After a whirlwind election cycle that focused on unfavorable ratings of U.S. President Joe Biden, former Kansas Governor Sam Brownback’s record, and concerns about the economy, Governor Laura Kelly successfully held off a challenge by Kansas Attorney General Derek Schmidt. Immediately following Kelly’s victory speech, Republican Party officials took critical aim at the Independent Gubernatorial campaign run by Kansas Senator Dennis Pyle. Pyle changed his party affiliation from Republican to Independent to run as a conservative alternative to Schmidt. When all the votes were counted, he received close to the number of votes that separated Kelly and Schmidt. However, that alone was not the deciding factor in this race. Pyle’s presence in the race made it difficult for Schmidt’s campaign message to attract and retain the independent voters, moderate and conservative wings of the party. Nonetheless, most statehouse insiders agree the Kelly campaign ran a great campaign focused on governing from the middle and keeping our schools funded. That message ultimately won the day. We congratulate Governor Kelly on her hard-fought victory and look forward to working with her as she begins her second four-year term.
Governor Kelly will be in a position familiar to her first term, negotiating with a Republican supermajority in both the Senate and House. Only the House was up for election this year, and Republicans held their supermajority, retaining
85 of their 86 seats. That retention is critical because 84 votes are needed to pass constitutional amendments or override a gubernatorial veto, setting the stage for ongoing veto battles between Governor Kelly and the Republican-controlled Legislature.
Although the Governor and Legislature will have their differences on policy, there is momentum from both sides of the political aisle to work together on meaningful reform to state tax policy. Republicans and Democrats both campaigned on this issue due to the favorable fiscal position the state is predicted to be in for the next two years. According to the most recent report by the Consensus Revenue Estimating Group (CREG), the group tasked with predicting the state’s financial picture, Kansas is looking at having a $2.3B surplus in FY 2023 and $3.2B in FY 2024. These large ending balances help fuel conversations to return money to Kansas taxpayers through property tax relief or to exempt retirement benefits, such as social security, from state tax policy. Both will absolutely be debated next year, along with other corporate, sales, and food tax reductions. The question will be, how much should the state return in this unpredictable and inflationary economic situation without being put in a position to raise taxes again to fund the government?
While taxes will be a significant issue when the Kansas Legislature returns to Topeka in January, there will also be a discussion on environmental, social, and governance (ESG) legislation. This type of legislation can threaten the free market and negatively impact how banks and businesses currently do business. You may have read the article entitled “Will the ESG Pendulum Become a Wrecking Ball?” penned by Doug Wareham, KBA President & CEO, in the August issue of the Kansas Banker. Undoubtedly, our industry will be caught in the middle of conflicting state legislation and federal regulatory guidance that could affect the extension of credit to lawful businesses.
Kansas lawmakers have their eyes set on addressing the ESG issue at the state level by looking at model legislation that would penalize banks and businesses for not doing business with specific industries and legislation that could require the state’s pension fund to divest from those companies that push an ESG agenda. While their intentions are well-placed, the unintended consequences of these policies are troubling. They could open our industry to significant liability or create burdensome government overregulation in the free market. But it remains that something needs to be done to address this issue that could hurt. While it is the legislature’s right to protect core sectors of our economy, we will work to ensure the policies implemented don’t put the banking industry in the middle of a political wrecking ball.
While the issues mentioned above will undoubtedly consume much of the Capitol air, your KBA government relations (GR) team is dedicated to continuing to look for policies to modernize our Kansas trust code, develop guidance for implementing our state-level tax bill that exempts interest earned on agricultural real estate and rural housing loans from state taxation, and begin the discussion on the use of public funds and how they are invested in Kansas banks and Kansas communities. The 2023 Legislative Session is right around the corner and your team is eager to work on behalf of you and the industry. It is an honor to represent you in Topeka. It’s time to get to work!
If you have any questions or want to know how to help with our GR efforts, please do not hesitate to contact Alex at aorel@ksbankers.com or call the KBA office at (785) 232-3444.
