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Brownback proposes nixing mortgage deduction

By JOHN HANNA

Associated Press

TOPEKA -- Gov. Sam Brownback on Wednesday proposed eliminating Kansas' popular income tax deduction for interest paid on home mortgages as a way to help close a projected budget shortfall, reviving a measure legislators rejected last year.

The conservative Republican governor had promised lawmakers they could approve a fresh round of cuts in individual income tax rates while preserving aid to public schools and spending on core government services. He outlined budget proposals for the two years beginning in July designed to meet those goals while closing the budget gap caused by last year's aggressive income tax cuts. His proposals also would leave the state with health cash reserves at the end of June 2015.

He disclosed in his State of the State address Tuesday evening he wants to keep the state's sales tax at its current rate, instead of letting it drop in July, as called for by law. But he didn't say in his address he would resurrect his failed proposal to eliminate the mortgage interest deduction.

He's also proposing to phase in the next round of cuts in income tax rates through three years.

His proposals would raise an additional $541 million in new revenues for the fiscal year that begins in July, more than enough to cover the projected $267 million gap between anticipated revenues and existing spending commitments for the same period. His plans also would allow a slight boost in the state's per-pupil aid for its public schools, although it still would be far short of what a three-judge panel ordered in a ruling last week.

"This path maintains the most essential programs of the state while emphasizing fiscal responsibility," Brownback said in a letter to legislators that accompanied his budget proposals.

Brownback already likely was to face criticism from Democrats and more liberal Republicans who want the state to ramp up spending on public schools more aggressively now the state's economy is emerging from the Great Recession.

But some GOP conservatives, while not openly critical, expressed wariness about proposed budget, both because of the governor's tax proposals and because they want to shrink state government.

"I do have questions -- no doubt about it," said Rep. Kasha Kelley, a conservative Arkansas City Republican who serves on the House Appropriations Committee. "I just have a lot of questions."

Brownback's proposals moderately would increase spending next fiscal year before restoring it to its current level in the second. He's breaking with nearly six decades of tradition by outlining a two-year budget, rather than a one-year spending plan. The governor contends two-year budgeting will lead to more financial stability and allow for better planning.

He's proposing the state spend nearly $14.6 billion during the fiscal year that begins in July, which would be a $186 million increase, or 1.3 percent, from the current year's $14.4 billion budget. For the following fiscal year, Brownback proposes dropping spending to $14.4 billion again.

Aid to public schools will be a significant flashpoint because of last week's Shawnee County court ruling ordering the state to restore base aid to its 2008 level of $4,492 per pupil. The three-judge panel agreed with school districts that sued, that the state isn't spending enough money to meet its responsibility under the state constitution.

The current figure is $3,838 per student. Brownback proposes to keep it constant for the next fiscal year, then increase it by $14 per student the following fiscal year, to $3,852. He's seeking to phase in a $76 million increase in overall aid to schools; however, the court ordered the state to increase annual spending by at least $440 million next year.

Brownback's budget proposals also provide more details about his plan to incorporate the Kansas Turnpike Authority into the state Department of Transportation. The authority runs what now is the state's only toll road, which runs from the Oklahoma border past Wichita and northeast into the Kansas City area.

The governor projects the merger will reduce the state's costs by $15 million a year, and his budget recommendations assume the $30 million in savings through two years will be available for use elsewhere.