By Dave Ranney, KHI News Service, January 05, 2010
TOPEKA — An advisory panel led by Revenue Secretary Joan Wagnon has a plan to generate almost $200 million in additional revenue for state coffers.
The plan by the Kansas Advisory Council on Intergovernmental Relations calls for repealing the state sales-tax exemption on residential utilities, which would raise an estimated $146 million a year.
The plan also calls for eliminating a range of other sales-tax exemptions.
"I don’t view these as new taxes," Wagnon said. "These are tax expenditures, they’re exemptions. When we exempt something it’s really no different than writing the outfit - whoever it is - a check for the amount that they won’t be paying."
"Most people don’t realize it, but they’re already paying the local (sales) tax," on utilities, Wagnon said. "This would put the state tax back on. It was there before."
Lifting the exemption on residential utilities, which would raise the most amount of money, would be less expensive to Kansas residents than a half-cent sales tax increase, Wagnon said.
"If you live in a house, a half-cent sales tax on the utilities you use would cost you less than a half-cent increase in the sales tax on everything you purchase."
Under the plan, residents would pay a half cent in tax for every dollar spent on gas, electricity, water and other utilities.
A half-cent increase in the state sales tax would generate about $168 million.
The plan also calls for raising:
For years, Wagnon said, well-meaning legislators have introduced sales tax-exemption bills aimed at helping charitable organizations in their districts.
Though politically popular, these bills, she said, have resulted in poor tax policy.
Wagnon cited the sales-tax exemption for Habitat for Humanity, a faith-based program dedicated to eliminating substandard housing and homelessness.
"Habitat for Humanity is a wonderful program. I contribute to it," Wagnon said. "But that’s not the point, the point is: Why Habitat for Humanity and not Mennonite Housing? They are just as deserving. So is it fair or right that one group is exempt and the other one isn’t? No, it’s not."
Other groups that are exempt include the Sunrise Rotary Club of Western Sedgwick County, organizers of the two-day Jazz in the Woods concert in Overland Park, and the Booth Theatre Foundation in Independence.
Wagnon said that in Kansas, more than 17,000 nonprofit groups are eligible - but have not applied - for sales-tax exemptions.
Advisory panel
Created in 2002, Kansas Advisory Council on Intergovernmental Relations includes elected county, city, township officials and local school board members. Eleven of the council’s 15 members are appointed by the governor. Four are appointed by House and Senate leadership.
Since its inception, Wagnon said, the panel members have called for a systematic review of the state’s tax policies, warning legislators that the tax base is shrinking and falling out of the sync with an economy that is becoming less dependent on manufacturing, more dependent on the service sector.
"One of the council members said, ‘If we put together $100 million worth of exemptions, I bet they’ll take a look at it,’" Wagnon said. "So we came up with almost $200 million."
Gov. Mark Parkinson has said he expects a $300 million shortfall in revenues for fiscal 2011, which begins July 1.
He’s also said he preferred increasing taxes - in particular, an increase in the state tax on cigarettes - instead of making additional cuts in Medicaid, schools or other government services.
Pushing the state’s 79-cent tax on a pack of cigarettes to $1.54 would raise about $53 million.
In November, Parkinson announced a 10 percent across-the-board cut in rates paid to Medicaid providers, a group that includes doctors, hospitals, pharmacies, nursing homes, and in-home services for the frail elderly and people with disabilities.
Overhaul needed
The gap between revenues and spending, Wagnon said, underscores the need for an overhaul of the state’s tax policies.
"There’s a lot of talk out there about how the public wants to see the budget cut and the growth of government cut," she said. "What we’re saying is that when we have those discussions, there ought to be talk about cutting exemptions as well."
The advisory council’s proposal also calls for an immediate, three-year moratorium on additional property- and sales-tax exemptions, and a thorough review of exemptions already on the books.
Wagnon said she’s heard from "five or six" legislators intent on proposing additional exemptions this year.
“The pipeline is never empty,” she said.
Tough to pass
Whether legislators are willing to embrace the plan remains to be seen.
The chairmen of the House and Senate taxation committees said they detected little or no support for lifting the exemption on residential utilities.
"A tax on residential utilities would be very difficult to pass," said Senate Assessment and Taxation Committee Chairman Les Donovan, R-Wichita. "I may be wrong, but I don’t see it getting out of committee."
"I can’t see raising taxes on people’s utility bills when a lot of them can’t afford what they’re paying now and when, with the onset of tighter environmental regulation, the costs are only going to go higher," said House Taxation Committee Chairman Richard Carlson, R-St. Marys.
Though Carlson and Donovan said they were willing to review exemptions granted to nonprofit organizations, they doubted many would be lifted.
Donovan sponsored legislation that waived the state sales tax on tickets purchased for an annual fundraising event for Guadalupe Clinic, a safety-net clinic in Wichita.
"I have a theory about what groups ought to be tax exempt," he said. "It ought to be those that provide services the state would have to provide if they didn’t."
The clinic’s exemption, Donovan said, lets it keep about $10,000 that otherwise would have gone to the state.
"That $10,000 goes straight to providing health care to the working poor - health care that’s provided by volunteer doctors," he said. "Can you imagine a better deal for the state? I can’t."
Donovan said he would fight "...tooth and tong not to let that go away."
Carlson and Donovan disagreed on the cigarette tax’s chances for passage.
"I’d say it’s pretty well on its way with the governor being behind it like he is," Donovan said. “There’s a good chance of something happening there.”
"I don’t see it passing or if it does, it will be very difficult," Carlson said. "I have a problem with taxing a product just because we don’t like it - even though it’s legal."
"The other thing, of course, is that Missouri’s (cigarette) tax is so much lower than ours," he said. "I’m sure we’ll be hearing from the (retailers) on the border about how it would affect them."
Carlson and Donovan predicted additional cuts in state spending.
Wagnon said she’s familiar with the arguments against lifting exemptions.
"This came up when I was in the Legislature - I think it was in 1992 - I ended up carrying a bill for eight hours that addressed a lot of the kinds of things we’re talking about now," she said. "When it was over, we hadn’t taken away a single exemption. We added one."
At the time, Wagnon was chairwoman of the House Taxation Committee.