Gov. Kelly’s budget tackles Medicaid expansion, KPERS reform and deflates ‘Bank of KDOT’

TOPEKA — Gov. Laura Kelly shared budget proposals with the Legislature on Wednesday calling for investment in public education, infrastructure and economic development while appealing for expansion of Medicaid, assessing a tax for online sales and shrinking the state’s reliance on withdrawals from “Bank of KDOT.”

Tenets of the Democratic governor’s recommendations for the fiscal year starting in July were familiar to returning members of the Republican-led House and Senate, which previously rejected Medicaid reforms and deflected proposals to help alleviate the state’s short-term cash flow by adjusting obligations to the Kansas Public Employees Retirement System.

“Nothing was too surprising. It was very similar in respect to what was released last year,” said Rep. Troy Waymaster, a Bunker Hill Republican and chairman of the House Appropriations Committee. “Why are we trying to resurrect components of a budget that is not likely to pass?”

In a briefing on the budget at the Capitol, legislators posed a series of questions that acknowledged their disenchantment with the governor’s reform agenda.

Adam Proffitt, the governor’s budget director, presented an outline of the state budget to House and Senate committee members. He described it as a plan that invested in core government services such as education and roads. He said it would be a positive influence on recovery from business interruptions and job losses tied to the COVID-19 pandemic.

He said the budget protected K-12 public schools, financed Medicaid expansion, modernized the state’s computer networks and left a potential treasury balance of $600 million in June 2022.

“The two words … are fluid and uncertainty,” Proffitt said. “The economic outlook, while improving, is still uncertain. We’re going to make sure that we are maintaining a laser focus to preserve a healthy ending balance. It’s important because ending balance is really the first line of defense against any economic downturn.”

The budget presented to senators and representatives would expand the state’s Medicaid program, called KanCare, to as many as 165,000 low-income Kansans. If the Legislature consented, an unlikely prospect in 2021, expansion would occur Jan. 1, 2022. On an annual basis, the state could be expected to spend $30 million to $40 million to draw down about $1 billion in federal health care services, given the U.S. government pays 90% of extra costs. A dozen states, including Kansas, have not broadened access to Medicaid. The two most recent expansion states were Missouri and Oklahoma.

“Even though the makeup of the Legislature has significantly changed, I’m thrilled to see that the governor is continuing to push forward with the desperately needed Medicaid expansion,” said Rep. Kathy Wolfe Moore, a Democrat from Kansas City, Kansas.

Kelly asked legislators to approve reamortization of the unfunded actuarial liability of KPERS. It’s an idea lawmakers rejected twice before and a concept the KPERS board of trustees has yet to embrace. Kelly requested the maneuver to reduce annual payments into the retirement system by stretching obligations out over an extra decade. Her strategy would free $158 million in the upcoming fiscal year for economic development, infrastructure, heath care and other priorities. The restructuring would add about $4.6 billion to taxpayers’ obligations to KPERS.

Under the governor’s budget, cash transfers out of the state highway fund that escalated during the administration of Gov. Sam Brownback would be reduced by half to $66 million in the upcoming fiscal year and the practice would be ended in the subsequent fiscal year.

The state government with the blessing of Republican and Democratic governors has weathered revenue shortfalls by raiding cash reserves the Kansas Department of Transportation. Kelly vowed to close “Bank of KDOT” by the end of her four-year term and to protect the new Eisenhower transportation program adopted by the 2020 Legislature.

Kelly’s budget would improve financial assistance to public schools following years of litigation, a schedule that would boost state aid by $388 million over the next two fiscal years. The financial resources would be appropriated to school districts statewide despite fiscal challenges brought forth by the pandemic.

“All Kansans benefit from good schools, a strong infrastructure and access to affordable healthcare,” Kelly said. “This fiscally responsible budget protects the critical resources, services and programs Kansas communities and businesses need to recover and emerge from this pandemic stronger than ever.”

Kelly also proposed the state delay repayment of a no-interest loan from the state’s Pooled Money Investment Board for another two years and then spread out repayment over a 10-year period. She proposed the state initiate a $42 million annual compensating use tax on digital transactions to bring brick-and-mortar sales in line with online merchants. The governor also sought adoption of a sales tax on so-called marketplace facilitators, such as Amazon, involved in online sales to bring in $43 million annually to the state.

“Kansas is ranked about dead last as far as tax burden goes,” said Rep. Sean Tarwater, a Republican from Stilwell. “Are we offsetting this additional tax burden?”

Kelly renewed a request to merge two state agencies — the Kansas Department for Children and Families with the Kansas Department for Aging and Disability Services. The Legislature previously declined to endorse the merger. The budget also includes $16 million for the Kansas Highway Patrol to buy two new helicopters and a single-engine airplane. She also seeks to expand a prison facility in Winfield to accommodate elderly and chronically ill inmates, while a project in Lansing’s prison would create a substance abuse treatment program for inmates.

Rep. Ken Corbet, a Topeka Republican, said he was disappointed the governor’s budget offered nothing specific to incentivize people to stay in Kansas or move to the state to raise a family.

The governor’s budget would devote $37.5 million in federal funds to modernize the state’s computer system for handling unemployment insurance system. The Kansas Department of Labor’s network was overwhelmed early in the pandemic as a record volume of people claimed jobless benefits.

She also included $2 million for IT systems providing electronic health records at the Kansas Department for Aging and Disability Services, $3.1 million to replace the state’s juvenile and offender management information systems and $4.1 million for the office of informational technology services.