Division of the Budget
Landon State Office Building Phone: (785) 296-2436
900 SW Jackson Street, Room 504 larry.campbell@ks.gov
Topeka, KS 66612 Division of the Budget http://budget.kansas.gov
Adam Proffitt, Director Laura Kelly, Governor

January 20, 2021

The Honorable Jim Kelly, Chairperson
House Committee on Financial Institutions and Rural Development
Statehouse, Room 581A-W
Topeka, Kansas 66612
Dear Representative Kelly:
SUBJECT: Fiscal Note for HB 2069 by House Committee on Financial Institutions and
Rural Development
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2069 is
respectfully submitted to your committee.
HB 2069 would allow national banking associations, state banks, trust companies, and
savings and loan associations to deduct the interest income received from qualified agricultural
real estate loans and single-family residence loans attributed to Kansas from net income, if the
interest is included in the Kansas taxable income of a corporation. The bill includes specific
definitions for interest, qualified agricultural real estate, single family residence, net interest
income received from qualified agricultural real estate loans attributed to Kansas, and net interest
income received from single family residence loans attributed to Kansas. The new tax deduction
would go into effect beginning in tax year 2023.
The bill would create the Kansas Economic Recovery Loan Deposit Program that would
be administered by the State Treasurer. The program would provide an incentive for banks, credit
unions, and farm credit institutions to make commercial or agricultural loans. The State Treasurer
would direct the Pooled Money Investment Board (PMIB) to deposit up to $60.0 million in idle
funds at eligible lending institutions that would earn the state interest that is 2.0 percent below the
market rate with a minimum interest rate of 0.25 percent. The interest rate on the deposit would
be recalculated on the first business day of January of each year. Eligible lenders would then make
commercial or agricultural loans with an interest rate that cannot be greater than 3.0 percent above
the interest rate earned on the state’s deposit of funds. Each eligible borrower would be able to
receive a business loan of up to $250,000. The interest rate on the loan would also be recalculated
on the first business day of January of each year and the term of the loan cannot exceed ten years.
The eligible lender would be required to apply all usual lending standards to determine the credit
worthiness of eligible borrowers. Eligible borrowers would be required to certify on the economic
recovery loan application that the reduced rate loan will be used exclusively for the expenses
involved in operating their business. Prior to completing the loan request, the State Treasurer
would evaluate each economic recovery loan to determine if they qualify for this new program. If
sufficient funds are not available for this program, then the applications would be considered in
the order received when funds are once again available. The State of Kansas and the State
The Honorable Jim Kelly, Chairperson
Page 2—HB 2069

Treasurer would not be liable to any eligible lending institution in any manner for payment of the
principal or interest on any economic recovery loan. All eligible lenders would be required to
execute a security agreement with the PMIB to ensure that the state deposits are collateralized.
The State Treasurer would be required to adopt rules and regulations on the Kansas
Economic Recovery Loan Deposit Program no later than February 1, 2022. The State Treasurer
would be required to submit an annual report to the Governor and the Legislature identifying the
eligible lending institutions that are participating in the program and the eligible borrowers who
have received an economic recovery loan. The annual report would provide the aggregate amount
of moneys loaned and the amount of moneys still available for loan, if any. The report would be
due on or before January 1, 2023, and each January 1 thereafter.
Under current law, credit union field memberships are limited to a geographical population
of 500,000 in non-metropolitan statistical areas and 1.0 million in metropolitan statistical areas
within Kansas. The bill would increase geographical population from 500,000 to up to 2.5 million
without any restrictions based on non-metropolitan statistical areas or metropolitan statistical
areas. The bill would also eliminate several criteria that impact the calculation of population within
a geographical area.
The Department of Revenue estimates that HB 2069 would decrease State General Fund
revenues by $2.0 million in FY 2023, $3.9 million in FY 2024, and $3.9 million in FY 2025.
To formulate estimates specific to the income tax deduction, the Department of Revenue
reviewed data on state-chartered banks from the Kansas Bankers Association. Data indicates that
there are 223 state-chartered banks in Kansas and 16.4 percent of total interest income for banks
is attributed to interest income from agricultural loans (farmland/real estate loans and agricultural
operating loans). Data also indicates that 53.4 percent of total agricultural loans is attributed to
real estate loans. Under current law, the state is estimated to receive approximately $44.0 million
in financial institutions privilege taxes in FY 2023. Applying these ratios, the bill would reduce
financial institutions privilege taxes by approximately $3.9 million each year. The financial
institutions privilege tax estimate for FY 2023 includes the first half of tax year 2023 tax liability.
For FY 2024, the estimate includes the last half of tax year 2023 tax liability and the first half of
tax year 2024 tax liability. Any fiscal effect regarding interest income from single family residence
loans in rural areas is not accounted for in the fiscal effect of this bill because the Department does
not have data on this specific income source.
The Department indicates that the bill would require $48,078 from the State General Fund
in FY 2023 to implement the bill and to modify the automated tax system. The required
programming for this bill by itself would be performed by existing staff of the Department of
Revenue. In addition, if the combined effect of implementing this bill and other enacted legislation
exceeds the Department’s programming resources, or if the time for implementing the changes is
too short, additional expenditures for outside contract programmer services beyond the
Department’s current budget may be required.
The bill would require the State Treasurer to administer the new Kansas Economic
Recovery Loan Deposit Program and indicates that the same processes and procedures that are
currently in place for the existing Agricultural Production Loan Deposit Program would be used
to administer this new program. The State Treasurer indicates that this new program would
provide low cost loans to Kansas businesses that could aid in the recovery from the economic
The Honorable Jim Kelly, Chairperson
Page 3—HB 2069

effects of the novel coronavirus disease outbreak (COVID-19). The security of idle fund balances
deposited at eligible lending institutions would be maintained by requiring that the lending
institution underwrite the business loans and requiring that the state deposits are collateralized to
offset any default risk. In addition, the State of Kansas and the State Treasurer would not be liable
if any borrower defaults on an economic recovery loan. The State Treasurer indicates that the bill
would require $53,000 from the State Treasurer Operating Fund in FY 2022 to hire 1.00 new FTE
position to manage this new program.
The bill would require the PMIB, at the direction of the State Treasurer, to make deposits
of up to $60.0 million of idle funds at eligible lending institutions to fund the Kansas Economic
Recovery Loan Deposit Program. The PMIB is authorized to make investments in U.S. Treasury
and federal agency securities, highly rated commercial paper and corporate bonds, and repurchase
agreements and certificates of deposit at Kansas banks. Declining balances have required the
PMIB to maintain a highly liquid portfolio, which reduces the amount of return available to the
pool. The PMIB maintains a significant portion of its investments in overnight repurchasing
agreements. Rates that the PMIB could earn in that market fell to near zero after actions from the
Federal Reserve in 2020 (and are likely to stay low for the foreseeable future according to the
November 2020 Consensus Revenue Estimate Memo). Recalculating the rate on the state’s
deposits one time each year has the potential to lock in a lower or higher interest rate that can be
earned in the market; however, without knowing the timing of future interest rate changes, it is not
possible to estimate the bill’s impact on interest earnings from requiring the deposit of up to $60.0
million of idle funds at eligible lending institutions compared to other investments that the PMIB
might make. The PMIB and the State Treasurer indicate that sufficient idle fund cash balances
currently exist to fund this new program; however, future balances that would be used to support
this program over the course of the next ten years are unknown. The PMIB indicates that the costs
to administer the deposit of idle funds at eligible lending institutions would be negligible and could
be absorbed within existing resources and staff levels.
The Office of the State Bank Commissioner and the Department of Credit Unions both
state that passage of the bill would not have a fiscal effect on agency operating expenditures. Any
fiscal effect associated with HB 2069 is not reflected in The FY 2022 Governor’s Budget Report.

Sincerely,

Adam Proffitt
Director of the Budget

cc: Vickie Hurt, Credit Unions
Bobbi Mariani, Insurance
Melissa Wangemann, Office of Banking Commissioner
Lauren Tice Miller, Office of the Treasurer
Lynn Robinson, Department of Revenue


Statutes affected:
As introduced: 17-2205, 75-4237, 75-4232, 79-1109