Trends suggest Kansas headed for more budget difficulties
Topeka A multimillion-dollar budget deficit is all but certain to emerge in Kansas with new, more pessimistic revenue projections expected in the coming week.
Republican Gov. Sam Brownback already has ruled out one remedy — further tax increases after sales and cigarette taxes went up in July — not that legislators are much interested anyway after this year's bitter, record-long annual session.
"It was, you know, just such an ass-kicking," said state Sen. Jim Denning, an Overland Park Republican who serves on the Senate's budget committee. "We're not going to go through it again."
Instead, Brownback and his aides are likely to consider targeted spending cuts and other budget adjustments, such as shuffling money among various government accounts, state budget director Shawn Sullivan said. Top legislators oppose reducing aid to public schools, but Sullivan said, "I'm not going to officially take it off the table at this point."
Kansas has struggled to keep its budget balanced after Republican legislators slashed personal income taxes in 2012 and 2013 at Brownback's urging in an effort to stimulate the economy. They managed this year to preserve most of the past income tax cuts but did it by giving Kansas one of the nation's highest state sales tax rates and boosting taxes on cigarettes by 50 cents a pack.
Come Monday, state officials are to learn whether October's tax collections met expectations after falling short in recent months. At the end of the week, economists, legislative researchers, Sullivan and others from Brownback's administration are scheduled to issue new revenue projections, meant to guide budget decisions.
Kansas' current fiscal forecast projects state tax collections of $6.2 billion for this fiscal year and $6.4 billion for the fiscal year that begins in July 2016. The state's total annual budget is $15.3 billion. After recent tax collections fell $67 million, or 4.7 percent, short, Kansas is expecting to have little in the way of a cushion of cash reserves at the end of June 2016.
The administration will work immediately on budget-balancing measures, Sullivan said, acknowledging there will be pressure to re-examine the state's operations and ask, "Can we do it better?"
"From that aspect, I don't know that it's a bad thing," Sullivan said.
Both Denning and House Appropriations Committee Chairman Ron Ryckman Jr. expect forecasters to cut revenue predictions — and leave the state with a projected deficit in its current budget that could exceed $100 million.
Kansas isn't alone in facing budget issues: The national economy grew only 1.5 percent from July to September, according to the federal government. The U.S. has seen a "tepid" recovery since the end of the Great Recession in 2009 and there's no expectation of a change, said Arturo Perez, a fiscal analyst with the National Conference of State Legislatures.
Low inflation has made both wages and prices — and the taxes tied to them — grow slowly, according to Don Boyd, fiscal studies director for the Rockefeller Institute of Government in Albany, New York. Plus, the stock market has remained "flat" over time, which is likely to lessen a state's taxes on capital gains.
"A lot of states are finding that the economy's a little bit weaker than they forecast," Boyd said.
Kansas Revenue Secretary Nick Jordan struck an optimistic note, pointing to the state's unemployment rate, only 4.4 percent in September, and the fact that individual income tax collections are running slightly ahead of last year's.
But Kansas saw no net collections from taxes on oil and natural gas production in July, August and September, and sales tax collections during the same period were 3.2 percent below expectations.
"People are still a little nervous about the economy," Jordan said.