(Kansas Reflector) Democratic Governor Laura Kelly and top House and Senate Republicans in the Legislature said Thursday negotiations produced a compromise tax reform bill that would be considered by lawmakers during the upcoming special session.

Senate President Ty Masterson of Andover and House Speaker Dan Hawkins of Wichita predicted the deal would be approved during the special session opening Tuesday, and Kelly said she would sign the agreement if a majority in the Legislature voted for it.

The deal would collapse the state’s personal income tax structure to a two-rate system, rather than adopt the single-rate idea floated by Masterson and Hawkins. Kelly had recommended the state retain a three-rate structure that currently ranges from 3.1 percent to 5.7 percent.

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Statements by participants in closed-door negotiations indicated the overall reduction in state taxation contained in the deal was less than GOP lawmakers had sought. Kelly vetoed three broad tax bills during the regular 2024 session, and none of those vetoes were overridden by the Legislature. The governor had suggested lawmakers develop a plan that offered about $400 million annually in tax cuts.

“Legislative leadership and I have come to a consensus on a tax relief package that will be presented to the House and Senate during the upcoming special session,” Kelly said. “This agreement allows significant, long overdue tax relief to Kansans while preserving our ability to invest in the state’s future.”

The governor said the proposed package “met the affordability criteria I proposed,” but confirmed a transition to the two-tier model would limit opportunities to enact property tax reductions.

While the deal may bring closure to the two-year effort to pass comprehensive tax reform in Kansas, the special session of the Legislature is expected to include debate about economic incentives to convince the Kansas City Chiefs or the Kansas City Royals to relocate to Kansas at new stadiums. The state would allow issuance of STAR bonds, which would be backed by local sales tax revenue and possibly state gambling and lottery revenues.

Hawkins and Masterson said in a joint statement the tax agreement was “almost identical in structure” to a bill passed at the end of the regular session and vetoed by Kelly.

“It simplifies the tax code into two brackets, lowers rates, includes substantial exemptions to help lower-income Kansans, reduces statewide property taxes and repeals the state tax on Social Security,” they said. “It contains minor adjustments to ensure the bill is quickly signed into law.”

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Neither the GOP statement nor the one from Kelly said whether the deal included a July 1 termination of the state’s 2 percent sales tax on groceries, which under current law would be eliminated Jan. 1. Previously, Masterson indicated the deal wouldn’t accellerate elimination of the food sales tax.

In May, Kelly vetoed the last of three extensive property, sales and income tax bills sent to her desk in 2024. That bill was adopted with bipartisan votes of 25-9 in the Senate and 108-11 in the House. The bill, and the new compromise, would end the state’s income tax on Social Security benefits for a savings to Kansans of $120 million to $152 million annually.

Detail of the statewide property tax changes weren’t released, but the last vetoed bill would have elevated to $100,000 the exemption from property taxes tied to the statewide school finance levy. That would be a big hike from the current $42,000 exemption. In addition, that vetoed bill would have reduced the 20-mill state property tax for K-12 public schools.

Finally, that vetoed bill would have raised the standard deduction and personal exemption on state income taxes and reduced the state’s top income tax rate from 5.7 percent to 5.57 percent. The state’s second income tax rate would be set at 5.2 percent rather than 5.25 percent. The statements didn’t reveal what the rates would change to if the new proposal became law.

“Compromise is ugly sometimes,” said Senate Minority Leader Dinah Sykes, D-Lenexa. “While this proposal is not what we fully wanted, in the spirit of compromise it moves us forward. Senate Democrats will continue to fight for more property tax relief and child care relief, things we know our constituents truly want and need.”

Senator Tom Holland, a Baldwin City Democrat, offered a plan Wednesday that focused on lowering residential, commercial and agriculture property taxes by about $190 million annually. His proposal included the Social Security exemption, but also a child and dependant care tax credit matching the federal credit and elimination of the state sales tax on groceries on Oct. 1.

Hawkins and Masterson blamed the governor for using her veto pen in a manner that limited the ability of lawmakers this year to adopt income and property tax relief. They said a big chunk of the state’s cash surplus, estimated at $2.5 billion in the general treasury and $1.7 billion in a rainy day fund, should be returned to taxpayers.

“On Tuesday,” they said, “we will act swiftly to pass this compromise and look forward to resuming our efforts to pass additional tax relief when we return in January.”

Kansas Reflector is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Kansas Reflector maintains editorial independence. Contact Editor Sherman Smith for questions: info@kansasreflector.com. Follow Kansas Reflector on Facebook and X.