- Associated Press - Tuesday, January 10, 2017

TOPEKA, Kan. (AP) - Republican Gov. Sam Brownback said Tuesday that he will propose “modest, targeted” tax increases to help close Kansas’ serious budget shortfalls while strongly defending an income tax break that some fellow GOP lawmakers want to end.

Brownback also told a joint session of the Republican-controlled Legislature in his annual State of the State address that he will outline budget “efficiencies.” He cautioned lawmakers against expanding the state’s Medicaid program in line with the 2010 federal health care overhaul that President-elect Donald Trump and congressional Republicans are planning to repeal.

Kansas faces a projected $342 million shortfall in its current budget and gaps in funding for existing programs that total $1.1 billion through June 2019. The state has struggled to balance its budget since Republican legislators slashed personal income taxes in 2012 and 2013 at Brownback’s urging in what many voters now see as a failed attempt at stimulating the economy.

Brownback acknowledged that state government “is confronting challenges,” blaming them on “struggles” in key parts of the economy, particularly agriculture and oil production. He urged legislators to pass a bill rewriting the current budget this month and said they should look for efficiencies before raising new revenues.

“Having said that, we will propose modest, targeted revenue measures to fund essential state services,” Brownback said in his speech. “Now, in any proposal as vast as a state budget, people will find provisions to dislike. That’s a necessary start of any conversation, but good negotiations require give and take.”

Brownback spoke to a Legislature that became less friendly to his fiscal policies after last year’s elections. Voters ousted 14 conservative Brownback allies in GOP primaries in August, and another 10 lost seats in November. While Republicans retained supermajorities in both chambers, both Democrats and GOP moderates saw gains.

In the Democrats’ official response , Senate Minority Leader Anthony Hensley, of Topeka, called Brownback’s economic policies “debilitating.”

“This is poor leadership,” Hensley said during a news conference after the speech. “And the people of Kansas are tired of it.”

Brownback did not say what taxes he will seek to raise, but legislators have speculated in recent weeks about increases in liquor and tobacco taxes. He plans to release detailed proposals Wednesday.

The Legislature opened its annual session Monday, and the House Taxation Committee already is working on a bill to repeal an income tax break enacted in 2012 that benefits more than 330,000 farmers and business owners. Brownback has championed the tax break.

It exempts profits reported by farmers and owners of limited liability corporations and other businesses on their personal income tax returns that are not subject to corporate income taxes. It also covers rents and royalties. Legislators believe repealing it would raise $260 million a year.

Critics of the tax break argue that it’s not fair for doctors, lawyers, dentists and other professionals to avoid personal income taxes when their employees still pay them on their wages. But Brownback contends the tax break benefits small businesses - and said in Tuesday’s speech that both Trump and congressional Republicans are pursuing tax policies to help small businesses.

“As a state, we have pioneered new ground on small business policy,” the governor said. Later, he added, “That policy has worked.”

Republican Rep. Erin Davis, of Olathe, a critic of the tax break, said she doesn’t fault Brownback for defending a signature tax policy “until the bitter end.”

“Nor do I believe that it has delivered what was intended,” she said.

Legislators don’t believe they can raise revenues quickly enough to plug the hole in the current budget before the fiscal year ends June 30.

To avoid immediate spending cuts, they’ve been pondering one-time accounting moves, such as liquidating a $320 million state investment fund. Brownback wouldn’t say what he will propose but told reporters after the speech, “There’s some one-time measures.”

Advocates of expanding Medicaid have argued that the state is leaving federal health care dollars on the table that could help the poor and rural hospitals. They have said the state should pursue an expansion to put the state in a better position after the GOP’s health care overhaul.

“We should make sure our piece of the pie is as big as possible,” said House Minority Leader Jim Ward, a Wichita Democrat. “That’s what Medicaid expansion would do. We should do it now, today.”

But Brownback - a longtime critic of Democratic President Barack Obama’s signature domestic policy - derided an expansion as “akin to airlifting on to the Titanic.”


Associated Press reporter Allison Kite in Topeka contributed to the report.


Follow John Hanna on Twitter at https://twitter.com/apjdhanna .

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