The warning sounded last spring.
Wall Street signaled that Kansas was headed for a financial mess unless the budget was cut to account for deep income tax cuts engineered over the last two years by Republican Gov. Sam Brownback.
On Tuesday, the warnings were answered with budget cuts.
Brownback announced a 4 percent cut to state agency budgets and proposed moving $200 million from dedicated funds to fill a $280 million budget hole for the fiscal year that ends June 30. Some of the cuts Brownback can impose on his own. Others face approval by the Legislature.
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Brownback’s plan only addresses the current fiscal year. The state still faces a $436 million budget deficit for the next fiscal year. The Legislature will be asked to solve that problem in the upcoming session.
“These first steps are a down payment in resolving the immediate budget issue,” Brownback said.
For now, at least, funding for local schools districts, higher education and Medicaid is spared. But the governor’s budget director said the governor is committed to changing the school finance formula to stop what he characterized as “unsustainable” increases in non-classroom spending.
Administration officials could not spell out in detail how the governor’s plan would affect state services. But in some cases, agencies said they could weather the budget storm without major disruptions.
The governor is making up a big chunk of the current year’s deficit by drawing $95 million from the state’s highway fund. He wants to cut highway department operations by an additional $7.8 million. Both actions would need legislative approval.
Transportation officials said that they can still complete the state’s 10-year, $8 billion highway program. Among other things, that funds a new interchange at Interstate 435, Interstate 35 and Kansas 10 in Johnson County.
They say projects are coming in under estimate. Plus, over 10 years, the state is receiving $577 million more state sales taxes and federal money than projected earlier. They do not believe they will have to cut jobs or salaries in reducing operations.
Brownback budget director Shawn Sullivan said state agencies have been working for several weeks to identify how they might cut their budgets. He said they are expected to submit their plans to him within two weeks.
So far, Sullivan said, he didn’t expect major changes to services run by the state agencies.
“They’re going to be able to minimize the impact to their programs and the people they serve,” he said.
A look at other areas that are being cut or where funds are being moved around to fill the budget deficit for the current fiscal year:
▪ The state proposes moving $55 million out of the health department from rebates received from the federal government for Medicaid consumers filling drug prescriptions. The state health department also will have to find an additional $774,000 in budget cuts.
▪ Of proceeds from tobacco litigation, $14.5 million would be taken from an endowment that funds early-education children’s programs. Kansas Action for Children immediately criticized the move, saying that 200,000 children who use those programs would bear the price of the governor’s tax policies.
The governor’s budget director said there would be enough money from the tobacco settlement to continue funding the programs that are in place.
▪ The state will reduce its contribution to the state employees’ pension system by $40.7 million. Brownback campaigned for re-election citing his efforts to bolster the retirement system.
Republican Senate Vice President Jeff King of Independence criticized the cut in the pension contributions. He said it would undo “hard-fought” gains made in recent years to fix the under-funded system.
It was hard to get a reading on how state agencies would respond to the 4 percent across-the-board cuts that Brownback announced on Tuesday.
For example, the state Department of Aging and Disability Services would be cut by $600,000. A department spokeswoman said the agency was still reviewing its options and would announce any reductions.
The governor wants to cut the Kansas Highway Patrol by about $1 million, an action that faces approval by the Legislature.
A Highway Patrol spokesman said the savings could come from leaving vacant 60 to 80 open positions and programs funded with fees such as vehicle identification inspections.
The Revenue Department also is staring at about $1 million in cuts, most of which face approval by the Legislature.
“We are in the process of reviewing everything,” said Revenue Department spokeswoman Jeannine Koranda.
Brownback also proposes cutting the parks department by about $500,000, another move that faces approval by the Legislature. A spokesman said the department has seen increases in parks fees that could offset the cut proposed by the governor.
The budget cuts announced Tuesday renewed arguments against the tax cuts that the governor pushed through the Legislature in 2012 and 2013.
Brownback campaigned on the tax cuts — and won re-election — despite foreshadowing that the state was headed for financial trouble.
Earlier this year, two bond rating agencies downgraded the state’s credit rating partly because the state had not reduced its expenses as it cut taxes.
Brownback largely sidestepped the issue during the campaign, at one point describing his critics as “Chicken Little” claiming the sky is falling.
“Sam Brownback’s actions today prove that his re-election campaign was nothing more than a list of false promises,” Senate Minority Leader Anthony Hensley of Topeka said in a statement. “While accusing his opponent of lying, it’s Sam Brownback who lied to the people of Kansas.”
Incoming House Minority Leader Tom Burroughs of Kansas City, Kan., criticized the governor for choosing to carve up the budget instead of reworking a tax policy that is failing the state.
“Unfortunately, this is only the beginning,” Burroughs, a Democrat, said in a statement. “He has made his priorities very clear, and there’s no doubt that our public schools will be next on the chopping block.”
Brownback’s spokeswoman did not respond to the Democratic lawmakers’ comments.
Even Senate President Susan Wagle, a Brownback ally, questioned the governor’s approach. The Wichita Republican noted in a statement that a large portion of the savings come from one-time transfers from state agencies, leaving the Legislature with many hard spending decisions to make.
“There is no doubt the governor’s announcement has put the Legislature in a difficult position,” Wagle said in a statement.
Within a week of Brownback’s winning second term, a panel of state fiscal experts released revenue estimates showing the state would collect $1 billion less in two years than estimated earlier.
As a result, the state ate through $380 million in reserves, leaving it with a $280 million deficit for this year and $436 million for next year.
The governor’s actions only balance the budget. They don’t provide the state with any reserves, which under state law must be 7.5 percent of total expenditures — generally more than $400 million.
Sullivan said the governor’s action does not mean the state will ditch its reserves, something Wall Street looks at in assigning credit ratings.
Sullivan wouldn’t be specific about how the state would achieve those reserves and how much the administration would like to have in its rainy day fund.