Kansas confronts massive budget shortfall as coronavirus sends tax revenue plunging

Kansas faces a devastating hit to tax revenues from the coronavirus pandemic, with losses that are expected to trigger a new era of deep budget cuts after state leaders spent the past three years trying to put Brownback-era austerity behind them.

The state will collect $1.2 billion less over the current and next fiscal years, according to an official forecast released Monday. The Legislature is expected to confront a budget shortfall of $653 million in the coming fiscal year.

“The unprecedented revenue collapse turned Kansas finances upside down overnight — it is the rainy day we feared could come,” Gov. Laura Kelly said.

State revenues had surged since 2017, when the Legislature largely repealed Gov. Sam Brownback’s tax experiment. But those days have come to an abrupt end.

The Republican-controlled Legislature and Kelly, a Democrat, face painful decisions in the weeks ahead. Officials would need to cut the state general fund spending by 8 percent to close the budget shortfall.

“This is a HUGE problem,” Rep. Tom Cox, a Shawnee Republican, tweeted.

The coronavirus and the stay-at-home orders to fight its spread have shut down large swaths of the Kansas economy. Many shops are closed. Restaurants are limited to carryout and delivery. More than 160,000 residents are out of work.

In total, the forecast predicts Kansas’s gross domestic product — a key economic indicator — will shrink by nearly 5 percent in 2020.

The swift downturn means fewer purchases and less income to tax.

The forecast has cut the anticipated amount of income tax revenue by nearly $400 million next fiscal year. Retail sales tax projections have been cut by $110 million next year.

Kansas joins states across the country in facing steep COVID-19 related budget shortfalls. Missouri, for example, has already cut $180 million.

Kelly is already hinting that reductions are ahead. Ahead of the projections, she instructed state agencies not to fill open positions and to avoid discretionary spending.

“Obviously, incredibly difficult budget decisions still loom in the weeks and months ahead,” Kelly said after the forecast was released.

State Budget Director Larry Campbell didn’t announce any additional steps Monday. But he said discussions are intense and the governor’s office will announce actions soon.

Senate President Susan Wagle, a Wichita Republican and a candidate for U.S. Senate, said the numbers represent an unprecedented shortfall. She called on Kelly to present a plan to reopen the state safely and soon.

“We need a productive Kansas to fund our schools, roads and public safety,” she said.

House Speaker Ron Ryckman, an Olathe Republican, said the shortfall shows it’s time to build a plan to restart the state economy.

“No one is asking the Governor to reopen the state before it’s reasonably safe to do so,” Ryckman said. “But, we do have to strike a balance that protects the long-term health of our families while also protecting the long-term outlook of our economy.”

Legislative leaders, including Wagle and Ryckman, must decide this week whether the Legislature will reconvene on April 27 as scheduled. Gathering 165 lawmakers in the Statehouse — along with dozens of staff, lobbyists and state officials — will increase the risk of spreading the virus.

Kelly’s stay-at-home order expires May 3. She has said she is hopeful she can slowly ease restrictions after that, but has cautioned that moving too quickly risks a second wave of infections. As of Monday, Kansas had 1,986 reported cases and 100 deaths.

The revenue projections — produced by budget officials, legislative researchers and university economists — show Kansas ending the current fiscal year with a $205 million surplus. Previously, the ending balance had been projected to be as high as $926 million.

The figures released Monday represent a new, pessimistic view of Kansas’s economic future. In November, before the emergence of COVID-19, the forecast had projected $7.65 billion in general tax revenues during the current fiscal year, which ends June 30, and $7.67 billion for the next fiscal year.

Kansas is now expected to collect $6.8 billion during the current fiscal year and $7.2 billion in the next.

“That’s just huge,” J.G. Scott, director of the Kansas Legislative Research Department, said. “I would say this is very historic in the amount of time that these revenues are dropping.”

Still, officials were quick to point out the bleak figures don’t account for potential federal aid softening the blow to state finances. Scott warned economic conditions are expected to worsen through the summer but that the recovery may begin to accelerate in the fall.

“But as far as getting back to 100 percent, we’re not sure when that would be,” Scott said.

This story was originally published April 20, 2020 at 6:49 PM with the headline "Kansas confronts massive budget shortfall as coronavirus sends tax revenue plunging."