Veto Session Update

The Kansas Legislature’s veto session ended Saturday, May 9, shortly before 3am. The House concurred to the Senate’s budget and tax package to fill the $328 million anticipated budget deficit for fiscal year 2010. The Senate’s budget and tax proposal combines a series of budget cuts and tax provisions (outlined below). Attempts were made at the Governor’s request to suspend the estate tax and franchise tax phase outs, and to decouple the state from tax breaks provided in the federal stimulus package. Neither of the Governor’s requests was approved. The final economic outcome of the legislature action leaves only an estimated $17,000 ending balance. The legislature will return for a ceremonial end of the session June 4. Unless there are unforeseen circumstances, we do not anticipate substantive action at that time.

Energy Bill Deal Struck: Use of Bio Products Planned

In a change of the executive branch’s policy of denying a license for an expansion of the Holcomb coal fire power plant, Governor Parkinson negotiated and came to agreement with Sunflower electrical cooperative allowing for the construction of an 895 megawatt plant. The agreement required that legislation (HB 2369) be approved allowing for comprehensive energy policy including increased wind power and other renewable policies. The company is also to create the Sunflower Integrated Bioenergy center, which will seek federal renewable energy stimulus funds for projects that may include ethanol, biodiesel, and algae energy plants. HB 2369 was approved overwhelmingly by both chambers.

KTEC funding

During the budget debate, the House’s budget bill that included $11.5 million for KTEC failed to receive the needed votes for passage. Instead, the House concurred to the Senate’s budget which approved only $8.6 million for the agency (the $8.6 million includes approximately $1.6 million in federal grants or matching funds which KTEC receives – the actual state appropriated amount for FY10 was $7 million). While this is a very heavy hit to KTEC, this is better than former Governor Sebelius’s proposal to sweep the agency into the Department of Commerce. Governor Parkinson has voiced support of keeping KTEC whole and we anticipate that he, unlike his predecessor, will not veto the funding.

Legislature Tax Package: Decrease in Nonrefundable Tax Credits

Legislature approved a comprehensive tax package (HB 2365) that is estimated to raise $60 to 70 million to the help address the state’s $328 million budget shortfall. The rest is made up by state budget cuts. There was considerable opposition from the business community and the limit the cut to 10%. Several attempts were made by legislators to raise the tax increase to 15% or higher. Democrat and moderate Republican legislators voiced concerns that businesses were not “putting enough skin in the game” and there was no public hearing on the measure. House Republican leadership opposed the measure, but a coalition of the above mentioned groups garnered enough votes to approve the measure. The Governor and Senate leadership also supported the proposal.

HB 2365 includes an across the board 2 year 10% cut of all nonrefundable tax credits ($7.7m) with the exception of earned income, tax on food, child dependents, and homestead credits. Included among those nonrefundable credits moving forward for the state’s 2010 and 2011 fiscal years are:

• Alternative fuel tax credit ($8k)
• Angel Investor Credit ($55k)
• Business and Job Development Tax Credit ($1.5M)
• Bio-Mass to Energy Plant Credit ($0 – at this time)
• Blending Pump Credit ($0 – at this time)
• Center for Entrepreneurship Investment Credit ($10k)
• High Performance Incentive Program ($2.7m)
• R & D tax credit ($261,209)
• Business Machinery and Equipment Credit ($1.4m)
  
  
  Additionally, the package includes:
  
  Granting the Secretary of Revenue additional authority to equitably resolve certain audit-related assessments that are pending in the administrative appeals process or the State Court of Tax Appeals; or are pending in the judicial review process before any state or federal district or appellate court. The settlement authority would include the ability to resolve amounts of tax, penalty, and interest in question. ($35m).
  
  
• Makes refundable tax credits to a five year “carry forward” tax credits ($10.8m).
• Suspends for 2 years the community service tax credit ($4m)
• Suspends for 2 years the film production tax credit ($1m)
• Reinstates statute of limitations for claiming income tax returns ($3m)
• Reduces state of limitation for sales and use tax refund claims from 3 to 1 year. ($15m)
  
  Coming Soon:
  A comprehensive list and analysis of Kansas Bio’s legislative related bills and outcomes.