Slump in oil prices hurts Kansas but tax cuts do far more damage

Kansans who want state government to provide solid public services are dealing with a double whammy in 2016.

The crash in worldwide oil prices is slicing into the state’s revenues while Gov. Sam Brownback’s individual income tax cuts are continuing to slash deeply into the funds required to serve residents.

Brownback and others recently have pointed to concerns that low oil prices will worsen Kansas’ ongoing budget crisis. This fear is well-placed — but only to a degree.

In fact, receipts from the so-called severance tax levied on the value of oil and natural gas extracted in Kansas do not make up a significant part of the state’s budget.

By far the biggest contributors to the state’s horrible financial situation are the individual income tax cuts that took effect in January 2013.

Motorists, of course, are enjoying one result of the dramatically lower cost of oil: Gasoline prices had fallen to around $1.50 a gallon or even lower on Monday in the Kansas City area.

However, many states’ budgets will be affected by the plunging price of crude. Standard & Poor’s Rating Services recently released a report that ranked eight states in the “high risk” category. One is Alaska, where oil-related revenues account for a nation-leading 80 percent of the state’s operating budget. The others: Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming.

By contrast, Kansas was in the report’s “low risk” category.

The problems with oil are causing different responses in the eight states.

Alaska’s governor has proposed tax increases. Louisiana’s budget problems could force service cuts. North Dakota may have to use some of a large stabilization fund it smartly put away during the boom years. (Kansas did not do that, blowing through $700 million in savings in Brownback’s first term.) Texas could slow spending on its highways.

Here’s the situation in Kansas.

Total oil and natural gas tax revenues have averaged just over $100 million annually in the last four fiscal fiscal years. That’s a small part of the state’s overall general fund budget, which has hovered in the range of $6 billion.

The oil and natural gas tax receipts were:

▪ 1.7 percent of the total tax revenues in the 2012 fiscal year budget.

▪ 1.6 percent of the 2013 budget.

▪ 2 percent of the 2014 budget.

▪ 1.6 percent of the 2015 budget.

Still, low petroleum prices do account for a discouraging development in the 2016 fiscal year budget, which began last July 1 and ends June 30 of this year.

Kansas’ severance tax revenue stood at $11 million through Dec. 31, halfway through the fiscal year. That was only 0.4 percent of total tax receipts collected at that point, far below expectations.

At that pace, the state would rake in only $22 million for the full fiscal year.

To put that in perspective, however, the potential reduction in taxes on oil and natural gas extraction would pale in comparison to the huge hits created by Brownback’s income tax reductions.

The tax cuts slashed individual income tax revenues by more than $650 million annually between the 2013 and 2015 fiscal years.

That crash has led to large, enduring budget woes the Legislature must deal with in 2016. One solution: Repeal the tax cuts.

This story was originally published January 26, 2016 at 5:49 PM with the headline "Slump in oil prices hurts Kansas but tax cuts do far more damage."