Tax Conference Committee was held between the House and Senate Tax Committees to quickly craft a new Tax Conference Committee Report with various tax reduction proposals from last year – including the single individual income tax rate and removing sales tax on food – in hopes of passing the bill and sending to Governor Kelly for consideration in the coming weeks.
Corporate Income Tax Apportionment
Kansas currently uses a three-factor system for apportioning income between states for corporate income tax purposes. Legislation was introduced in recent years to allow corporate taxpayers the option to elect which methodology to use when apportioning their corporate income between Kansas and other states in which it operates to determine tax liability. Past legislation introduced would allow taxpayers, based on NAICS codes, to elect to use a single-factor apportionment formula based on sales to determine corporate income tax liability. Those bills were estimated to cost to the state of approximately $20 million. While similar legislation will be introduced again this year, the bill will require corporate taxpayers to use the single factor sales method (after a two-year phase-in period), rather than allow for an election. The draft bill – which has not yet been introduced – also includes provisions to help offset potential increases in liability for some companies, including: a tax credit for deferred tax liability (CFO-related, accounting mechanism) and lowering the rate to the nearest 1/10 of a percent.
Property Tax Relief
Property tax relief is a top priority of the governor, and republican and democrat legislators in both the House and Senate. Much of that relief is likely to be specifically focused on residential property owners. Here are a few of the proposals being discussed:
– Senate Bill 94 would discontinue state property tax levies for the Kansas educational building fund and the state institutions building fund.
– Senate Bill 97 would increase the exemption for residential property from the statewide school levy from $40,000 to $65,000.
– Senate Bill 196 would reinstate transfers from the state general fund to the Local Ad Valorem Tax Reduction Fund (LAVTRF). The transfer is based on 3.63 percent of the state general fund portion of retail sales and compensating use taxes collected in the previous calendar year. The bill would cost the state $119 million. The last transfer to the LAVTRF occurred in fiscal year 2003, but the legislature has routinely suspended transfers every year since. The Senate Tax Committee held a hearing on the bill this week.
– Senate Bill 327 would exclude social security payments from household income and increase the appraised value threshold for eligibility of seniors and disabled veterans related to increased property tax homestead claims. The bill would also amend the golden years homestead property tax freeze program.
– Senate Bill 332 would authorize a transfer from state general funds into the LAVTRF in fiscal year 2025, and all fiscal years thereafter, and require the funds to be distributed directly to residential property taxpayers in the form of a rebate.
– SCR 1611 would amend section 1 of article 11 of the Kansas Constitution to limit annual increases in real property valuations to 4 percent. The bill would require a ballot question for voters to approve the measure during the next state-wide election. The Senate passed the bill last year and it is now with the House.
– SCR 1613 would amend section 1 of article 11 of the Kansas constitution to decrease the assessment rate of residential property in determining property taxes.
Train Max Length, Set Back Distances, and Blocked Crossings
Last year the Senate passed Senate Bill 271, which would create a maximum train length (8500 feet) in Kansas, and require railroads to maintain a minimum distance of 250 feet between a near-edge railroad crossing and stored railroad rolling stock at crossings. The bill was referred to the House Transportation Committee with Chairman Shannon Francis (R-Liberal). There will be pressure by proponents of the bill to take further action this year, although most hall conversation with legislators is focused on frustration with blocked crossings and there may be separate legislation limited to that issue. Earlier this week, the US Supreme Court refused to review a decision from the Ohio Supreme Court which ruled that an Ohio law preventing blocked crossings was preempted by federal law. The state of Kansas had joined in that appeal.
Retailer Collection of Credit Card Fees
Kansas law prohibits the seller in a retail sales transaction, or any credit or debit card issuer, from imposing a surcharge on a person who uses a credit or debit card to make the purchase. House Bill 2133 was introduced last year to eliminate this prohibition. A hearing was held on the bill last year, but the bill did not advance. Similar legislation is anticipated this year.
Remote Worker Grace Period
Last year House Bill 2420 was introduced to all for a grace period for remote workers regarding paycheck withholding requirements. This bill would exempt certain employees who perform employment duties in more than one state from income tax withholding and reporting requirements unless the earnings occurred in the state of the employee’s residence, or in a state that the employee performed employment duties for more than 30 days during the calendar year. While the bill did not move forward last year, action is anticipated this session.
Animal and Ag Facilities Protection Legislation
In 2021, the 10th Circuit U.S. Court of Appeals found unconstitutional parts of a law – often referred to as the “ag-gag law” – that was intended to keep undercover investigators off the property of animal facilities with the intent of exposing certain activities at the facility. Critics of the law said that it criminalized undercover investigations to expose conditions at animal facilities. The law, which had been on the books since the 1990s, was held to be an unconstitutional violation of the right to free speech. In an attempt to make the law comply with constitutional requirements, animal ag stakeholders in Kansas are seeking to revise the law this year to apply to physical trespass only.
Eminent Domain Approval by County Commission
Senate Bill 312, introduced last year, would require the board of county commissioners prior to the exercise of the power of eminent domain by certain public utilities. The Senate Committee on Local Government held a hearing on the bill, where Kansas Farm Bureau and Kansas Livestock Association testified as proponents to the bill along with Representative Carrie Barth (R-Baldwin City) and many private citizens. While the bill did not advance last year, expansion of eminent domain powers in the state was looked at during an interim committee hearing, and new legislation will likely be introduced in the 2024 session.
Workers Compensation Pool Reporting Requirements
This week, Senate Bill 338 was introduced which would change certain reporting requirements of group-funded liability and workers compensation pools.
Workers Compensation Permanent Disability Benefit
Last session, the Senate Commerce Committee held a hearing on Senate Bill 38, a bill that would increase the maximum Kansas workers compensation benefits payable by an employer for permanent total disability suffered by an injured employee. Under current law, the maximum workers compensation benefit that is payable by an employer to an employee for permanent total disability is $155,000. The bill would have increased that amount to $350,000. Permanent total disability is paid out over time using an average weekly wage up to the statutory cap. Using the maximum average weekly wage, it would not reach $155,001. The bill did not move forward, but additional conversations were held over the summer between labor and industry, and new legislation is anticipated to be introduced this coming session.
Underground Petroleum Storage Tank Permits
This week, Senate Bill 336 was introduced which would remove the requirement for underground storage tank operating permits to be renewed annually.
State and Local Tax
Last session, House Bill 2465 was introduced to clarify the determination of taxable income and the pass through of tax credits to electing pass-through entity owners for purposes of the state and local tax (SALT) parity act. The bill was introduced under the premise that the state department of revenue was not correctly applying the SALT parity act passed last year. The bill was placed into Conference Committee Report on Senate Bill 8 and sent to Governor Laura Kelly. Governor Kelly vetoed the bill on May 12, and there was no remaining opportunity to attempt an override of the veto. Additional action will likely be taken on the bill in 2024.
State Legislature Term Limits
SCR 1614 was introduced by Senator Rob Olson, who is not seeking reelection. The bill would amend section 2 of article 2 of the Kansas constitution to set term limits for Kansas senators and representatives.
County Home Rule
HCR 5017 was introduced to amend the Kansas constitution to add a power of home rule for Kansas counties. The new authority would, inter alia, empower counties to determine their local affairs and government including the levying of taxes, excises, fees, charges, and other exactions, except when such authority is specifically limited or prohibited by the legislature.