Daily Archives: May 3, 2012

Senate rejects 401(K)-style KPERS proposal, endorses ‘cash balance’ plan

TOPEKA – In a 20-20 vote, the Senate this afternoon rejected a proposal to put new teachers and state employees on a 401(K)-style retirement plan.

The move, offered by Sen. Jeff King, R-Independence, would have required employees to contribute 6 percent of their salaries to the Kansas Public Employees Retirement System and ratcheted up the state’s contribution from 1 percent to 5 percent over eight years.

That would have made their investments subject to the ebb and flow of the stock market, but it would guarantee that they get back at least as much as they put into the plan.

But the amendment was viewed as problematic to the underlying proposal offered by Senate President Steve Morris, R-Hugoton, and Sen. Laura Kelly, D-Topeka.

Their proposal, which was approved by the Senate in a 32-8 vote, would create a “cash balance” system where employees would pitch-in 6 percent and the state would add 4 percent. The state would guarantee employees’ investments earn 6 percent. Employees would be vested after five years.

At the heart of the KPERS reform debate is an $8.3 billion gap between what the system owes employees and what it is projected to bring in through 2033. That unfunded liability has put the state in a precarious financial position.

KPERS investments have generated 8.3 percent over the past 40 years. The bill approved by the Senate would use the difference between the 6 percent guarantee and the 8.3 percent return to pay off the state’s unfunded liability.

“This particular system would get us down the road of having less risk for the state and give employees reasonable retirement,” Morris said.

Sen. Roger Reitz, R-Manhattan, was among those who decried the state’s failure to fully-fund the state employee retirement system. The state hasn’t fully-funded it since 1973, he said. That has left the system 62 percent funded.

“It was a promise made, a promise not kept,” Reitz said.

King said the state’s past failures have left the state with tough decisions.

“No plan is perfect,” he said. “And especially no plan is perfect when you’re 62 percent funded.”

 

Republicans move income tax cuts forward; Democrats say it creates “elite” taxpayer class

TOPEKA — A variant of Gov. Sam Brownback’s plan to cut income taxes for individuals and eventually eliminate them for certain types of businesses took a major step toward final passage today.

Over the objection of Democrats, the Republicans on a House-Senate conference committee decided to move the measure forward. The Democrats can delay — and are delaying — the final vote, but it’s extremely unlikely they’ll be able to block the plan.

Today, the four Republicans on the tax conference committee executed what is called an “agree to disagree” with the two committee Democrats.

Following a couple of procedural steps, the committee Republicans will be able to move the tax plan forward without the support of either of the Democrats.

The plan is expected to go to a final vote in the House and Senate next week.

The final tax bill is based on ideas that Gov. Sam Brownback advanced in his State of the State speech in January.

The most controversial part of the plan is that it will eventually eliminate state taxes on several types of business income, including proceeds from farms, limited liability companies, sole proprietorships and corporations organized under Subchapter S of the federal tax code.

Democrats oppose that because they say it would give special treatment to certain taxpayers based on how they make their money, favoring business and investment income over workers’ paycheck earnings.

“One of the concerns that I have about the approach we’re taking here is we’re creating a new class of citizen, if you will,” said Rep. Nile Dillmore, D-Wichita and one of the two Democrats on the six member conference committee. “We’re creating a class of economic elites. We’re saying, ‘By virtue of the way you make your money, you don’t have responsibilities that people who work for a living have.’

“I think creating that special class is harmful,” Dillmore continued. “It concerns me greatly that we are going down that kind of road … I wonder as time goes by how many more privileges we’re going to extend to this class.”

Rep. Richard Carlson, R-St. Marys, disputed Dillmore’s argument, saying “I would hope we certainly have not created a special class.

“I think we have created a class of citizens who pay a fair tax rate and it’s a lower tax rate, then they’re able to keep their money and reinvest it in the economy and grow the economy and not necessarily the public sector keep that money.”

Just before executing the agree to disagree, the committee restored one planned cut, the child-care tax credit.

Tax rates will drop more slowly than Brownback originally proposed. Lawmakers have war-gamed numerous scenarios to cut taxes while still maintaining enough revenue to fund core services.

Earlier this week, the nonpartisan Office of Legislative Research estimated that the tax cut would create a $712 million deficit by 2018.

Today, the analysts released new numbers showing that by slowing implementation of lower tax rates, the $712 million deficit changes to a $158 million surplus in 2018.

For single workers earning less than $15,000 a year in taxable income and married couples making less than $30,000 a year, the tax rate will immediately drop from 3.5 to 3 percent and stay there.

Singles earning $15,000 to $30,000 a year and married couples making from $30,000 to $60,0000 now pay 6.25 percent, while taxpayers making $60,000 or more pay at a rate of 6.45 percent.

The new rates for those taxpayers going forward will be 5.5 percent for tax years 2013 and 2014; 5.3 percent in 2015; 5.1 percent in 2016 and 4.9 percent in 2017 and thereafter.

The business tax exemptions will also phase in from 2013 to 2017.

In 2013 and 2014, business income will be exempt up to $100,000.

The exemption rises to $250,000 for 2015 and 2016.

From 2017 on, the income tax on eligible businesses will be eliminated entirely.