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Jan 11, 6:22 PM EST

Kansas governor's budget fix: Higher taxes, tobacco funds



TOPEKA, Kan. (AP) -- Republican Gov. Sam Brownback outlined budget-proposals Wednesday that included higher taxes on smokes, booze and Kansas business owners, drawing largely negative reviews from the GOP-controlled Legislature.

Brownback also submitted a proposal to lawmakers to sell off the state's right to collect a share of revenues from a 1990s legal settlement between states and tobacco companies. On top of that, he suggested diverting funds for highway projects to general government programs, scaling back the state's contributions to public employees' pensions and liquidating a $317 million state investment fund.

Republican legislators found fault with major pieces of the package, particularly the tobacco proposal. Democrats were harsh, with Wichita Rep. Tom Sawyer, the top Democrat on the House Taxation Committee declaring, "It's a pile of garbage."

"We've just got to get our expenses and revenues in line," Sawyer said. "I mean, this is just ridiculous."

Kansas faces a projected $342 million shortfall in its current budget and gaps in funding for existing programs totaling $1.1 billion through June 2019. The state has struggled to balance its budget since GOP lawmakers slashed personal income taxes in 2012 and 2013 at Brownback's urging in what even some Republican voters now see as a disappointing economic stimulus effort.

Brownback has argued that slumps in key parts of the economy, including agriculture and energy production, are to blame for the state's budget woes - not his tax policies. He also defended them in his annual State of the State address Tuesday evening, particularly a 2012 income tax exemption for 330,000 farmers and business owners that many legislators want to end.

His budget director, Shawn Sullivan, said that without the mix of proposals Brownback has outlined, "You're left with huge tax increases or huge cuts - even the mix between the two is huge."

Sullivan told lawmakers that the governor's proposals would not only balance the budget but leave the state with a cushion of cash reserves. Brownback's budget assumes Kansas can raise $530 million by selling off its rights to tobacco settlement dollars, which amount to between $55 million and $60 million a year.

Children's advocates fiercely oppose the idea because tobacco dollars currently finance early childhood education and child health programs, and they said they don't trust Brownback's promises to continue funding them with tax dollars. House Majority Leader Don Hineman, a Dighton Republican, also said lawmakers have little appetite for a decades-long financial deal "on terms that favor the investment bankers."

"There were some areas that probably are not going to be well received by some members," said House Appropriations Committee Chairman Troy Waymaster, a Bunker Hill Republican.

Brownback's proposals would raise taxes and fees for business owners by nearly $74 million a year, starting in 2018. They would start paying taxes on royalties and rents exempted under the 2012 tax break, and the annual filing fee for for-profit companies would rise to $200 from $40.

The House Taxation Committee already has drafted a bill to end the full 2012 tax break as a way to raise $260 million a year. Chairman Steve Johnson, an Assaria Republican, said the governor's proposals are a starting point, but, "My guess is we still have to go farther."

Brownback also wants to increase the state's cigarette tax by $1 a pack, to $2.29. The state would double its liquor enforcement tax - which consumers pay when they buy liquor, wine and beer - to 16 percent.

Legislators have talked for weeks about liquidating a state investment fund set up with idle tax and fee dollars in 2000 to boost the state's interest earnings.

Brownback's plan would do that, then make an internal loan to education, social service, public safety and other general government programs to help close the current budget's shortfall. The state would pay the loan back over seven years.

The goal would be to avoid deep and immediate spending cuts, but some GOP legislators want to consider reductions.

"We have to quit moving money around," said Senate Ways and Means Committee Chairwoman Carolyn McGinn, a Sedgwick Republican.

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

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