The state of Kansas is loaning itself $675 million to ensure that it can pay its bills as it transitions from one budget year to the next.
That’s not unusual.
For the last 16 years, it has been standard practice for the State Finance Council to approve certificates of indebtedness, which transfer money from a fund used to collect fees and pay off bonds to the state’s general operating fund.
But the discussion at Thursday’s finance council was anything but routine. Sharp disagreements between Gov. Sam Brownback and Democratic legislators on the council provided a preview of what is likely to dominate the debate in the governor’s race.
At issue are the income tax cuts at the heart of Brownback’s economic strategy. The governor maintains the reductions – which virtually eliminated taxes for approximately 200,000 owners of large and small businesses – are fueling a surge in economic activity and helping to create private-sector jobs at a record clip, particularly in the Kansas City metropolitan area.
“We cut taxes and we did that purposefully,” Brownback said. “We did that to create a better economic climate and to put more money in the hands of Kansans. “And it’s working. We always projected there would be a dip in revenues.”
Revenue shortfalls in just the past two months of $310 million constitute more than a dip, critics say.
“The (Kansas) economy simply is not performing to the level that it should be performing and that’s one of the reasons why you’re seeing the state having to borrow large sums of money to be able to pay its bills,” said Rep. Paul Davis, the Democratic leader in the Kansas House and Brownback’s likely general election opponent in the governor’s race.
Senate Democratic leader Anthony Hensley, from Topeka, touched off a sharp exchange by resurrecting comments Brownback made last year after the council approved a $300 million certificate of indebtedness.
Noting that the state was forced to borrow $700 million from itself his first year in office, Brownback said the smaller loan was a sign of progress.
“Now, we’re down to $300 million,” he said at the time. “So, we continue to improve the fiscal situation of the state, which is really good news for the people of Kansas.”
If that was true then, Hensley said, this year’s $675 million loan is an indication that “the state’s fiscal situation is deteriorating.”
Brownback contends that a 2013 increase in federal capital gains taxes is more responsible for the downturn in state revenue than the income tax cuts. Investors sold assets ahead of the change, prompting a spike last tax year and a drop this year, he said.
A recent report on state revenues issued by the nonpartisan Rockefeller Institute confirms that revenue officials in many states faced “challenges in forecasting income taxes” due to the federal changes. However, it goes on to say that the drop in revenue has been steeper and more sustained in Kansas than other states because of the Brownback income tax cuts.
Jim McLean is executive editor of KHI News Service, an editorially independent reporting program of the Kansas Health Institute.