Bill-signing ends state tax-refund, payroll crisis
The Associated Press
Wednesday, February 18, 2009
TOPEKA — An impasse that held up Kansas income tax refunds and threatened to delay state employees’ next paychecks ended Tuesday when Gov. Kathleen Sebelius signed a budget-balancing bill.
The signing fulfilled a key demand from Republican legislative leaders who had blocked the Democratic governor’s plan to transfer $225 million into the state’s main bank account from other accounts across state government. The state has too little money in its main account to pay its bills on time, and the internal borrowing addresses the cash crunch.
Leaders of the GOP majorities in the House and Senate argued the internal borrowing wasn’t legal until the state had a balanced budget for the fiscal year ending June 30. They said the bill signing cleared the way for the borrowing, which is expected to take place Wednesday.
“I’m extremely pleased that she signed it, because that’s what needed to happen,” said House Speaker Mike O’Neal, a Hutchinson Republican.
Sebelius used her power as governor to veto line items in the budget-balancing measure. Among other things, she reduced a $32 million cut in state aid to public schools to just $7 million.
Sebelius signed the bill during a news conference at 4:30 p.m. — a half-hour before a key payroll deadline. She said the state’s 42,000 employees should receive their biweekly paychecks on time Friday.
Income tax refunds that the state had suspended are expected to resume, perhaps this week. The impasse also threatened to delay payments this week to doctors and hospitals who treat Medicaid patients and distribution of state aid to Kansas’ 295 school districts at the end of the month.
“I’m just sorry that we had to have high drama and worry a lot of Kansans about our ability to pay our obligations in order to get to the end of the process,” Sebelius told reporters.
Shoring up the state’s main bank account by borrowing from other funds isn’t uncommon when the economy sours. The state often faces a crunch in February and March, when bills come due and the bulk of income tax revenue has yet to be received.
But the borrowing must be approved by the State Finance Council, made up of the governor and eight top legislative leaders — six of whom are Republicans. Sebelius had called a council meeting Monday but canceled it when Republicans told her the borrowing wouldn’t be approved.
Another council meeting was scheduled for 2 p.m. today. Republicans said the signing of the budget-balancing bill allayed their worries about the legality of internal borrowing.
“This action gives us reassurances that we will have the resources to repay this,” said Senate President Steve Morris, a Hugoton Republican, noting that state law requires internal borrowing to be paid off by the end of the fiscal year.
Sebelius, her staff and fellow Democrats argued there was no legal obstacle to the internal borrowing, even before she signed the bill.
The Finance Council approved certificates in July and December, authorizing $550 million in internal borrowing. Sebelius sought even greater authority in December, but GOP leaders blocked it then, as well.
“We told them we’d be out of money by the middle of February, so this was not a surprise,” Sebelius said. “This was self-created drama.”
But the drama stirred state employees.
Republican Sen. Vicki Schmidt, whose Topeka district is home to many state workers, said she had responded to more than 200 e-mails since Monday afternoon, including some sent by state employees about 2 a.m. Tuesday.
“We can move forward and not hold our state employees hostage,” Schmidt said. “We have a good state workforce, and it wasn’t good what happened.”
Legislative researchers had projected a $199 million deficit on June 30, but Sebelius is allowing $300 million in budget adjustments to become law.
Almost half of the adjustments are spending cuts, and the higher education system and many state agencies will have to trim spending financed by general tax revenues by 4.3 percent. The cut is smaller for social service agencies, because some programs are protected.
Sebelius and other Democrats wanted to avoid any cut in public school aid. The bill originally would have reduced schools’ base aid about $28 million and cut funding for special education programs by more than $4 million.
Sebelius vetoed those provisions, but she shared GOP legislators’ goal of making $300 million in budget adjustments. So, separately, she ordered the state to still withhold $7 million in base aid — about 0.2 percent.
“I think this is a responsible way to limit the reduction in schools,” Sebelius said.
Education groups were pleased.
“It helps our school districts get through this year without major cuts to programs or services,” said Mark Desetti, a lobbyist for the Kansas National Education Association, a teachers union. “They can honor the contracts they’ve got and then prepare for what’s coming as the Legislature looks at 2010.”