Ever-deepening Kansas budget hole offers few ways out

The first rule of holes, when you’re in one, is to stop digging.

Gov. Sam Brownback and the Kansas Legislature are running out of time to heed that advice. Another dire budget forecast this week shows that expenses for the budget year beginning July 1 exceed expected revenues by $400 million.

Irresponsible income tax cuts the Legislature passed in 2012 and 2013 created the hole in the state’s general fund. The governor and lawmakers have tried to fill it by shoveling in money from the designated highway fund and with other unwise gimmicks.

But they won’t roll back the tax cuts that caused the problems, and the hole keeps getting deeper.

How deep? The tax cuts will cause the state to lose almost $1 billion in revenue for the upcoming budget year, according to a state economist. And nothing that’s been proposed so far comes close to making up for that loss.

Brownback has put forward a package of remedies, all of which are problematic and still leave a gap.

▪ Higher taxes on cigarettes and liquor, while good ideas from a health standpoint, are unpopular with lawmakers and may not raise the $108 million a year the governor has projected.

▪ Health maintenance organizations are fighting a proposed new tax on their businesses. It would raise $136 million annually and draw in about $80 million in additional federal Medicaid dollars, but insurers are threatening to increase premiums if they are hit by the tax.

(It is impossible to escape the irony of Brownback and lawmakers contemplating a tax increase to rake in federal Medicaid funds when they still refuse to expand overall Medicaid eligibility, thereby passing up hundreds of millions of federal dollars.)

▪ Bond underwriters are certain to look critically on Brownback’s proposal to transfer an additional $132 million out of the state’s highway fund, which lawmakers and the governor have plundered repeatedly. The Department of Transportation has announced that $300 million worth of projects to maintain roads and buildings will be put on hold in the next two years.

Brownback and conservative Republicans in the Legislature justified the income tax cuts with outlandish predictions of boisterous economic growth. But analysts in the state Legislative Research Department now say the Kansas economy is growing at a slower rate than the national average, and growth in personal income is also lagging other states.

Continuing to hope for some great wave of economic prosperity is clearly not the solution.

Short of truly monstrous cuts to all state schools and services, the only budget measure that will restore Kansas to fiscal health is a reversal of the income tax cuts. Some lawmakers acknowledge that, but they’re not in the leadership ranks.

Closing a loophole that allows owners of certain businesses to fully deduct their salaries as well as their business earnings is a necessary reform, and seems palatable to some conservatives. But it won’t begin to make up for the structural imbalance created by the tax cuts.

Even revoking the controversial business tax exemption entirely would restore only about $220 million annually, economists say.

The collapsing of the individual income tax brackets created the biggest crater in the state’s budget — at least $600 million a year. In today’s anti-tax climate, it will be nearly impossible to roll that back.

But unless the Legislature somehow finds the courage to do exactly that, Kansas will never climb out of the hole. It’ll just keep digging.

This story was originally published April 23, 2015 at 5:31 PM with the headline "Ever-deepening Kansas budget hole offers few ways out."