Adjusted Kansas numbers show $238 million budget shortfall

08/10/2014 7:12 PM

08/10/2014 7:12 PM

Kansas will face a budget shortfall of $238 million by the end of July 2016, the Legislature’s nonpartisan research staff said in a new forecast predicting that the gap will emerge a year sooner than it had anticipated.

The Legislative Research Department’s new budget forecast also showed a lower figure for the state’s cash reserves on June 30 than the cash-on-hand figure reported last month by Republican Gov. Sam Brownback’s administration — $380 million compared with nearly $435 million.

On Friday, the department made its routine adjustment of the cash figure to account for bills pending but not paid as of that date, the end of the 2014 budget year.

The projections are likely to become part of a contentious public debate about whether personal income tax cuts engineered by the governor are wrecking the state’s finances.

Brownback and his aides contend the cuts are stimulating growth and creating jobs, so that tax revenues generated from new economic activity will offset the reductions, sustaining the budget. Some fellow Republicans also argue that the department’s forecasts can’t properly estimate how tax cuts ripple through the economy as people have more money to spend.

The projected shortfall is the gap between anticipated revenues and current spending commitments. The state has an official forecast of about $6 billion in revenues for the budget year that began July 1, and the department made assumptions about revenue growth for future years that will be revised over time.

In early May, after legislators wrapped up their work on the current budget, the department predicted that the state would face a budget shortfall by July 2017. But tax collections fell short of expectations by a total of $334 million for April, May and June, eating into the cash reserves.

Brownback’s administration said investors skittish about the possibility of higher federal taxes on capital gains in 2013 claimed their gains early in 2012, resulting in lower tax payments to the state when their 2013 taxes came due earlier this year.

But the Legislative Research Department said in a June memo that the effects of the state’s tax cuts also appeared to have been “understated,” though it could not say by how much.

The department’s latest forecast came two days after the Standard & Poor’s bond-rating agency downgraded the state’s credit rating, citing its “structurally unbalanced budget.” Moody’s Investors Service did the same in May.

The forecast predicts ongoing shortfalls totaling $245 million for the three years after June 2016.

“Sam Brownback’s tax policies are going to bankrupt the state,” said Senate Minority Leader Anthony Hensley, a Topeka Democrat.

Brownback has noted repeatedly that when he took office, the state faced a projected budget shortfall of $550 million.

“We are paying our bills on time and in full,” Brownback spokeswoman Eileen Hawley said. “We are funding education, protecting core functions, prioritizing programs.”

The department predicted that the reported cash reserves of $380 million on June 30 will drop to $29 million at the end of June 2015.

Chris Pumpelly, spokesman for Democrat Paul Davis, who is challenging Brownback’s re-election, called the administration’s higher figure of nearly $435 million “fuzzy math.”

But Shawn Sullivan, the governor’s budget director, said it’s simply a different measurement: a snapshot of the state’s main bank account, close of business June 30.

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