03 Feb 2024 Kansas Legislature Update – Week Four
Following Governor Laura Kelly’s swift veto of the Republican tax bill, House Bill 2284, legislative leadership worked this week to whip together sufficient votes for an override effort which will require a 2/3 supermajority vote in both the House and the Senate. The bill includes many provisions, but the key element distinguishing the bill from Governor Kelly’s tax plan is the inclusion of a single rate income tax at 5.25 percent (currently two rates exist). This provision was the cause of the governor’s veto. The bill would cost the state $1.6 billion in lost revenues over the first three years. An override vote is likely to be taken up by the House on Tuesday, February 6.
Alternatively, the Governor Kelly’s tax plan was introduced in the House (HB 2586) and the Senate (SB 377). The Senate Tax committee held a hearing on the bill this week, where industry stakeholders took a neutral position.
This week, committees held hearings on unemployment insurance legislation, workers compensation max benefits, various tax bills, and a myriad of other issues. We continue to hear that this will be a short session, with a goal of a quick adjournment after passage of a tax bill and state budget. Knowing this, stakeholders are scrambling to get their bills passed out of committee.
Eminent Domain Legislation
The following bills concerning eminent domain have been introduced:
SB 312 – requiring county commission approval before exercising eminent domain authority.
SB 417 – removing eminent domain authority from the secretary of wildlife and parks. The bill was referred to the Senate Committee on Agriculture and Natural Resources.
SB 443 – requiring landowners whose land is taken by eminent domain for electric transmission lines to be compensated at not less than fair market value multiplied by 150%.
HB 2136 – allowing for an income tax subtraction modification for sales of property subject to eminent domain.
HB 2621 – prohibiting public utilities from exercising eminent domain for siting solar facilitates. Introduced at the request of Kansas Farm Bureau.
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 discontinuing state property tax levies for the Kansas educational building fund and the state institutions building fund.
– Senate Bill 97 increasing the exemption for residential property from the statewide school levy from $40,000 to $65,000.
– Senate Bill 196 transferring money 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.
– Senate Bill 327 excluding 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 transferring state general funds into the LAVTRF in fiscal year 2025 and all fiscal years thereafter, and requiring the funds to be distributed directly to residential property taxpayers.
– SCR 1611 amending 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.
– SCR 1613 amending the Kansas constitution to decrease the residential property assessment rate for determining property taxes.
Personal Property Tax Renditions, Reduced Penalties for Failing to File
Last year, the legislature passed Senate Bill 8 to reduce penalties for the late filing, or failure to file, personal property renditions annually to the county appraiser. The bill was important to the grain elevator and biofuel industries following a 2022 Kansas Court of Appeals decision finding that grain elevator machinery and equipment should be property classified as personal property rather than as fixtures to the realty. The bill was amended to allow county appraisers to waive late penalties, and for penalties to be set aside if the machinery and equipment was previously classified as real property. Following passage of the bill, it was placed into a conference committee report with a dozen other bills which caused it to be vetoed by Governor Kelly. This week, the Kansas Grain and Feed Association and Renew Kansas Biofuels Association provided an informational update to the House Tax Committee, which looks to take this bill up again this year.
Sales Tax Exemption on Installation Services for Reconstruction, Repair to Property
House Bill 2585, introduced this week in the House Tax Committee, would create a new sales tax exemption on services for installing or applying tangible personal property for the reconstruction, restoration, remodeling, renovation, repair or replacement of a building or facility. This tax exemption currently exists for similar services on residential structures. This bill would equalize tax treatment for work performed on commercial and industrial buildings. A hearing on the bill is scheduled for Wednesday, February 7 in the House Tax Committee.
Utility Cost Recovery Legislation
Kansas’ largest energy generating company, Evergy, introduced HB 2527, a bill that would make significant changes concerning cost recovery. A hearing on the bill will be held on Tuesday, February 6 in the House Utilities Committee. The bill would make the following changes:
- 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.
Other Utility Legislation
HB 2588 introduced on behalf of “Clean Energy Business Council,” the bill would increase the capacity limitation for the total amount of facilities subject to net metering that may operate within the service territory of investor-owned electric utilities. It would require facilities to be appropriately sized based on the customer’s average load and establishing requirements for exporting power to a utility from a facility subject to net metering. The bill was a compromise between the council and Evergy. A hearing was held in the House Utilities Committee on Thursday, Feb. 1. A companion bill (SB 422) was introduced in the Senate.
HB 2591 – exempting the Kansas Corporation Commission from Kansas open meetings act (KOMA) concerning docketed proceedings. The bill is intended to allow the KCC members to communicate and deliberate issues without violating KOMA.
HB 2597 – extending Kansas corporation commission timelines for making determinations on proposed rate-setting for electric generating or transmission facilities. The bill was introduced on behalf of ratepayer stakeholders.
HB 2620 – establishing a rebuttable presumption against retirement of fossil fuel-fired electric generating units, and requiring KCC to report on such retirements. A companion bill was introduced in the Senate.
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. While no further action was taken on the bills last session, similar legislation was passed in multiple states. Across the Midwest, state lawmakers are proposing legislation to prevent foreign companies and individuals from buying agricultural land. New bills have been filed in several states, including Nebraska, Iowa, Illinois, Missouri and Michigan. Last year, proposals were introduced in more than 35 states and 10 new states adding restrictions. A key provision being debated in Kansas is whether the legislation will be retroactive, to require the divestment of properties currently owned by companies located in certain foreign nations. The House will be considering various foreign adversary bills this session, 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. This session, House Ag Committee Chairman, Rep. Ken Rahjes, introduced HB 2638, which is supported by the ag industry. This bill was referred to House Commerce Committee, where it is likely to be combined with various other bills that go beyond agricultural land. An informational hearing on this bill, and similar legislation, will be held in the House Commerce Committee on Wednesday. Additionally, Senate Bill 446 was introduced in the Senate Committee on Federal and State Affairs. The bill would prohibit foreign adversaries from purchasing land after July 1, 2024 unless authorized by a state land council.
Animal and Ag Facilities Protection
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 introduced SB 389 to amend the law to apply to physical trespass or making a false statement on an employment application to gain entry. A hearing has not yet been scheduled.
Workers Compensation Permanent Disability Benefit
Last session, the Senate Commerce Committee held a hearing on Senate Bill 38 to 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. Permanent total disability is paid out over time using an average weekly wage up to the statutory cap. While the bill did not advance, additional conversations were held between labor and industry. This year, stakeholders introduced SB 430 which, during a joint hearing on Thursday in the House and Senate Commerce Committees, was presented as a compromise bill between industry and labor stakeholders. Final committee action on the bill will be taken on Wednesday, February 7.
Unemployment Insurance Updates
House Bill 2570 was introduced this week by House Commerce Committee Chairman Rep. Sean Tarwater. This comprehensive bill would amend the Kansas employment security law by defining “benefit year”, “temporary unemployment” and other terms in the law. It would also require electronic filing for certain employers, establish qualifications for employment security board of review candidates, extend the deadline for new accounts following business acquisitions, make certain changes to the employer rate schedules, enable employers to report claimant work search issues, confirm legislative coordinating council oversight for the new unemployment insurance information technology system implementation, authorize the secretary to grant temporary unemployment, require the secretary to annually publish certain data, and abolish the employment security interest assessment fund. A joint hearing on the bill is scheduled for Monday, February 5 before the House and Senate Commerce Committees.
Rules and Regulations
House Bill 2648 was introduced to revise the rules and regulations procedure for state agencies. The bill adds protections for industry by requiring an agency proposing new regulations which have an economic impact greater than $1 million over the first five years to introduce, and pass, a bill by the full legislature. If the agency fails to complete a proper economic impact statement, the director of the budget must reject the proposed regulation. The amendments are intended to provide protections for industry against burdensome, restrictive, and expensive regulations, or regulations which exceed legislative intent. The bill will be scheduled for hearing in the House Commerce Committee.
Sales Tax, Origin Source Determination
House Bill 2566 would create an origin-source rule for determining where a sale takes place for purposing of assessing a sales and compensating use tax rate. While Kansas is currently a destination-based state for determining sales tax rates, it was previously a point of origin of the sale (origin-source) state. Kansas changed to a destination-based state when it joined a multi-state sales tax compact a few decades ago. It is argued that the bill will ease sales tax compliance for Kansas businesses.
Train Max Length, Set Back Distances, and Blocked Crossings
Last year the Senate passed Senate Bill 271, which would create a maximum train length (8500 feet) in Kansas, and require railroads to maintain a minimum distance of 250 feet between a near-edge railroad crossing and stored railroad rolling stock at crossings. The bill was referred to the House Transportation Committee with Chairman Shannon Francis (R-Liberal). There may be separate legislation limited to blocked crossings. This month, the US Supreme Court refused to review a decision from the Ohio Supreme Court which ruled that an Ohio law preventing blocked crossings was preempted by federal law. The state of Kansas had joined in that appeal.
Two Person Train Crew Legislation
In 2023, the Kansas department of transportation (KDOT) passed a regulation requiring at least two crew members in each lead locomotive operated in Kansas. In response to that regulation, SB 402 has been introduced to prohibit KDOT from regulating crew sizes for class II and class III railroads.
State Conservation Fund
This week, the House Committee on Agriculture held a hearing on House Bill 2541, a bill that 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% 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. The bill is not likely to advance this year.
Nuisance Abatement
In 2021, Senate Bill 52 was enacted to grant 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. As the law was set expire this July, Senate Bill 362 was introduced to remove the sunset provision. The Senate Committee on Local Government held a hearing on the bill and passed it out favorably. In addition, an informational hearing was held on Senate Bill 162, a bill that would create a similar nuisance abatement authority in Riley County. This bill includes agribusiness exemption language that ag stakeholders secured in the Sedgwick County law. The committee will take the bill up for further discussion and possible action on Thursday, February 8.
Hemp Grain
As introduced, 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. This week, the committee amended the bill to remove all the proposed language and replace it with language that reduced hemp license and registration fees. The bill was passed out of committee as amended.
Retailer Sales Tax Collection Tax Credit
SB 41 would create a sales and use tax remittance credit for retailers. The bill is intended to compensate retailers, in part, for their work in collecting and remitting sales taxes to the state. The credit would be an amount equal to 1.5 percent of the amount of sales and use tax being remitted by the retailer, with a monthly cap of $300 per retailer. The Senate Tax Committee passed the bill out favorably.
Third-Party Funded Litigation
House Bill 2510 was introduced 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 House Judiciary Committee held a hearing on the bill on January 31. Kansas Grain and Feed Association and Kansas Agribusiness Retailers Association provided proponent testimony.
Defining Lead-Free Pipes and Amending Solid Waste Management Fund
Senate Bill 331 was introduced to remove an exception for leaded joints from public water supply system laws. The bill would also update terminology relating to hazardous waste generated by certain persons. The bill would also amend the solid waste management fund, administered by KDHE, to allow it to be used to reimburse counties or cities who conduct programs for the collection of “agricultural pesticide wastes” along with other household hazardous wastes. This week, the Senate passed the bill favorably on a vote of 34-0. The bill was transferred to the House and referred to the House Committee on Agriculture. A companion bill, HB 2486 was introduced in the House.
House Water Committee Update
This week, the House Water Committee received an annual fiscal report presentation from Ground Water Management District 3. Then, on Thursday, the Committee held a hearing on HB 2459, a bill that would prohibit changing the point of diversion of a water right if such change would cause the safe yield of the source of water supply to be exceeded. In addition, four new water bills were introduced this week. Bill numbers will be assigned on Monday, and the bills will receive hearings soon:
RS 2915, Rep. Cyndi Howerton – seeking clarity on what “advise & assist” means when discussing the GMD’s and the Chief Engineer. Section M of the statute
RS 2824, Rep. Lindsay Vaughn – Re the role of GMDs in relation to water conservation areas and the approval of those
RS 2823, Rep. Lindsay Vaughn – allowing a required number of eligible voters to petition the chief engineer directly to leave a GMD
RS 2825, Central Kansas Water Bank Association/GMD 5 – amending the Kansas Water Bank Law
House Water Committee Agenda for Next Week
Tuesday, Feb. 6: Hearings scheduled on HB 2633 and HB 2634.
Thursday, Feb. 8: The committee will take final action on HB 2633 and HB 2634 and will hold a hearing on a bill amending the Kansas water bank law (not yet assigned a bill number).
Point of Diversion Exceeding Safe Yield
Representative Kenny Titus (R-Manhattan) introduced House Bill 2459 to amend the Kansas water appropriation act. The bill would prohibit changing the point of diversion of a water right if such change would cause the safe yield of the source of water supply to be exceeded. It was acknowledged that the purpose of the bill – to stop water users from “chasing water” could be accomplished through a DWR regulation. The House Water Committee held a hearing on the bill on Thursday, which drew no proponents. There were approximately 14 opponents representing water users of all types from around the state. Following the hearing it was understood that the bill would not move forward, but that the issue might be addressed through agency regulations.
LEMA Corrective Controls
This week, HB 2634 was introduced in the House Water Committee. The bill was described as allowing MYFA-like flexibility in an IGUCA or LEMA that is established or amended by an order of the Chief Engineer. Such flexibility is currently only allowed in water conservation areas (WCA). The bill would provide an additional corrective control provision for the chief engineer to consider when issuing orders of designations for local enhanced managements areas and intensive groundwater use control areas. A hearing on the bill is scheduled in the House Water Committee on Tuesday, February 6.
Water Structure Licensing Fees
This week, KDA requested introduction of HB 2526 amending the Stream Obstruction Act. The legislation would install graduated agency inspections of dams, based on hazard level. The bill would also provide KDA authority to assess civil penalties for lack of action on non-compliance issues and allow KDA to assess registration fees and increase permit fees. The bill is in the House Water Committee where it has not yet been scheduled for a hearing.
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. Similar legislation has been introduced this year that 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 bill includes provisions that offset potential increases in tax liability for some companies, such as a “New Jersey model” tax credit for deferred tax liability. The bill was introduced this week in the House Tax Committee. While the bill does not yet have a bill number assigned, a hearing is tentatively scheduled for Wednesday, February 14. Additionally, it is understood that the KS Dept. of Revenue may be introducing a separate bill.
Other Bills of Interest
SB 376 extends the time period for single city port authority income tax credit. Hearing in Senate Tax on Thursday, 2/8/2024
HB 2590 increasing maximum penalty authority for pipeline safety violations imposed by KCC
HB 2610 providing an income tax subtraction modification for sales of property subject to eminent domain
HB 2633 providing for additional sources of revenue for water pgm management fund
HB 2651 Requiring a third party that causes damage to crops or land to notify the landowner of such damage, and to reimburse such landowner
HCR 5017 constitutional amendment to grant counties home rule powers
HCR 5021 constitutional amendment to reduce ad valorem residential property assessment to 9%
HCR 5022 constitutional amendment classifying all-terrain vehicles for tax purposes
HCR 5024 constitutional amendment reserving the power of initiative to the people of Kansas