Even After Tax Hikes, Kansas Budget ‘Fix’ Remains Elusive

Oct 31, 2017

After wrestling to balance the budget for years, Kansas lawmakers bit the bullet this spring and agreed to undo many of Gov. Sam Brownback’s signature 2012 tax cuts.  

The question now is whether they have done enough to fix the state budget, as many promised to do in the 2016 campaign. Lawmakers will get a better idea of the state’s financial situation later this week when the consensus revenue estimating group determines whether revenues are tracking with projections.

Kansas lawmakers overrode Brownback’s veto of a tax plan in June, retracting the 2012 income tax exemption for thousands of business owners and raising individual income tax rates.  

At the time, Republican Rep. Stephanie Clayton of Overland Park found it hard to believe they had taken a step toward fixing the budget. 

“I think that it was very big. It hasn’t even sunk in yet, honestly, the reality,” Clayton said. 

Rep. Stephanie Clayton, an Overland Park Republican, says she still finds it hard to believe that lawmakers voted to repeal income tax cuts approved in 2012. “It hasn’t even sunk in yet, honestly, the reality,” she says.
Credit Kansas Legislature

Four days after the tax vote, lawmakers approved a budget with some targeted spending increases — including $300 million more for schools over two years — in the hopes that it would be enough to satisfy the Kansas Supreme Court and end a long-running battle over public school funding.

But in an order issued after the Legislature adjourned, the court said the increase that lawmakers approved was not sufficient to ensure adequate and equitable funding — a clear indication that work remains before lawmakers can claim they have stabilized the budget.

There are other indications as well.

The Kansas Constitution requires a balanced budget, so lawmakers and other policymakers keep a close eye on revenue reports and estimates.

Sen. Mary Pilcher-Cook, a conservative Republican from Shawnee, said the state isn’t able to make its scheduled contributions to the Kansas Public Employees Retirement System.

“We can pretend that we have a balanced budget, that there has been some sort of structural fix,” Pilcher-Cook said. “This is a fake budget that does not pay our bills.” 

A “structural fix” would mean the Kansas budget is balanced without any accounting tricks or one-time cash.  

Kicking the can?

After the 2012 tax cuts took effect, state tax collections tumbled by $700 million in the first year as Kansans kept more of their income. Tax collections in 2018 are expected to rebound back to roughly where they were before.  

Revenue estimators will be looking for evidence that is happening when they meet Thursday.

Republican House Majority Leader Don Hineman of Dighton said in August that for the first time in a while, Kansas tax collections were beating estimates. He is among those counting on that trend continuing.

“That’s good news in terms of the budget,” Hineman said. “It raises the possibility that maybe we make some downward adjustment to tax rates in the future if we can.”

Dave Trabert, president of the Kansas Policy Institute, a nonprofit organization focused on limited government, said the tax increase won’t be enough to stabilize the budget. There will continue to be structural problems until spending is substantially reduced.  

“The can has been kicked down the road as far as possible,” he said. “We’re going to have to get spending under control.”

The state needs a top-to-bottom overhaul to employ efficiencies and cut spending, according to Trabert. If lawmakers don’t do that, he said, the budget will be in the red by 2020, even before considering additional costs for services like education. 

“Whether they want to admit it or not, history says they are setting Kansans up for perhaps the mother of all tax increases,” Trabert said. 

“History says they are setting Kansans up for perhaps the mother of all tax increases.” — Dave Trabert, president of the Kansas Policy Institute

Uncertainty remains because official state budget estimates only cover two years. Nonpartisan legislative staff said internal budget projections they’ve produced show the state could be in the red in 2020, driven by variables like pension costs.  

Heidi Holliday leads the Kansas Center for Economic Growth, a nonprofit organization that often takes the opposite view of the Kansas Policy Institute. Sitting in her office recently with her newborn son, Holliday said spending cuts aren’t the answer to the state’s fiscal challenges, because they would hinder the state’s ability to make needed investments in education, social services and other critical programs.

“As I was sitting in (legislative) committee hearings pregnant, I was thinking about, ‘What legacy are we leaving for kids that are growing up in Kansas?’” she said. 

For her, enhancing that legacy means Kansas officials should be investing more in state services. 

“We’re already operating pretty bare bones,” Holliday said. “I think what we have to look at moving forward are ways that we can raise additional revenue through the state.” 

She suggests options including new taxes on services and on internet sales. 

A complicating factor: school finance

The recent Kansas Supreme Court ruling declaring public school funding inadequate further complicates the state budget picture. That could force Kansas lawmakers to come up with hundreds of millions of dollars more for education.  

Republican Rep. Steven Johnson, chairman of the House Tax Committee, was feeling upbeat about the fiscal forecast before the court’s ruling thanks to growing tax collections.

RELATED: 5 Reasons the Kansas Supreme Court found the state’s school funding unconstitutional

After the ruling, Johnson said he was “much less confident” about the state’s financial situation because positive tax collections alone won’t balance the budget and provide additional money for schools. 

“You’ve got to have growth beyond our wildest expectations to be able to even meet a meaningful part of it,” he said. 

Rep. Jim Ward of Wichita, the top Democrat in the Kansas House, said it makes sense to expect several years of work to fix the state’s fiscal issues. 

“We didn’t get so far underwater overnight,” Ward said. “We’re not getting out immediately, nor should we. That’s too much of a shock to the system.”  

Stephen Koranda is Statehouse reporter for Kansas Public Radio, a partner in the Kansas News Service. Follow him on Twitter @kprkoranda.