Kansas falls $338 million short of revenue estimates over past year
06/30/2014 12:29 PM
06/30/2014 10:54 PM
Kansas took in $338 million less for the fiscal year ending Monday than state officials projected, escalating the debate over Republican Gov. Sam Brownback’s income tax cuts.
The state finished the year 5.8 percent below estimates after revenues plunged more than $300 million in April and May combined, meaning the state will eat through reserves to balance its budget. Revenues were $28 million below estimates for June.
Budget Director Shawn Sullivan said Monday there were enough reserves to help the state get by without making midyear budget cuts.
“We feel like we’re going to be OK,” Sullivan said.
The latest revenue numbers fanned the flames for critics who think Brownback’s attempt to supercharge the state economy by cutting taxes instead puts its finances in peril.
Meanwhile, some conservatives contend that the state wouldn’t be short of cash if the Legislature and the governor had cut spending to adjust for the income tax cuts.
The Brownback administration says revenues plummeted not because of the tax cuts but because wealthy taxpayers cashed in stocks in 2012 as they anticipated higher capital gains taxes in 2013.
That one-year anomaly in taxpayer behavior left less money available to tax this fiscal year, experts say. In fact, many states saw their revenues fall, but not on the same scale seen in Kansas.
Critics say the collapsing revenues were a sign that Brownback’s tax plan was failing and would eventually cripple the state.
Brownback didn’t issue a statement on the revenue numbers, but he has said the tax cuts are creating jobs, reducing unemployment and drawing people back to the state.
On Monday, just hours before the new revenue numbers were released, Democratic gubernatorial candidate Paul Davis proposed delaying part of the income tax cuts.
At Piper Elementary School in Kansas City, Kan., with running mate Jill Docking, Davis called for freezing the income tax cuts in 2015 — adding as much as $1.2 billion over five years to future state revenues.
He wants to increase school funding before continuing to cut taxes. Davis said he would delay the tax cuts until state funding to school districts returned to about $4,400 per pupil, the level it was at before the recession. Currently, that figure is $3,852.
Davis, the Kansas House minority leader, said the tax cuts already enacted cost the state hundreds of millions of dollars, jeopardizing vital state services.
“Kansas is in a crisis of Sam Brownback’s making, and it will not be fixed overnight,” Davis said. “Sam Brownback has compared his tax plan to surgery. In that case, our first job here is to stop the bleeding.”
Davis wants to delay a second round of tax cuts that Brownback signed into law last year.
The tax cuts passed in 2013 were a follow-up to an initial round of reductions that Brownback pushed through the Legislature in 2012. That second round of income tax cuts was scheduled for 2014 to 2018. After that, any further tax cuts are contingent on growth in state revenue.
Davis said he would not roll back the tax cuts that kicked in last year and this year. He would freeze taxes at their 2015 levels.
By then, the upper tax bracket will be cut to 4.6 percent from 4.9 percent. The bottom bracket will fall to 2.7 percent from 3 percent.
Before Monday, Davis has criticized the Brownback tax cuts only in general terms. His announcement gave his clearest position to date on what he would do with Kansas tax policy if elected governor.
The Brownback campaign blasted Davis’ remarks, saying they showed he would raise taxes.
“Paul Davis has a 12-year record of voting to raise sales taxes, voting to raise income taxes and voting against property tax relief for hard-working Kansas families,” campaign manager Mark Dugan said in a statement “His plan unveiled (Monday) is more of the same.”
Although Democratic critics focus on the tax cuts, conservative critics don’t think enough is being done on the spending side. Spending under the Brownback administration has increased over the years, even as conservatives gained control of the House and Senate.
The state approved $6.3 billion in general fund spending for the fiscal year that starts today, up from $5.3 billion the year before Brownback was sworn in, in 2011.
“We didn’t reduce spending accordingly, and we should have,” said Dave Trabert, president of the conservative-leaning Kansas Policy Institute and a tax-cut advocate. “That’s what we’ve said from the very beginning. You have to bring down the cost of government.”
Even Moody’s Investors Service suggested as much when it downgraded the state’s bond rating this spring and warned that income tax cuts could deplete the state’s reserve fund.
Moody’s analysts said Kansas needed to strike a balance between revenues and spending, something that may increasingly depend on spending cuts.
Trabert said lawmakers — including the conservatives who control the Legislature — are under public and bureaucratic pressure not to cut spending.
“It’s always easier to say you are going to cut spending,” Trabert said. “But when it comes down to it, it’s awfully hard to do.”
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