The Budget Blog

A tax plan and fiscal year 2014

Even though the Legislature has not finished work on a budget for fiscal year 2013, looking ahead to FY 2014 has become quite important. Why? Because actions in this legislative session, especially on a tax plan, could have dramatic effects on FY 2014 state finances. Several documents worth studying describe this.

The House has passed a tax plan that reduces income tax rates and dedicates any revenue growth over 3 percent to further tax rate reductions. Kansas Department of Revenue fiscal information indicates the House plan would lower state revenue by $333.7 million in FY 2013 and by $428.8 million in FY 2014. The supplemental note for House Substitute for Senate Bill 177 explains the plan.

The Senate passed an even costlier plan that also reduces income tax rates and eliminates taxes on some kinds of business income. Information from the Department of Revenue shows the Senate plan dropping state receipts by $233.1 million in FY 2013 and by a whopping $829.0 million in FY 2014. The supplemental note for Senate Substitute for House Bill 2117 explains the plan.

Two documents released last week by the Kansas Legislative Research Department attempt to portray the budgetary effect that the tax plans might have on FY 2014. One prepared at the request of Rep. Marc Rhoades, R-Newton, shows how FY 2014 might look if the House tax plan passes. Another prepared at the request of Sen. Carolyn McGinn, R-Sedgwick, shows how FY 2014 might look if the Senate tax plan passes.

In both cases the documents project reasonably healthy State General Fund ending balances for FY 2013, but by FY 2014 the ending balances go negative. In the House scenario the FY 2014 ending balance shows a $98.4 million deficit, and the Senate scenario results in a $680.3 million deficit.

Projections of what might happen in FY 2014 certainly are not perfect forecasts and depend on a number of assumptions of what might happen. However, they illustrate the importance of looking ahead to FY 2014 while making decisions now. Though next year’s FY 2013 budget might seem sound, deep revenue cuts could change that for future years.