By Jim O’Malley

Kansas Press Association

Legislative News Service

In his Monday night State of the State message to the Legislature, Gov. Bill Graves proposed increases in cigarette, sales and motor fuel taxes to make up for revenue shortfalls that would otherwise require cuts in state spending on education, social services and transportation.

Graves proposed a 65 cent per pack increase in the cigarette tax, a one-quarter cent increase in the sales tax, and a one cent a gallon increase in the motor fuel tax.

"The last time cigarette taxes were increased in Kansas was 1986," Graves said. "As a result of that increase, Kansas ranked 10th in the nation for cigarette taxes. Sixteen years later, we rank 35th. I propose a tax increase of 65 cents per pack which will rank us seventh in the nation and generate $111 million per year."

Studies show that a cigarette tax increase would also have the beneficial side effect of reducing smoking by minors, Graves said.

The one-quarter cent sales tax increase would raise $95 million a year.

Graves said this would cost the average Kansas household 12 cents per day, "the equivalent of one liter of soda per week."

The one-cent fuel tax increase, along with an increase in car and truck registration fees, would raise $22 million a year for transportation projects. The registration fee increase would cost car owners 75 cents a year, the governor said.

Graves didn’t propose additional gaming to raise revenue, but did not rule it out. "I am not opposed to expanded gaming on a limited basis," he said. "I am willing to consider adding slot machines at the pari-mutuel race tracks, but the more you expand the number of facilities and gaming locations, the less supportive I will become."

The governor said he expected opposition to his tax proposals. He said he had supported major tax relief throughout his tenure as governor and was simply asking Kansans to share a small portion of that relief to maintain critical state services in the face of declining revenue.

State revenue is down because of the nationwide economic downturn that began last year. State General Fund revenues for the 2002 and 2003 fiscal years are now projected to be about $235 million less than was estimated in 2001.

Rising Social and Rehabilitation Services and aging caseloads that the state is legally required to pay for put additional pressure on the General Fund. Duane Goossen, state budget director, said last week that the rising caseload was now projected to cost $34 million more this fiscal year than was estimated in 2001. Caseloads were growing at 12 percent per year, Goossen said, and would require additional spending in 2003.

The State of the State message contrasts sharply with the recommended budget released by the governor last week. By state law, that recommendation had to be based on current revenue without considering any new taxes and had to leave an ending balance of 7.5 percent of total expenditures.

It set out cuts in education, social services and transportation, which make up about 85 percent of the state’s budget, Goossen said.

The recommended budget would cut $91.1 million of K-12 education spending, and $27 million from higher education. The recommended budget would actually increase SRS spending slightly, but rising caseloads would still require cuts in services, such as eliminating funeral assistance for the poor, limiting welfare eligibility to 24 months and reducing mental health services.

The Department of Transportation would not receive sales tax money from the General Fund in fiscal year 2003 as it has in the past. The $146.7 million cut would require elimination of projects.

Four minimum security prisons would be closed under the recommended budget: Toronto, Osawatomie, Stockton, and the Labette Correctional Conservation Camp, saving $5.5 million.

Goossen said he thought the recommended budget would be "a pretty hard budget for the Legislature to pass."

The governor proposed in his Monday speech to restore the $91 million for K-12 education and the $27 million for higher education, to keep the four minimum security prisons open, and to restore $11.4 million for social services, including $4.4 million for elderly in-home services.

He also proposed $52.6 in spending increases: $12 million for aid to local schools; $12 million for a 2 percent pay raise for state employees; $7 million for the Board of Regents; $1 million for student financial aid; $10 million for SRS to reduce waiting lists and increase payment rates to doctors; $2 million for homeland security against bioterrorism and other threats; $1.5 million for tobacco prevention; 4.1 million for the courts; and a $3 million economic-stimulus package mainly targeted at rural Kansas.

In his speech Monday, Graves challenged opponents of tax increases to present alternative solutions. "I welcome candid discussion, " he said, "but only of those who want cuts tell us specifically what services and programs they will cut, how deeply, and the consequences; if those who want to use the ending balance will tell us how it will impact the state’s cash management and bond rating, how and when is the balance restored, and how is the one-time money replaced."

Immediate reaction in the Legislature was mixed. Rep. Ralph Tanner,

R-Baldwin, chairman of the House Education Committee, said he gave the governor high marks for a balanced approach to a serious problem. Tanner said he was pleased by the education recommendations.

Tanner said that he had some concerns that tax increases would fall disproportionately on the poor, but that, overall, it was a more humane proposal than last week’s recommended budget. "But I’m not ready to say a great deal of it will be enacted," Tanner said.

Rep. Eber Phelps, D-Hays, said he also had concerns that the tax increases would hit lower income people hardest. He said there was strong opposition in the Legislature to any tax increases and that a number of legislators had signed a pledge not to support any tax or fee increases.

Rep. Bonnie Huy, R-Wichita, said, "It’s going to be a tough sell. I’m going to have a problem with the tax increases, and my constituents are going to have a problem with the tax increases.