By Gene Meyer | Kansas Reporter

TOPEKA — Tax reform and school financing are expected to be among the most contentious issues that Kansas lawmakers will address in 2012.

Continued government cost cutting remains key to an overhaul of Kansas' tax system that Gov. Sam Brownback will propose to the Legislature.

However, in an interview with Kansas Reporter on Friday, Brownback provided few details of the plan, saying those will come in his formal State of the State address to the Legislature on Jan. 11, two days after lawmakers convene for the 2012 session.

Brownback’s policy director, Landon Fulmer, on Wednesday presented the Kansas State Board of Education with details of the governor’s plan to reform school financing, on which the state spends about half of its $6 billion in general fund tax revenue.

If approved, this reform would be the first major overhaul in 20 years.

But Kansas Democratic Party Chairwoman Joan Wagnon, of Topeka, and other Democrats said they fear that the conservative Republican governor's proposals will limit education and social services.

Even some fellow Republicans, notably state Sens. Carolyn McGinn, R-Sedgwick, and Ruth Teichman, R- Stafford, said they will offer some additional tax and budget ideas.

McGinn, chairwoman of the Senate Ways and Means Committee through which major tax legislation flows, said she will propose ending a temporary state sales tax increase six months before it is due to expire.

Teichman is proposing to use part of an estimated $34 million in long-term savings expected from the state employees’ voluntary early retirement plan to restore school funding cuts made in the past two years.

Following is an edited version of Brownback’s conversation with KansasReporter.org Friday. Click here for the entire interview.

Personal income is one that has the biggest focus on. I've made no secret of my thinking that our tax rates are too high. They're too high in the region. We bleed taxpayers to every other state in the region, except Nebraska. We need to get the rate down. We need to make ourselves competitive.

And most economists will say that the best thing for your tax policy is to get it the lowest if you want growth to take place and to get social engineering out of your policies. If you want that building over there renovated, don't put it in your tax policy. Subsidize it directly, because your tax policy then affects how your overall economy performs. This will be the way that most economists would look at and say, 'That’s the way you ought to do it.

We've laid out everything except the budget and the tax proposal before the next legislative session, so these are the two we're holding so that I've got something to say at the State of the State. You want to save some bang for the show.

Our effort is to do what most private businesses would do. That is get our back office costs down and consolidated and still provide services. Plus the economy is starting to pick back up. Our receipts are better. So with that combination, I think we're going to be in a position to handle a good part of things.

But I want to get our ending balance back to the 7.5 percent (of the state budget) that we're required by statute to be. When we don't do that, we have to borrow a lot more money from the Pooled Money Investment Board (the state investment manager for state and local government money on short-term deposit in the state treasury) and we've been making half payments to school districts during the year, so they can't really count on their flow of funds. We've got to get our finances better. We need to pay our debts down. .

At the first of this year, we were making those half payments and had been for a year or better. Now we're back to paying on time.

But my point is that when we get to the end of the fiscal year with so little money in the bank that we borrow $700 million from the Pooled Money Investment Board to basically float the state. Then at the end of that, when you pay that ($700 million) back, you don't have the cash flow to make your monthly payments.

We are making them now. We borrowed $100 million less this year, $600 million instead of $700 million, which is still way too much. We ended the fiscal year with $100 million cash on hand instead of the $900 the year before. We're building back, but we've got a ways to go.

I'm not going to put out a public number, but I'm telling our folks here we should prepare for a big number.

If (President Barack) Obama gets re-elected, he's going to go after defense spending. He's going after it now. And we're a big defense state, both in assets and in industrial complex. If a Republican gets elected, he'll go after the rest of the spending, which we get a lot of, whether its pass-through or program payments, so either way, you get it.

If I were the (federal government), I would just say let's up the percentage of Medicaid that states pay. That's our biggest single driver of growth, Medicaid, right now. That's sure one I would be looking at.

Anybody that can't read coming out of fourth grade is a tragedy, so one is too many. We've got 28 percent that do not read at a basic reading level coming out of fourth grade.

We've set a target of getting our NAEP (National Assessment of Educational Progress tests run by the U.S. Education Department) percentages and getting onto the top five in the country on fourth-grade reading. We're about 17th now. This is a doable target in a three- or four-year time frame. We had sought additional federal support for this, which we are not going to get, so we are scrambling to find where we can get those resources.

“Not enough, not near enough. (Speaker Mike O’Neal, R-Hutchinson) will point out there are hundreds of millions of unencumbered funds sitting in accounts right now ... I don’t think we’ve done nearly enough to look at the cost of the structure.