#1L OF AD THE ASTRA STAT PER ASPERA OF 29. 186 Governor Laura Kelly's Budget Recommendation Fiscal Year 2025 Presented By: Adam Proffitt Secretary of Administration & Director of the Budget January 11, 2024#2Agenda • • • • • • Accomplishments and Budget Priorities One Time Expenditures Sustainable Tax Relief Medicaid Expansion Investments in Core Policies Review and SGF Outlook 2#3Accomplishments • Accomplishments Made Together ~Partnering Together to Strengthen Budgetary Stability~ Closed the Bank of KDOT . Moved into new IKE transportation program Fully funded K-12 five years in a row • Retired nearly $2.0bil in debt ahead of schedule • • Budget Stabilization Fund at $1.7bil Maintained structural balance Provided hundreds of millions of dollars of tax relief Reversed previous budget maneuvers implemented during budget shortfalls Recently improved credit outlook from one rating agency, and a “AA” rating from another rating agency 3#4Budget Priorities Building on Momentum • • ~Partnering Together to Maintain Budgetary Stability~ Structural balance Healthy ending balances – SGF and Stabilization Fund Minimal base spending increases Utilize one-time revenues for one-time expenditures Optimize key policy areas . • • • Medicaid Expansion Sustainable and meaningful tax relief Early childhood education K-12 and workforce development • Water 4#5Consensus Revenue Estimates Consensus Estimate November 9, 2023 FY 2024 (Revised) FY 2025 Percent Change Amount Percent Change Percent Amount Change (6.8) % 86.7 (8.5) $ 4,550,000 1,470,000 52.000 1.0 % $ 4,700,000 3.3 % (2.3) (8.7) 1,380,000 53.000 6.4 % $ 6,072,000 0.1 % $ 6,133,000 (6.1) 1.9 1.0 % Income Taxes: Individual Corporation Financial Institutions Total Sales & Use Taxes: FY 2023 (Actual) Amount $ 4,507,007 1,504,575 56,944 $ 6,068,526 Retail Sales Compensating Use $ 2,776,857 802,991 Total $ 3,579,848 0.6 % $ 2,760,000 3.6 870.000 1.3 % $ 3,630,000 (0.6) % $ 2,610,000 (5.4) %! 8.3 1.4 % 885.000 1.7 $ 3,495,000 (3.7) % Other Excise Taxes: Cigarette $ 98,453 (10.0) % S 94,000 (4.5) % $ 90,000 (4.3) % Tobacco Products 10,358 1.8 10,700 3.3 10,900 1.9 Liquor Gallonage 24,351 (0.8) 24,000 (1.4) 24,000 Liquor Enforcement 83,675 0.8 84,500 1.0 85,000 0.6 Liquor Drink 14,951 8.7 15,900 6.3 16,300 2.5 Gas Severance 20.890 0.3 (300) (101.4) 6,900 2,400.0 Oil Severance 37,234 5.4 26,300 (29.4) 25,900 (1.5) Total $ 289,914 (2.4) % S 255,100 (12.0) % $ 259,000 1.5 % Other Taxes: Insurance Premiums $ 195,541 (0.4) % $ 207,000 5.9 % $ 212,000 2.4 % Motor Carrier 11.982 (7.3) 11.600 (3.2) 11.300 (2.6) Corporate Franchise 9,191 8.7 9,400 2.3 9,600 2.1 Miscellaneous 5,226 16.4 5,900 12.9 6,300 6.8 Total $ 221,940 (0.1) % $ 233.900 5.4 % $ 239.200 2.3 % Total Taxes $ 10,160,227 4.1 % $ 10,191,000 0.3 % $ 10,126,200 (0.6) % Other Revenues & Receipts: Interest Transfers & Other Receipts Agency Earnings $ 200,484 (1.194.467) 116,566 Total Total Receipts $ (877,417) 7,004.3 % S 380,000 37.6 (383,400) 66.6 95,900 52.4 % $ 92,500 89.5 % $ 310,000 67.9 (276,800) (17.7) 97,900 110.5 % $ 131,100 (18.4) % 27.8 2.1 41.7 % $ 9,282,810 17.3 % $ 10,283,500 10.8 % $ 10,257,300 (0.3) % 5#6One-Time Expenditures 6#7One-Time Expenditures Utilize One-Time Revenues to Pay for One-Time Expenditures ~Using Current Surplus for These Expenditures Avoids Millions in Future Interest Costs~ $1.0bil of the current surplus is tied directly to one-time enhanced federal dollars for KanCare during pandemic Quarter Ending Base Enhanced FMAP FMAP Title 21 Total Savings FY20 121.9 0.2 3.7 125.7 FY21 247.6 0.4 7.4 255.5 FY22 266.8 0.6 7.9 275.2 FY23 295.3 0.6 7.3 303.1 FY24 29.0 (0.0) 0.6 29.6 Total to Date 960.5 1.7 26.9 989.1 Governor is recommending using cash to pay for $1.3bil of one-time expenditures . Over $500.0mil for early debt retirement Over $500.0mil to pay cash for long overdue capital projects • Nearly $200.0mil for post secondary education projects • Over $80.0mil in community investment projects (e.g. - housing, infrastructure, etc.) 7#8One-Time Expenditures Utilize One-Time Revenues to Pay for One-Time Expenditures ~Using Current Surplus for These Expenditures Avoids Millions in Future Interest Costs~ Capital Projects • • • Hutchinson Correctional Facility - $377.6mil Topeka Correctional Facility medical/behavioral support building - $40.2mil KDOC Career Campus matching dollars - $20.0mil • KUMC Cancer Research Center - $75.0mil ($1:$1 private match) • KSU Ag Innovation Initiative matching dollars - $25.0mil • • FHSU Stroup Hall expansion for nursing workforce development - $15.0mil KHP Training Academy upgrades and new communication center - $17.2mil (SHF) Debt Retirement . Bond tender or defeasance for pension obligation bonds - $450.0mil • Various other bond early payment - $47.7mil • Capital lease prepayment - $10.9mil • ESU housing and union debt for student affordability - $12.7mil Community Investment . • • • Emergency housing matching dollars - $40.0mil World Cup operation matching dollars - $20.0mil Moderate Income Housing - $10.0mil KDHE small town water infrastructure grants - $10.0mil 8#9Sustainable Tax Relief 9#10Tax Proposal Bipartisan Tax Plan Will Reduce Tax Burden Across Most Major Tax Sources ~Will Provide $439.5mil of Direct Savings to Kansas Taxpayers in FY25~ Income Tax Relief Exempt Social Security income from state income tax for all taxpayers . • Does not just smooth the cliff - full elimination of this tax Produces taxpayer savings of $152.1mil in FY25 Increase the Kansas standard deduction for personal income tax • . Increased to $5k for individuals, $10k for married filing jointly, $7.5k for head of household Produces taxpayer savings of $90.5mil in FY25 Sales Tax Relief Pull forward date of eliminating state level food sales tax to 04/01/24 • • Add diapers and feminine hygiene products to the list of 0% tax items Produces taxpayer savings of $79.7mil in FY25 Add a back-to-school state-sales tax holiday • First weekend of August every year, saving taxpayers $4.8mil 10#11Tax Proposal Bipartisan Tax Plan Will Reduce Tax Burden Across Most Major Tax Sources ~Will Provide $439.5mil of Direct Savings to Kansas Taxpayers in FY25~ Property Tax Relief Increase residential exemption on 20 mills property tax . Exempts the first $100k of appraised value for residential homeowners • Produces taxpayer savings of $93.4mil in FY25 Tax Relief for Parents Childcare tax credit • Doubles the current credit, saving Kansas families $6.0mil per year Policy Axe the Tax Pull Forward of Start Date (04/01/24) FY24 FY25 FY26 FY27 FY28 20.8 72.6 - 1.2 7.1 7.1 7.1 7.1 152.1 120.7 124.4 128.1 90.5 70.4 71.1 71.8 6.0 6.0 6.0 6.0 13.0 7.4 7.5 7.6 4.8 4.9 5.0 5.0 93.4 98.2 103.2 108.5 22.0 439.5 314.7 324.3 334.1 Fem. Hygiene/Diapers Sales Tax Elimination Eliminate Social Security State Income Tax Standard Deduction Increase to $10k/$7.5k/$5k Childcare Tax Credit Bank Privilege Match Corporate Income Rate Reduction Back to School Sales Tax Holiday 20 Mills Residential Exemption Increase to $100k in TY24* Total Direct State Benefit (Millions) * 20 mills exemption does not reduce SGF revenues, but rather increases K-12 expenditures 11#12Additional Tax Relief Restore the LAVTRF Transfer ~Reinstatement of Transfer That Has Been Suspended for 20 Years~ • • Restore the LAVTRF transfer, beginning in FY25 $54.0mil revenue transfer to the counties Defrays property tax burden at local level KSA 79-2959 outlines the transfer mechanism • State has suspended this transfer since FY03 • • Recommendation will set the transfer amount equal to $54.0mil each year Will maintain distribution formula of 65% based on population and 35% based on valuations 12#13Medicaid Expansion 13#14Medicaid Expansion WA OR ID MT ND MN WI SD WY MI ME VT NH NY MA RI IA PA NE NV OH UT IL IN CA CO WV NJ KS VA MO KY DE NC TN AZ OK MD NM AR SC DC MS AL GA TX LA AK HI Adopted and Implemented Not Adopted FL Note: Wisconsin provides Medicaid coverage for parents, and childless adults, up to 100% of FPL https://www.kff.org/medicaid/issue-brief/status-of-state-medicaid-expansion-decisions-interactive-map/ 14#15Medicaid Expansion Governor Recommending Medicaid Expansion to Begin 01/01/25 ~Will Provide Access to High Quality Health Care for Approximately 150k Kansans~ Kansas is now one of 10 states that has not yet expanded Medicaid • Every state that shares a border with Kansas has expanded Medicaid • Voters in Missouri, Nebraska, Oklahoma, and South Dakota approved expansion • 70%-80% of Kansas citizens are in favor of Medicaid expansion Governor's plan addresses many of the concerns that have been brought forth in the past • Hospital surcharge and incremental federal dollars make this SGF neutral • Contains a work requirement • Proposal to cover health costs for incarcerated individuals, relieving county/local jail financial strain Provides needed mental health services to Kansans • Large portion of population anticipated to be in need of behavioral health and substance use treatments Medicaid expansion is a workforce issue • Provides for healthier workforce to keep employees on the job Assists small businesses who don't offer health insurance to retain employees • Create jobs and new revenues across the state 15#16Medicaid Expansion What's Been Said X It's too expensive SGF Neutral How it is Addressed Hospital surcharge to fund state share ✓ Federal Dollars to Cover Balance for 15 Years X Only helps "able bodied" people that don't work X Removes people from private insurance X Will pay for services for people from other states X Won't save rural hospitals X Feds won't support it long term ✓ Contains work requirement ✓ Most individuals are already working ✓ Contains premium assistance program Every state that shares a border with Kansas has expanded ✓ Will greatly assist rural hospitals ✓ Rural health advisory committee ✓ Program ends if federal share falls below 90% 16#17Education 17#18Early Childhood Care and Education Historic Investment in Early Childhood Care and Education ~Responding to Early Childhood Transition Taskforce Recommendations~ Governor is proposing $56.4mil to fund coordinated efforts for Early Childhood Care and Education Money will assist in ensuring adequate available slots across the state . • Funding in response to recommendations by early childhood transition taskforce $30.0mil for childcare capacity accelerator grants • • Have previously provided $55.0mil through one-time federal funds and private & local partners Has funded 5,655 new childcare slots across the state • With private match requirements, will infuse additional funds into the sector . Ability to continue to satisfy demand not met through first two rounds $15.0mil for sustainability grants, administered by DCF • • Will be used as direct support to existing childcare providers, especially home-based providers Goal is to provide approximately 3,500 providers with approximately $4,000 each in support $5.0mil for pilot program to address rural childcare needs in NW Kansas State dollars used as matching dollars for private philanthropic dollars to address childcare shortages 18#19K-12 Education Continue to Fully Fund K-12 at Constitutional Levels ~Marks the 6th Consecutive Year of Fully Funding K-12~ Recommending full funding for FY25 and FY26 • Allows for predictability for school districts when extending contract offers Includes expenditures associated with increasing the 20 mills residential exemption Professional Development State Aid to be funded at level requested by State Board FY22 saw no funding, but FY23 and FY24 are funded at $1.8mil ● • Governor is recommending funding of $3.7mil in FY25 and FY26 Mentor Teacher State Aid . • Current funding allows for stipend of $1,000, $500, and $250 for each year of mentoring Governor recommending full funding by adding incremental $1.0mil Will allow for stipend of $1,000 for each of the three years of mentorship Incremental $3.0mil to expand the Mental Health Intervention Team Pilot Program (MHIT) Began as $7.3mil program, covering 9 districts in FY19 • New funding will provide for total of $17.4mil, enough to cover over 100 districts 19#20Special Education Begin Plan to Fully Fund Special Education at Level Required by Law ~Add Incremental $74.9mil Each of Next 5 Years~ K.S.A. 72-3422 details the calculation by which the state is required to fund Special Education: • Section (a)(11) says "multiply the remainder obtained under subsection (a)(10) by 92%. The computed amount is the amount of state aid for the provision of special education and related services aid a school district is entitled to receive for the ensuing year." State has not met this statutory obligation since FY11 ● State share as a percent of excess cost has diminished over past decade • Schools have pulled from operating funds to cover special education requirements Governor's recommendation will allow us to reach the full statutory funding by FY29 Allows state time to advocate for greater federal support 20#21Special Education Begin Plan to Fully Fund Special Education at Level Required by Law ~State Has Not Met Statutory Obligation Since FY11~ Special Education Services State Aid, FY 2009-FY 2025 Excess Fiscal Year 2009 State Aid⭑ $427,718,409 Federal Aid** Total Aid Costs $- $427,718,409 89.5% 2010 367,427,058 2011 388,982,076 56,517,430 54,453,996 423,944,488 91.9% 443,436,072 95.7%*** 2012 428,133,154 396,920 428,530,074 86.6% 2013 430,426,151 430,426,151 84.7% 2014 428,702,584 428,702,584 82.996 2015 428,360,566 428,360,566 82.2% 2016 434,754,409 434,754,409 83.3% 2017 435,469,632 435,469,632 80.9% 2018 445,981,646 445,981,646 79.2% 2019 490,366,856 490,366,856 80.7% 2020 497,709,133 497,366,856 76.0% 2021 505,416,348 6,339,663 511,756,011 77.6% 2022 512,892,374 26,095,428 538,987,802 80.6% 2023 522,877,065 21,945,515 544,822,580 76.5% 2024 Est. 528,160,830 5,496,839 533,658,669 69.3% 2025 Allocation 2025 Gov. Rec. 535,518,818 535,518,818 66.4% 610,397,343 610,397,343 75.5% * State Aid includes transfers from SHF in FY14-FY18 ** Includes funding from ARRA in FY10 - FY12, and includes funding from ARPA in FY21 - FY23 *** Amount exceeded 92% due to funding to close shortfall in State's required maintenance of financial support 21#22Post Secondary Education Continue to Invest in Post-Secondary Education ~Current Academic Year Saw Increase in Enrollment of 1,006 Students~ Continuing to invest in strategic programs is an investment in the future of our workforce and economy Student affordability measures . Increase need-based aid funding by $14.1mil - brings Kansas to the regional median for funding • Early retirement of $12.7mil in ESU debt, to reduce student fees and housing costs . $5.0mil expansion of WSU student affordability, retention and work development Workforce Development • • • • $15.4mil for expansion of FHSU Western Kansas nursing workforce development program/building $2.0mil enhancement to Kansas nursing initiative - essentially doubles current funding $8.0mil continuation for community and technical colleges apprenticeship and business partnership Continue investments in NISS efforts to increase student retention and graduation rates Capital Projects • • • $20.0mil to capital renewal initiative ($1:$1 match) to build on previous efforts $10.0mil for facility demolition to continue right-sizing campus footprints $2.0mil for READing (dyslexia program) facility improvements on PSU campus Cybersecurity . $7.5mil for Regents institutions (one-time) . $6.5mil for community and technical colleges (one-time) 22 22#23Water 23#24Investing in the State's Water Supply Continue to Make Water a Priority ~Statewide Effort to Preserve and Increase Both Quantity and Quality~ The Governor is once again proposing to fully fund the State Water Plan Fund . Full statutory funding is the new baseline going forward • Recommendation also includes continuing the extra $35.0mil transfer from HB 2302 $5.0mil to Kansas State University for Water Institute • Establishment of campus-wide, interdisciplinary institute Additionally, $10.0mil in one-time funding to KDHE for Small Town Infrastructure Assistance Initial SPARK money fell short of demand . SGF & EDIF Transfers to the State Water Plan Fund 2023 Small Town Water and Wastewater Infrastructure Grant Projects Herndon Ingalls Copeland Narka Morland Rocks Co RWD 3 Falco Riley Co/University Park Sewer Benent District Hanston Albert Susank Holyrood Galva Sylvia Arlington Reno Co RWD 101 Olsburg SGF EDIF FY 2013 $ $ 2,000,000 FY 2014 $ $ FY 2015 $ $ 750,000 FY 2016 $ $ Miami Co/Bucyrus FY 2017 $ FY 2018 $ 1,400,000 $ $ FY 2019 $ 2,750,000 $ 500,000 FY 2020 $ 4,005,632 $ 500,000 FY 2021 $ 6,000,000 $ 913,325 FY 2022 $ 4,005,632 $ 1,719,264 FY 2023 $ 6,000,000 $ 2,000,000 FY 2024 Gov. Rec. Water Supply Project FY 2025 Gov. Rec. $ 41,000,000 $ 41,000,000 $ 2,000,000 $ 2,000,000 A Wastewater Project 24#25State Employee Pay 25#26State Employee Pay Recognize State Employee Contributions with 5% Statewide Pay Adjustment ~Continue to Keep Pace With Strong Labor Market~ Apply statewide 5% pay adjustment for state employees . 1 Market continues to adjust, leaving state employees behind • . Still recovering from years of little-to-no pay increases $68.9mil SGF, and $168.8mil all funds budget impact Set minimum starting wage of $15/hour for all state employees • . • This does not impact the state's minimum wage for the private sector employers Impacts 969 employees, with a current average hourly rate of $13.17 $2.0mil SGF and $3.0mil all funds budget impact 1 Excludes elected officials, Teachers at KSSB and KSSD, and employees on an approved career progression plan 26#27State Employee Pay - 24/7 Facilities Make 24/7 Pay Plan Permanent with Few Modifications ~Provides Sustainability to Plan that Has Stabilized Workforce~ Convert differentials 1, 2, and 3 into base pay • Minimal budget impact, as the spending is accounted for in agency allocations Leave differential 4 as a differential, but adjust the qualifying triggers . Add difficult to fill geography as a qualifier • Review efficacy of vacancy rate, study minimum staffing rates • Minimal budget impact, as the spending is accounted for in agency allocations Implement 7.5% pay adjustment for all 24/7 salaried employees • . • Other than one-time bonus in FY22, salaried staff have not received additional targeted pay increases Salary compression between hourly staff and salaried staff has stunted natural career progression $2.6mil budget impact - all from SGF All adjustments become effective 07/01/24 27#28Review 28#29Review of Budget Priorities One-time revenues for one-time expenditures Minimal base spending increases Maintain focus on debt reduction and structural balance Provide meaningful and sustainable tax relief for all Kansans Investments in key priorities • Expand Medicaid - SGF neutral Water preservation Early childhood care and education Fully funding K-12 education Special education 29#30SGF Outlook State General Fund Outlook (Dollars in Millions) FY 2020 Actual Beginning Balance $ 1,105.1 $ FY 2021 Actual 495.0 FY 2022 Actual FY 2023 Actual $ 2.094.8 $ 1.834.6 FY 2024 Gov. Rec. $ 2.410.4 FY 2025 Gov. Rec. $ 2.798.2 Revenues Taxes 7,049.1 56.1 8,908.6 7.8 9,758.1 2.8 58.3 64.8 89.7 10.180.2 200.5 116.6 10,169.0 380.0 95.9 9.780.1 310.0 97.9 Interest Agency Earnings Transfers School Capital Improvement Aid (203.4) (195.0) (200.7) (196.6) Highway Fund 231.8 133.7 66.9 Budget Stabilization Fund (81.9) (969.1) (613.0) PMIB Bridge Funding (132.2) (66.1) (66.1) KPERS (853.7) (271.1) All Other Transfers Total Revenues (65.6) 13.8 107.8 (113.7) (354.0) (381.4) $ 6,912.3 $ 8,867.7 Total Available $ 8,017.4 $ 9.362.6 $ 7,935.8 $10,030.6 $ 9,302.8 $11.137.4 $10,290.9 $12,701.3 $ 9,806.6 $12.604.8 Expenditures General Government 242.4 249.5 584.8 403.8 365.6 852.8 Judiciary 111.7 110.5 138.0 172.5 183.9 211.4 Human Services 748.9 683.9 711.0 977.7 1,419.5 1,152.4 Health Human Service Caseloads 1,107.4 994.4 1,134.7 1,217.4 1,465.9 1,511.8 K-12 Education 3.992.5 3.946.0 4,133.9 4.388.8 4.601.3 5.006.2 Higher Education 851.2 833.4 902.3 1,012.7 1,215.0 1,290.2 Public Safety 450.8 432.8 498.3 535.3 616.2 1,052.9 Agriculture & Natural Resources 17.6 17.5 92.9 19.0 35.7 29.3 State Employee Pay Plan 73.5 Total Expenditures $ 7,522.5 $ 7,267.8 $ 8,195.9 $ 8,727.1 Ending Balance $ 495.0 As Percentage of Expenditures 6.6% $ 2,094.8 28.8% $ 1,834.6 22.4% $ 2,410.4 27.6% $ 9,903.1 $ 2,798.2 28.3% $11,180.5 Budget Stabilization Fund Balance $ 81.9 $ 81.9 $ 969.2 $ 1,610.3 $ 1,685.7 $ 1,424.3 12.7% $ 1,757.5 One-Time Expenditures/Adjustments $ 1,048.5 $ 1.055.1 $ 1.379.5 $ 1.287.9 Totals may not add because of rounding. Revenues for FY 2024 & FY 2025 Recommendations reflect the November 2023 Consensus Revenue Estimate as adjusted by the Governor. Expenditures for the Recommendations reflect the November 2023 Human Services Consensus Caseload Estimate. Capital Improvement Aid shifting from a revenue transfer to become a demand transfer in FY 2024, thus moving from revenues to expenditures. Governor's FY25 base spending adjustments 2.2% increase vs. FY24 approved base budget After adjusting for one-time. expenditures, budget is structurally balanced 30#31AD ASTRA PER ASPERA Kansas Division of the Budget Budget.Kansas.Gov 31