Kansas will collect $1 billion less in revenue in 2015 and 2016 than its projected expenses following massive income tax cuts signed into law by Republican Gov. Sam Brownback.
The new revenue estimates released Monday revealed that Kansas would burn through about $380 million in reserves and still need to cut $280 million to balance its current budget for fiscal year 2015, which ends next June 30.
The problem continues in 2016 when revenues are projected to run $436 million short of expenditures, the estimates show.
The revenue estimates were developed by a panel of fiscal experts that includes university economists, a legislative policy analyst, a representative from the governor’s budget office and the state revenue department.
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The new figure raises the prospect of deep cuts in the state budget following controversial income tax cuts that Brownback vigorously defended during his re-election campaign against Democrat Paul Davis. Critics worry that schools, roads and social services will be among the areas cut in coming months.
Brownback’s budget director, Shawn Sullivan, said the administration has no intention of revisiting the state’s tax policy, which calls for further income tax cuts through 2018.
“The state of Kansas must continue to live within its means just as families do every day,” Sullivan told reporters Monday. “Our primary focus will be to curtail growth in state spending through additional efficiencies and policy proposals.”
Sullivan said the Brownback administration has already identified about $150 million in efficiencies to help address the revenue shortfall. Among other things, he pointed to standardizing state computer systems and lower than expected health insurance costs for state workers.
The budget director left open the possibility that the governor could enact midyear budget cuts on his own or leave it up to the Legislature to decide how to pare government expenses.
He said he has been working on various budget proposals since becoming budget director in June, about five months before the gubernatorial election.
“We will do what we need to do to come up with a proposal that aligns the structural (budget) deficit, curtails state spending and protects core services,” Sullivan said.
Critics have long predicted that Brownback’s income tax cuts would push the state into a financial crisis. Earlier this year, Wall Street warned that the state would need to make deep budget cuts to account for declining revenues brought on by the tax cuts.
Both Moody’s Investors Services and Standard & Poor’s cut the state’s bond rating, alerting investors that the state was positioned to eat away critical reserve funds partly because of the income tax cuts. Without additional budget cuts, the state would be holding no money in reserve under the budget scenarios laid out Monday.
Senate Minority Leader Anthony Hensley accused Brownback of not telling the voting public the truth about his tax policies as the governor campaigned for a second term.
“He knew all along that his policies were going to bankrupt the state,” the Topeka Democrat told reporters. “There are some very, very difficult choices ahead for the Legislature. They’re going to have to cut school funding. They’re going to have to raid the highway fund. They very likely will have to cut social services.”
While Sullivan resisted the idea of reopening the debate over the state’s tax policy, Senate President Susan Wagle suggested in a prepared statement that taxes could be on the table during the upcoming legislative session.
“There is still tremendous economic uncertainty amongst investors and families, and our receipts have not recovered at the pace we had originally anticipated,” said Wagle, a Wichita Republican.
“While it’s difficult to predict a specific outcome, the state has an obligation to balance the budget,” she said. “We will evaluate both the tax and spending side of the ledger to meet that obligation.”
State Sen. Jim Denning, an Overland Park Republican, said in a recent interview that he would support ratcheting down the size of future income tax cuts and lengthening their duration to help stabilize the revenue picture.
“I am opposed to raising taxes, but I am not opposed to smoothing out the glide path and slowing down the reductions based on our economic activity,” Denning said.
Supporters of the Brownback tax cuts have argued that any decline in revenues caused by the tax cuts would eventually be offset with the economic growth they were intended to stimulate.
Sullivan boasted of a strong Kansas economy Monday night, saying that growth will close the state budget shortfall “down the road.”
“For the next 18 months, we’re going to to need to find efficiencies and develop policy proposals to help us plug the budget shortfall,” Sullivan said.