Rosy Kansas revenue numbers just don’t add up

04/05/2014 6:10 PM

04/05/2014 6:10 PM

The nation’s eyes — including Missouri’s legislature — are on Kansas to see how the radical experiment is going.

Individual income taxes have been slashed, as well as other major tax cuts implemented, and the question is, what now? Will the state hit the wall, or will Kansas Gov. Sam Brownback and the Kansas Legislature prove that tax cuts will spur on the economy and actually increase revenues?

Kansas Secretary of Revenue Nick Jordan thinks he already has an inkling of the answer, which he presented to me with Powerpoint slides. It was the same presentation he had made the day before to more than 100 Johnson County business leaders in Topeka.

Jordan makes the case that we already see indications that things are working as planned.

Not so fast.

I checked Jordan’s figures with Bernie Koch (no relation to the Koch brothers) of the Kansas Economic Progress Council; with Duane Goossen, former Kansas budget director from 1998 to 2010; and with Annie McKay, who runs a think tank called Kansas Center for Economic Growth.

I came away with a consensus view that there are two things we know for certain.

State revenues have gone down, and that, as Goossen said, “We have dramatically cut the revenue stream and have less money to work with.”

Also, Jordan’s presentation is misleading on several counts.

Jordan would have you believe that the early numbers are in and, so far, it’s a success.

Jordan boasts that total private sector job growth in Kansas from 2011 through 2013 has resulted in 45,000 new jobs. What he does not tell you is that the trend is below surrounding states and lower than the national trend. Also, these numbers do not reflect the number of businesses that folded during that period or jobs lost. In other words, 45,000 is not a net number.

Jordan presents another slide that declares individual income tax receipts through February 2014 are over projections by 7.3 percent or $104 million. What he fails to mention are two important facts. The first is that there was a one-time tax receipt in 2014 of $50 million, due to a tax settlement. And second, for the first eight months of fiscal year 2014, income tax revenues have shrunk over the previous year from $1.8 billion down to $1.5 billion. While receipts may be a bit greater than expectations, they are still well below last year’s.

Jordan’s slide also declares that overall tax receipts, so far, are $118 million or 3.4 percent over projections.

This is a meaningless number, because February is too early to tell what the tax receipts will be for 2014. We have to see whether the right amounts have been withheld, and how much taxpayers will be getting in refunds or how many will owe more. We won’t know until late May how things came out.

Jordan also presented a comparison between general fund receipts in 2013 vs. 2012, which he indicates is $6.3 billion vs. $6.1 billion. But wait a moment.

These numbers are way too premature. They do not take into consideration the new tax policies because they were not yet in effect. We will not know the impact of the tax cuts until the 2014 fiscal year is taken into consideration.

These are just a few of the questionable claims Jordan is making.

OK, one more slide.

Jordan correctly shows the ending balance eroding from 2014 to 2015, from about $500 million down to $250 million. What he does not show is the following year, 2016, when the ending balance is projected to be near zero.

Of course, all of this is before the Kansas Supreme Court ordered the Legislature to come up with an additional $129 million by July to equalize school funding, some or most of which may come from the ending balance.

Understanding that this is a campaign year for Brownback, it is easy to see why his administration would like to rush out numbers that paint a glowing picture.

But the numbers, at this point, are just plain half-baked, if not blatantly misleading.

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