With state coffers effectively zeroed out, state lawmakers aren’t sure what’s next in trying to fix another looming Kansas budget crisis.
One thing is fairly certain: New tax increases, the savior last legislative session, can’t come to the rescue in time.
Some legislators, particularly Democrats and moderate Republicans, want an about-face on Gov. Sam Brownback’s tax policy. But by the time new taxes could be approved in the 2016 legislative session and collected, they would be almost no help to the fiscal year budget that ends in June.
That’s a $6 billion budget with a projected ending balance now of just $5.6 million, which was the result when officials earlier this month lowered revenue estimates and made more than $100 million in budget adjustments.
If anything untoward happens in the next six months or so — a multimillion-dollar court award in a school funding case, say, or more sales tax revenue declines — the state would be quickly plunged deep into negative territory.
To put the $5.6 million surplus in perspective, state law requires legislators to keep a prudent ending budget balance that’s 7.5 percent of the general fund budget — or about $400 million. With that figure unreachable, legislators temporarily set aside the ending-balance law.
Besides the timing issue, new taxes also aren’t in the cards politically. Brownback says a dialed-back 2016 budget will survive without them.
“The budget can be balanced without raising taxes on anyone through strong fiscal management and holding state spending to the same levels as last year,” said Eileen Hawley, spokeswoman for Brownback.
With the budget changes announced recently, the 2016 budget is about $66 million higher than the previous year.
Asked the “what’s next?” question, House Speaker Ray Merrick, a Republican from Stilwell, pointed to a government efficiency study underway by consultants Alvarez & Marsal.
“I believe there is a budget solution,” he said, “and look forward to the results of the efficiency study to help ensure that every tax dollar is used as wisely and effectively as possible.”
In fact, many Republicans are counting on the efficiency experts to find savings. Results from the study, expected to cost about $2.6 million, are due the first of the year.
“I am holding out a lot of hope for the efficiency audit,” said Rep. Jerry Lunn, an Overland Park Republican.
Lunn said an operation the size of state government should hold plenty of opportunities for savings. But he said lawmakers also should consider options such as reducing spending by not filling open positions.
Rep. John Rubin, a Shawnee Republican, said cuts will be required. And money must be found for urgent needs, he said, such as boosting pay for state prison officers.
The high churn of prison guards who leave for higher paying in other jurisdictions is causing a serious safety issue that could become catastrophic, he said.
In terms of reining in spending, Rubin is adamant that the state spends too much on education and spends it ineffectively. From high salaries to large administrative staffs to high overhead costs, school districts and higher education officials are wasting money, he said.
“As I’ve said many times, education is a central, vitally important core function of state government, but it’s not the only one,” he said.
But Rep. Marvin Kleeb, an Overland Park Republican and House tax committee chairman, said Brownback has been clear that he wants to preserve funding levels for K-12 and higher education.
Kleeb said lawmakers will be watching November and December tax receipts as they consider their options.
“Now that we have our revenue estimates adjusted down, I think we need to see how things play out,” he said. “We may have some improvements in sales taxes.”
Sen. Jim Denning, an Overland Park Republican, agreed that if the new revenue estimates are on target, it will be possible to “manage our way out of this.”
But that will take additional cuts and more fund transfers, he said. In fact, Denning said, the ending balance of $5.6 million needs to be addressed quickly. For instance, the governor could ask legislators to allow the transfer of an additional $50 million from the Department of Transportation to the general fund, Denning said.
The state’s Consensus Revenue Estimating group earlier this month dropped its estimate for fiscal year 2016 revenues by $159 million, which prompted the budget adjustments. State revenue from sales taxes, corporate income taxes and oil and gas severance taxes has slumped. Individual income taxes are up.
The drooping sales tax revenue has been a head-scratcher for state officials, especially at a time when gas prices are down. Consumers may be using that extra money to pay down debt, and they may be buying more online, officials said.
Faced with a budget shortfall in the 2015 legislative session, lawmakers boosted sales and cigarette taxes and did away with some income tax deductions.
Democrats and moderate Republicans in the Legislature say Brownback’s tax policy, backed by conservative Republicans, is to blame for the budget woes.
Cutting income tax rates a few years ago to boost the economy didn’t work, they say, and they’re especially critical of a loophole that allows about 330,000 small businesses to pay no taxes, a perk that costs the state an estimated $200 milllion in lost revenue.
Annie McKay, executive director of the Kansas Center for Economic Growth, which opposed the administration’s tax plan, said there aren’t good options to fix the 2016 budget.
The administration’s budget adjustments — sweeping funds from agencies into the general fund — reached into the future to pay for the present, she said.
And talk of cutting school funding to pay for corrections shows how extreme the situation has become, she said.
“Cuts do damage that will take decades to undo,” McKay said. “We are bouncing month to month, running from fire to fire, with no plan for the future.”
But Dave Trabert, president of the Kansas Policy Institute, said spending cuts are in order. State revenue was up 28 percent from 2004 to 2014, which was 4 percent higher than inflation, he said.
And Kansas’ $6 billion budgets are at all-time highs, he said. The 1995 budget, adjusted for inflation, would be about $5 billion, Trabert said.
“We don’t have a revenue problem,” he said. “We have a spending problem.”
Senate Minority Leader Anthony Hensley, a Topeka Democrat, said it’s hard to see how budget cuts could be avoided next session. The Kansas constitution requires the state to operate on a cash basis.
“We’re coming perilously close to violating the constitution with that kind of ending balance,” Hensley said. “We’ll be going into the legislative session pretty much where we were last year at this time, and it could be worse.”
Group estimates Kansas budget shift will cut money to early childhood programs by 6.5 percent