2023 Kansas Statehouse Insider – Wrap-Up

Governor Laura Kelly presenting the signed short line railroad bill.

2023 Kansas Statehouse Insider – Wrap-Up

The final day of the 2023 Kansas legislative session occurred on April 28, when the legislature passed, and sent to Governor Laura Kelly, various bills including a large, multi-provision tax bill, and the constitutionally required K-12 education budget bill. The final sine die adjournment left no remaining opportunity for the legislature to override any veto of these bills.

Upon receiving the bills, Governor Kelly had 10 days to either sign, veto, or allow them to become law without her signature. On the final day to consider the large tax bill, the governor vetoed it, citing a controversial provision that would have granted property tax exemptions to certain businesses that had to compete with the government.

After that, all focus turned to the K-12 education budget bill. A veto of this bill by the governor would have required the legislature to return for a special session to either override the veto or pass a new bill. If a special session were called, then the legislature would also have been given an opportunity to override the veto of that tax bill or pass a new legislation altogether.

On Thursday, May 18, Governor Kelly signed the K-12 education budget bill into law. At the same time, however, the governor vetoed certain proviso (policy) language in the bill – essentially treating the bill as an appropriations bill, where the governor is granted line-item veto authority. Line-item vetoing portions of this bill was a unique action by the governor. Following this action, House and Senate leadership immediately called on Kansas Attorney General Kris Kobach to intervene, asserting that the governor had exceeded her constitutional authority.

We will continue to closely monitor the issue which could eventually be brought before the Kansas Supreme Court for resolution. Please find, below, a summary of the governor’s actions on other bills following final adjournment.

Annual Personal Property Tax Renditions

Following the 2022 Kansas Court of Appeals decision finding that grain elevator machinery and equipment should be classified as personal property rather than as fixtures to the realty, Kansas Grain and Feed Association lobbied in support of Senate Bill 8, a bill that would reduce statutory penalties for the late filing, or failure to file, of personal property renditions to the county appraiser. In addition, KGFA successfully amended the bill to mandatorily waive such penalties for machinery and equipment that was previously classified as real property. After the Senate passed the bill on a unanimous vote, the House amended the bill to add language to decrease penalties for failing to timely remit employee withholding taxes. Then, in a tax conference committee, contents of more than a dozen other tax bills were added to the bill to create Conference Committee Report on Senate Bill 8. One controversial provision that was added – referred to as the government competition bill – eventually caused the bill to be vetoed by Governor Laura Kelly. Because the legislature had already adjourned for the year there was no remaining opportunity to attempt an override of the veto and the bill died.

Short Line Rail Grant Program

In 2020, the legislature passed the Eisenhower Legacy Transportation Program which included a $15 million, three-year, cost-share grant program for qualified track maintenanceand improvements to short line rail and rail siding. Kansas agribusinesses have greatly benefited from this program. This year, in coordination with KDOT, Kansas Grain and Feed Association introduced House Bill 2335 to restructure the Short Line Rail Improvement Fund program to combine it with KDOT’s Rail Service Improvement Fund Program. The bill dedicates $10 million annually from the state highway fund for the program. Under the bill, grain shippers and other owners of rail siding adjacent to short line rail would be able to apply for program funding. The measure passed the House 117-5, and the Senate 38-2, with only Senators Alicia Straub (R- Ellinwood) and Mark Steffen (R-Hutchinson) opposing. KGFA joined other shippers in successfully lobbying the legislature to ensure that provisions from Senate Bill 271 were not added to the bill. Governor Laura Kelly has signed the bill into law, and the legislature has appropriated the new funding for state fiscal year 2024, beginning July 1. The Governor held a bill signing ceremony with industry representatives on Wednesday, May 17. Industry will soon meet with KDOT staff to discuss program details and application deadlines the next round of applications.

Minimum Two-Man Train Crew Regulation Proposed by KDOT

On May 4, Governor Laura Kelly announced that she had directed the Kansas Department of Transportation (KDOT) to propose an agency rule requiring railroads operating in Kansas to have at least two railroad crew members in the lead locomotive. Should the rule be finalized, Kansas would be the ninth state in the country with such a requirement. Before the regulation takes effect, it will be subject to a 60-day public comment period. On Thursday, May 18, the proposed regulation was officially published for review. KDOT has scheduled a public hearing for 9:00 a.m. on Monday, July 17, in the Eisenhower State Office Building, 4th Floor, Auditorium A, 700 SW Harrison St., Topeka, KS. Public comments on the proposed regulation can be submitted to KDOT through July 17.

Government Competition Tax Exemptions

Senate Bill 252 would provide property and sales tax exemptions to certain businesses located in cities where a facility owned or operated by the government competes against an establishment. Businesses qualifying for the exemptions would be limited to child care centers, entertainment businesses, exercise businesses, health clubs, recreation businesses, or restaurants. In order to qualify for the exemptions, the competing government operation would be required to have begun after the business started using the real property for the qualifying purpose. This controversial bill is the latest development in a longstanding debate over whether local governments are competing against the private sector. The bill was placed into Conference Committee Report on Senate Bill 8 and sent to Governor Laura Kelly. Governor Kelly vetoed the bill on May 12, and there was no remaining opportunity to attempt an override of the veto.

Omnibus Budget Bill

The legislature passed Conference Committee Report on SB 25 – the omnibus budget for state fiscal years 2023 and 2024. The bill passed overwhelmingly in the House and Senate. It is estimated to produce an ending balance for state fiscal year 2024 of nearly $2.6 billion – the largest ever for the state. Among other things, the bill directs an additional $18 million to the Kansas Water Office from the State Water Plan Fund; directs an additional $5 million to KDOT for the Rail Service Improvement Fund for increased assistance to short line railroads; and provides $120 million for state employee salary adjustments. Find a bill explainer here. Governor Laura Kelly signed the bill into law on May 15.

State and Local Tax Clarification

House Bill 2465 would clarify the determination of taxable income and the pass through of tax credits to electing pass-through entity owners for purposes of the state and local tax (SALT) parity act. The bill was introduced under the premise that the state department of revenue was not correctly applying the SALT parity act passed last year. The bill was placed into Conference Committee Report on Senate Bill 8 and sent to Governor Laura Kelly. Governor Kelly vetoed the bill on May 12, and there was no remaining opportunity to attempt an override of the veto.