20 Jan 2024 Kansas Legislature Update – Week Two
This week, while many new bills were being introduced, the Kansas legislature’s main focus was on assembling a tax bill to send to Governor Laura Kelly.
On Thursday, lawmakers passed Conference Committee Report on House Bill 2284 which includes a single (5.25 percent) income tax rate on individuals, an increase to the standard deduction, residential property tax relief and a 0 percent sales tax rate on food beginning in April of this year.
The bill, which would cost the state $550 million ($1.6 billion over the first three years), is likely to receive a swift veto due to the governor’s firm opposition to the single income tax rate provision. The bill failed – by two votes – to receive a supermajority of senate support, but a veto override may still be possible.
Renew Kansas 2024 Day at the Capitol
On Tuesday, January 16, Renew Kansas Biofuels Association held a successful annual Day at the Capitol, where members were able to present our most pressing issues to Governor Laura Kelly, House and Senate leadership, and KDHE Deputy Director Leo Henning. Despite the sub-zero temperatures, this year was one of our most well-attended legislative events. Many thanks to those who were able to attend. Please contact the association to receive a copy our group photo with Governor Kelly.
Property Tax Relief
Property tax relief is a top priority of the Governor, and Republican and Democrat legislators in both the House and Senate. Much of that relief is likely to be specifically focused on residential property owners. Here are just a few of the proposals being discussed:
– Senate Bill 94 would discontinue state property tax levies for the Kansas educational building fund and the state institutions building fund.
– Senate Bill 97 would increase the exemption for residential property from the statewide school levy from $40,000 to $65,000.
– Senate Bill 196 would reinstate transfers from the state general fund to the Local Ad Valorem Tax Reduction Fund (LAVTRF). The transfer is based on 3.63 percent of the state general fund portion of retail sales and compensating use taxes collected in the previous calendar year. The bill would cost the state $119 million. The last transfer to the LAVTRF occurred in fiscal year 2003, but the legislature has routinely suspended transfers every year since. The Senate Tax Committee held a hearing on the bill this week.
– Senate Bill 327 would exclude social security payments from household income and increase the appraised value threshold for eligibility of seniors and disabled veterans related to increased property tax homestead claims. The bill would also amend the golden years homestead property tax freeze program.
– Senate Bill 332 would authorize a transfer from state general funds into the LAVTRF in fiscal year 2025, and all fiscal years thereafter, and require the funds to be distributed directly to residential property taxpayers in the form of a rebate.
– SCR 1611 would amend section 1 of article 11 of the Kansas Constitution to limit annual increases in real property valuations to 4 percent. The bill would require a ballot question for voters to approve the measure during the next state-wide election. The Senate passed the bill last year and it is now with the House.
– SCR 1613 would amend section 1 of article 11 of the Kansas constitution to decrease the assessment rate of residential property in determining property taxes.
Kansas Utility Rates
On Thursday, the House Energy and Utilities Committee received a presentation on electric utility rates from the Kansas Corporation Commission (KCC). The KCC approves all utility rates charged by regulated utility companies in the state of Kansas. The presentation showed that Kansas continues to have higher electric utility rates, to include industrial utility rates, than other Midwest states accept Minnesota and Colorado. However, the data did show that utility rates did begin to recede slightly (1.9 percent) in October of last year. Also, when all additional charges, and surcharges are added on, the monthly energy bill Kansans receive is much closer to other states. KCC indicated that utility rate setting is a “total cost of service” calculation, meaning it is the total cost of generating the energy divided by the total number of users. Kansas’ low population is a driving factor for why Kansans have a higher individual costs than many other states, as the fixed costs of generating the electric power in Kansas are shouldered by fewer rate payers.
Evergy Introduces Utility Cost Recovery Bill
On Thursday, Kansas’ largest energy generating company, Evergy, introduced HB 2527, a bill that would make four significant changes concerning cost recovery:
- Allow plant-in-service-accounting (PISA), to allow Evergy to collect depreciation expense and return for assets once they are used and useful, versus the current practice of including assets during a rate case proceeding. This change would increase rates without a customer benefit.
- Capital structure changes. In the 2023 rate case, the KCC used Evergy’s corporate holding company capital structure (ratio of debt and equity) for rate setting. This resulted in a significant portion of the rate decrease for Evergy Metro. This provision would require the KCC to only use the capital structure of the operating company, which would increase rates.
- Pre-determination changes. This section creates an opportunity to use a construction-work-in-progress (CWIP) tracker to increase revenues and earning opportunities when constructing a new gas generation facility. This change would increase rates and put additional risk on customers to finance projects.
- Eco/Devo rate changes. This would increase load sizes (from 300kW to 25MW) which allow customers to be eligible for higher discounts and extend the length of discounts from 5 to 10 years. The proposal also deletes the current option to track and defer program costs. This provision will increase rates, but the increased load would lower rates over time.
Prohibiting Foreign Ownership of Real Property
Last session, multiple bills were introduced to prohibit the conveyance of real property in Kansas to “foreign adversaries”, as the term is defined by federal law (Senate Bill 283, and House Bill 2397). This issue is a high priority item for Kansas Attorney General Kris Kobach and House and Senate leadership. The Senate Judiciary Committee held a hearing on SB 283 before amending it and placing the contents of the bill into Senate Substitute for House Bill 2069. While no further action was taken on the bills last session, similar legislation was passed in multiple states. One key provision being debated is whether the legislation will be retroactive, which would potentially require the divestment of properties in our state currently owned by companies located in certain foreign nations. The House will be considering various foreign adversary bills, including prohibiting entities deemed “countries of concern” from purchasing land located within 150 miles of a military installation. There may also be legislation prohibiting the selling of drones in the state that are from a country of concern or made with parts from a country of concern. Heightened attention on this issue comes hard on the heels of a cyberattack on the Kansas state judicial computer system last fall by Russian hackers. This week, the Chairman of the House Committee on Agriculture, Rep. Ken Rahjes, introduced a new bill that is based on HB 2397.
Animal and Ag Facilities Protection Legislation
In 2021, the 10th Circuit U.S. Court of Appeals found unconstitutional parts of a law – often referred to as the “ag-gag law” – that was intended to keep undercover investigators off the property of animal facilities with the intent of exposing certain activities at the facility. Critics of the law said that it criminalized undercover investigations to expose conditions at animal facilities. The law, which had been on the books since the 1990s, was held to be an unconstitutional violation of the right to free speech. In an attempt to make the law comply with constitutional requirements, animal ag stakeholders in Kansas are seeking to revise the law this year to apply to physical trespass only. We anticipate the bill being introduced sometime next week.
Workers Compensation Permanent Disability Benefit
Last session, the Senate Commerce Committee held a hearing on Senate Bill 38, a bill that would increase the maximum Kansas workers compensation benefits payable by an employer for permanent total disability suffered by an injured employee. Under current law, the maximum workers compensation benefit that is payable by an employer to an employee for permanent total disability is $155,000. The bill would have increased that amount to $350,000. Permanent total disability is paid out over time using an average weekly wage up to the statutory cap. Using the maximum average weekly wage, it would not reach $155,001. While the bill did not advance, additional conversations were held between labor and industry, and stakeholders are drafting new legislation for this session.
Rules and Regulations Bill
This week, the Kansas Chamber of Commerce requested introduction of a bill in the House Commerce Committee that would revise the rules and regulations procedure for state agencies. A bill number is not yet available.
Underground Petroleum Storage Tank Permits
This week, Senate Bill 336 was introduced which would remove the requirement for underground storage tank operating permits to be renewed annually. This week, the bill received a hearing in the Senate Committee on Agriculture and Natural Resources and the committee advanced the bill out with a favorable recommendation.
Nuisance Abatement
In 2021, Senate Bill 52 was signed into law granting the Sedgwick County Commission authority to order the abatement of nuisances from land within an unincorporated area of the county, and to recover any costs incurred from the landowner. KGFA and KARA successfully amended the bill to broadly exclude agribusiness facilities. The law was set to expire this July. This week, Senator Carolyn McGinn (R-Sedgwick) filed SB 362 to remove the sunset provision and make the law permanent. In addition, this week Riley County officials requested introduction of SB 162, a bill that would create a similar nuisance abatement authority in Riley County. This bill includes the agribusiness exemption language we included in the previous Sedgwick County law.
Single Sales Factor Apportionment
Kansas currently uses a three-factor system for apportioning income between states for corporate income tax purposes. Legislation was introduced in recent years to allow corporate taxpayers to elect which methodology to use when apportioning their corporate income between Kansas and other states in which it operates to determine tax liability. Past legislation would have allowed certain taxpayers to elect to use a single-sales factor apportionment formula to apportion their corporate income tax liability. While similar legislation will be introduced again this year, the bill will require corporate taxpayers to use the single factor sales method (after a two-year phase-in period), rather than allow for an election. The draft bill – which has not yet been introduced – will also include provisions to offset potential increase in liability for some companies, including, a tax credit for deferred tax liability using a “New Jersey model” and lowering the rate to the nearest 1/10th of a percent. The bill is still being fine-tuned and will be circulated to stakeholders prior to being introduced in the House Tax Committee.
State Conservation Fund Proposed
Late this week, House Bill 2541 was introduced, referred to the House Committee on Agriculture, and quickly scheduled for hearing on Monday, January 22. The bill would establish a “state conservation fund”, “working lands conservation fund”, “wildlife conservation fund,” and “Kansas outdoors fund.” These funds would be funded with (1) a sales tax carve-out from the sale of sporting good equipment, and (2) a transfer of up to $32M annually from sports wagering revenues deposited into the lottery operating fund. Section 2 of the bill would establish the working lands conservation fund (WLCF). Under the bill, the WLCF would receive 50 percent of the revenue in the state conservation fund annually. The WLCF would be administered by KDA’s Division of Conservation through agency rules and regulations. Government entities and non-profit entities would be able to apply for grants from the fund to be used for purposes that “benefit the natural resources of the state by promoting conservation on working lands” through a list of conservation practices set forth in the bill. It is our understanding that there is broad support for this legislation from the commodity groups in the state.
Hemp Grain
House Bill 2168 would add industrial hemp seed to the statutory definition of grain in the Kansas grain warehouse law. As no hemp ingredients have been federally approved for use in animal feed, and it is unknown whether hemp ingredients are safe for animals or can be utilized as a source of nutrition when consumed for extended periods of time. These questions should be answered before hemp is used for commercial feed purposes to ensure the safety of the public, animals, and the agricultural industry. The bill received a hearing in the House Committee on Agriculture last session where KGFA joined other stakeholders in opposing the bill. The committee has scheduled further action on the bill on Wednesday, January 24.
Kansas Promise Scholarship
Last year, Governor Kelly signed House Bill 2132 into law to expand the eligible fields of study under the Kansas Promise Scholarship Act to include transportation and commercial driver license training. Scholarships could total $8 million this academic school year, with the program likely reaching a statutory cap of $10 million next year as interest and demand for scholarships builds. This year, HB 2539 was introduced to amend the Kansas Promise scholarship act by removing the Kansas residency requirement for eligibility.
Third-Party Funded Litigation
Senate Bill 74 was introduced last session to require disclosure of third parties that fund litigation, and allow for joint liability of costs and sanctions against third-party funded litigants. It would also require certain discovery disclosures and payment of certain costs for nonparty subpoenas. The Senate Judiciary Committee will hold a hearing on the bill the week of January 29.