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Governor’s budget fully funds school finance law

Posted Date: 01/13/2021

Governor’s budget fully funds school finance law

Governor Laura Kelly’s budget proposal released Wednesday fully funds the school finance plan passed by the Legislature and accepted by the Kansas Supreme Court to address the Gannon case. 

It also leaves a 7.5 percent ending balance for the upcoming fiscal year beginning July 1 and ending June 30, 2022, as required by state law but frequently waived by the Legislature. However, getting to that point includes some recommendations that are likely to be a hard sell in the 2021 session. 

Base state aid per pupil increased $133 this year to $4,569, and under the school finance law increases to $4,704 next year, FY 2022, and $140 to $4,846 in FY 2023, the final year of the Gannon phase-in. After that, the base is to be increased at the average inflation rate for the previous three years. Last year, the Legislature appropriated funding for the current year, 2021 and next year, 2022, using those base amounts. 

However, the Governor’s budget actually reduces funding by $19 million from the level already approved this year because weighted enrollment was lower than expected. (That means overall funding is increasing because of a higher base per pupil, but less than expected because of fewer weighted students multiplied by that base amount). 

In addition, as part of the Governor’s allotments this summer, $79 million dollars in state aid will be delayed from the final state aid payment in June and not paid until July, although districts will be required to account for the fund as a revenue in June. As a result, even though base aid is increasing $133 per pupil, general state aid drops. Because the $79 million delayed payment is then made next year, state aid for 2022 increases $189 million, for three reasons: first, the higher base per pupil, second, the delayed payment, and third, enrollment is return to the previous level before the COVID pandemic. 

The Governor is also recommending a reduction of $10 million in contributions for Kansas Public Employees Retirement System this year because of a one-year moratorium on KPERS Death and Disability payments, which are restored next year. 

As a result, K-12 aid is artificially low in the current year. Along with other current year adjustments, total state general fund spending increased just $65 million, from $7.52 billion to $7.59 million. When funding returns to “normal” next year, spending increases $370 million to $7.96 billion. 

There is a similar issue with state revenues. Because of the impact of the COVID pandemic on the economy and postponed deadlines for filing state taxes, tax revenue in last year, 2020, dropped over $400 million from 2019. When the delayed taxes were paid in 2021, it artificially boosted tax income, which increases almost $800 million in 2021. Tax revenues are expected to drop slightly in 2022 because of the delayed payments, even though the economy is growing. 

To fund the increase in next year’s expenditures as revenues drop slightly and still leave a $600 million ending balance, the Governor is proposing several steps likely to meet Legislative opposition. 

First, the Governor again is proposing to “re-amortize” the unfunded liability of the KPERS system by adding 10 years to the current 15-year target. This step is conceptually similar to refinancing a home or credit card debt in order to reduce annual payments. The trade-off is that it costs more in total payment because payments are made for a longer period. Governor Kelly has proposed re-amortization twice before; but the KPERS Board of Trustees has opposed the concept and the Legislature rejected it. This year’s plan would reduce KPERS costs by $158.7 million next year. 

Second, the Governor is proposing to raise revenue by $86 million through new taxes on certain internet or on-line sales that are currently exempt. Republican legislators are expected to push for cuts in individual and corporate income taxes, and some Republicans and Democrats have supported efforts to reduce the sales tax on food. Finally, there are concerns about property tax in many areas of the state. 

Third, the Governor is proposing to delay repayment of $132 million borrowed from state idle funds in past, and to use $82 million in money set aside in the state budget stabilization fund. 

Without all of these steps, the proposed ending balance would be $459 million lower, or less than 2 percent of expenditures, even without any tax reductions or higher expenditures in other areas. As a result, some Legislators are expected to take a closer look at increased funding already approved for K-12 education, even though it is part of an agreement with the Supreme Court.