Taxes, schools, Medicaid: What’s ahead as Kelly takes office and lawmakers return

Jan. 14--TOPEKA -- Democrat Laura Kelly's inauguration as Kansas governor will open an era of divided government and may lead almost immediately to a showdown with Republicans over taxes.

Kelly will take the oath of office at 11 a.m. Monday, just hours before the Republican-controlled Legislature convenes for the 2019 session.

Many GOP lawmakers want to move quickly to refund additional taxes that some Kansans may owe this year because of differences between state and federal law created when Congress and President Donald Trump overhauled the federal tax code. They say Kansas shouldn't keep this so-called windfall of extra revenue.

"It's unexpected money and we've got to give that money back to the taxpayers," said Senate President Susan Wagle, R-Wichita. She wants to pass a bill doing that within the first two weeks of the session.

Kelly said the state doesn't yet know whether additional revenue will materialize. Kansas is also still learning the full impact of rolling back the 2012 income tax cuts, she said.

"I've said all along that I wanted to do nothing to our tax structure. We don't know that there's a windfall," she said. She signaled she would be more open to tax discussions next year.

It's unclear how much additional revenue may flow into Kansas. An early estimate from the Kansas Department of Revenue from December 2017 pegged the amount at roughly $140 million this year. The true scope may not be clear until later this year after people file their taxes.

Kansas lawmakers expanded deductions for medical expenses and mortgage interest in 2017, but Congress then raised the standard deduction -- effectively taking those deductions away for many taxpayers, said Rep. Steven Johnson, an Assaria Republican who chairs the House Tax Committee.

"Good problem all in all, but it will result, potentially, in some folks having a very negative surprise in their Kansas income tax return and a positive surprise federally," Johnson said.

The changes to federal law also mean many Kansans can no longer itemize their taxes at the state level because they don't have enough income to itemize at the federal level, Johnson said. Some lawmakers are pushing to "decouple" the state and federal tax code and allow filers to itemize their state income taxes even if they can't itemize their federal taxes.

Rep. Jim Gartner, the ranking Democrat on the tax committee, said the Legislature looked at the windfall issue last year and no one was able to produce good numbers on how much money might be involved.

"I think we have to be very careful in looking at this and balancing what impact it would have on the state," Gartner said, adding that he supports decoupling, however.

School funding

Taxes may be an early flashpoint between the new administration and the Republican-controlled Legislature, but tensions may also flare over other topics.

Republicans are fearful that Kelly's agenda will ultimately prove financially unsustainable. They say they want to carefully evaluate the costs of programs and proposals.

Kelly has promised to pursue additional school funding in an effort to end a lawsuit over education spending that has bedeviled the Legislature for several sessions. Last year, the Legislature raised school funding by $525 million a year over five years, but the state Supreme Court faulted the plan for not accounting for increases in inflation.

Most lawmakers and officials agree adjusting for inflation will require approximately $90 million more a year. Kelly wants lawmakers to approve the funding increase, and Democrats are hopeful it can be done early.

"The court pretty much laid out what we need to do," House Minority Leader Tom Sawyer, D-Wichita, said.

Some Republicans are skeptical of additional funding, however.

"A large influx of money into any system can easily be wasted," Wagle said.

In the past, Republicans have sought a constitutional amendment that would limit the court's ability to review overall school funding levels. Wagle helped lead an unsuccessful effort last year that briefly brought the Senate to a halt.

Some Republicans are again discussing an amendment, but it's unclear how much support it would have.

Medicaid expansion

Kelly hopes to expand Medicaid in 2019 after supporters have tried for years.

House Minority Leader Tom Sawyer, D-Wichita, indicated Democrats will allow Kelly to take the lead on developing a plan that expands the state-run federal program that provides health care to people with low incomes or with disabilities.

For states that expand Medicaid eligibility to people who make up to 138 percent of the federal poverty level, the federal government pays 90 percent of the cost of expansion. For a family of four, 138 percent of the federal poverty level is $34,638 in annual income.

The Legislature approved expansion in 2017, but it was vetoed by then-Gov. Sam Brownback. Supporters weren't able to muster the votes to override the veto.

That year, 81 representatives voted to override Brownback's veto and force expansion into law. Sawyer estimates that supporters of expansion still have roughly 70 votes in the chamber. While 84 votes are needed in the House to override a veto, just 63 votes are needed to pass legislation.

Wichita Republican Rep. Brenda Landwehr, new chairwoman of the House Health and Human Services Committee, said she hasn't been as focused on Medicaid expansion as some lawmakers and wants more information about it.

Landwehr wants to look at what other states have done, the costs of expanding and what happened afterward. And she wants to talk to Kelly about expansion at some point, too.

"I think the discussion has to happen. I haven't been into it and I can't tell someone completely no when it's my responsibility without knowing the details," Landwehr said.

Kelly said she wants to go through the normal legislative process on Medicaid expansion but made clear there are other options to advance the legislation if necessary.

"There are ways, if people lock down, there are ways of making it happen," Kelly said, referring to legislative procedures to force debate on bills that supporters of expansion could use.

Child welfare

Although Kelly needs legislative approval to increase school funding and expand Medicaid, she can make numerous changes herself in how state government operates. Over the past two weeks she has named new agency leaders that in some cases indicate a new approach.

Kelly is installing a new leader at the Department for Children and Families, which oversees the state's foster care system. The system has been plagued by problems, from children sleeping in offices to high-profile child deaths.

The new leader, Laura Howard, was previously a regional administrator in a federal agency overseeing substance abuse and mental health services. Most recently, she was the director of the Public Management Center in the School of Public Affairs and Administration at the University of Kansas.

On Thursday, Kelly will unveil her budget proposal that will disclose whether she wants more funding for child welfare. This month, a child welfare task force that has met for more than a year will make recommendations to improve the system. DCF has also called for updates to its computer systems, which are called antiquated.

House Speaker Ron Ryckman, R-Olathe, is turning the chamber's children and seniors committee into a full-time panel that will meet every day of the session. The idea is for a committee "that can more fully address shortfalls in our foster care system and provide oversight to the services our children and seniors rely on," he said.

Voter fraud, pot

Beyond education, Medicaid and foster care, lawmakers may also make changes to how the state fights voter fraud. Both Attorney General Derek Schmidt and incoming Secretary of State Scott Schwab have endorsed eliminating the secretary of state's power to prosecute voter fraud.

Kris Kobach, the Republican nominee for governor in 2018 and the departing secretary of state, pushed for the power to prosecute. In 2015, he became the only secretary of state in the nation with prosecutorial authority .

Kobach prosecuted about a dozen cases, but Schmidt and Schwab agree future prosecutions are best handled by the attorney general's office.

"It will be more efficient for our professional prosecutors to handle voter fraud cases together with our other fraud and abuse cases rather than for the secretary of state to maintain separate prosecution capacity," Schmidt said.

Republicans and Democrats agree that lawmakers will spend more time talking about medical marijuana this year. Kansas is in the minority of states without some form of legalized marijuana, and Kelly supports medical use.

Landwehr said she expects her committee to spend time discussing the issue. She opposes legalization and says technology is expanding the number of marijuana-derived products that don't produce a high.

But she said she wants to hear the good and bad about marijuana.

"Let's have the discussion. If someone wants to come here, and they want to cram it through, that's just flat wrong," Landwehr said.

Sawyer said more and more lawmakers are discussing legalization. He believes lawmakers may be able to approve medical marijuana this year.

"I think there's a lot of momentum for that issue," Sawyer said.

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