By Peter Hancock
March 8, 2016

Hundreds of millions of dollars that flow through state coffers each year that are earmarked for children’s programs, highways and economic development would no longer have that legal protection, under a bill being considered in the Kansas Senate.

Instead, those funds that come from tobacco settlement money, the state lottery, sales taxes and other sources would all be folded into the state general fund so lawmakers could spend them as they wish, or use them as a regular way to close what have now become routine budget shortfalls.

Kansas Budget Director Shawn Sullivan said one of the main reasons that Gov. Sam Brownback’s administration is asking for the bill is to quiet the criticism that’s often heard when money from those funds, particularly the highway fund, is “swept” into the general fund to fill in budget gaps.

Kansas Budget Director Shawn Sullivan says eliminating special revenue funds will increase transparency over how those monies are used and deflect criticism whenever the administration “sweeps” those funds to balance the state budget.

“This is taxpayer money,” Sullivan said. “This is not in some sort of special ‘Bank of KDOT.’ I think we need to work to get rid of that particular language, and I think something like this would assist with that.”

Starting in July 2018, Senate Bill 463 would end the automatic transfer of more than $500 million a year in sales tax money into the state highway fund in the Kansas Department of Transportation.

“The way that we do it now (implies) that sales tax money is KDOT’s money, but it’s taxpayer money,” he said.. “It is not the motor fuel taxes or gas taxes that have to stay in the highway fund.”

It would also eliminate four other special revenue funds that receive dedicated revenue:

• The Kansas Endowment for Youth, or KEY, fund and the Children’s Initiative Fund, two related funds that receive about $50 million to $60 million a year from the state’s share of tobacco settlement money. And while the Children’s Cabinet, which now supervises those funds, would continue to exist, its role would change so that it would only recommend appropriations up to $50 million a year for children’s programs.

• The Economic Development Initiatives Fund, which receives more than $20 million a year in state Lottery proceeds.

• And the Expanded Lottery Act Revenue Fund, which takes in about $82 million a year from casino gaming in Kansas.

Sen. Ty Masterson, R-Andover, who chairs the Senate Ways and Means Committee, said that when the governor or the Legislature takes money out of the highway fund to balance the budget, “it’s looked at as theft.” But if the money were given directly to the general fund in the first place, and the Legislature then appropriates what it thinks is needed in the highway fund, then it would be viewed as normal.

“It’s certainly hard to report on from a newspaper or TV perspective,” he said. “That in effect creates the deception to the public.”

Sen. Marci Francisco, D-Lawrence, asks questions during a hearing on a bill to fold several special-purpose funds into the state general fund.

But several organizations that rely on funding from those dedicated funds testified against the bill, arguing that it would put funding for those programs in jeopardy.

Erick Vaughn, executive director of the Kansas Head Start Association, said merging the tobacco settlement money into the general fund could put future funding for early childhood education programs at risk.

“There is no guarantee that future legislatures will appropriate money from the state general fund for early childhood programs,” he said. Setting aside tobacco settlement dollars in the KEY fund and the CIF designates them for their intended purpose.”

Masterson took exception to that argument, saying legislators are elected by voters to make decisions about how money is spent.

But Vaughn fired back, saying he believes there is another motivation for the bill.

“The elephant that’s not being talked about in the room is the decreased revenues and needing to fill that hole,” he said.

Masterson quickly interrupted, though, saying, “That’s your perception, that it’s somehow a drive toward revenues to fill a hole. That’s not what the bill does.”

Shannon Cotsoradis, president and CEO of Kansas Action for Children, which advocates for children’s program funding, said she believes the administration’s real aim is to go even further, and includes plans to sell off the state’s future share of tobacco settlement money for a one-time payment, a process known as “securitization.”

“It’s my understanding that a proposal has been developed to sell our tobacco settlement proceeds for $400 million, forfeiting the entire revenue stream upon which our entire early childhood system rests, at a time the state can least afford to pick up the tab for those programs,” she said.

Asked later about that comment, Sullivan confirmed that the administration had received a presentation about securitizing the state’s future tobacco settlement payments, as 20 other states have done.

“But that doesn’t mean we’re going to do it,” he said.

Meanwhile, Travis Stryker, of the Kansas Society of Professional Engineers, said he feared the bill would threaten funding for the Kan-Grow Engineering Fund, which distributes $10.5 million in casino revenues each year evenly between Kansas University, Kansas State University and Wichita State University for their engineering programs.

“It is essential Kansas has programs in place to create and retain a professional workforce,” he said. The engineering program plays a substantial part in the future of our state.”

The committee only heard testimony on the bill Tuesday. Masterson did not indicate when the committee might vote on the bill.

Read more from the Lawrence Journal World.