The Budget Blog

Can current tax policy work in 2014?

By Duane Goossen

April 30, 2012

A new tax plan could dramatically affect the fiscal year 2014 budget, but passage of a new plan is still uncertain. So it makes sense to examine how FY 2014 finances might look if current tax law stays in place. The chart below does that.

Though final budgets for FY 2012 and FY 2013 remain unsettled, some reasonable assumptions of what may happen can be made so that we can look ahead to FY 2014. The revenue in the chart for FY 2012 and FY 2013 (in green) reflects the recently completed consensus revenue estimates. Expenditures for those same years (in red) show the governor’s recommendations, including his recent budget amendments.

Revenue for FY 2014 (in orange) is assumed to grow 4 percent over FY 2013. However, under current law, at the beginning of FY 2014 the state sales tax rate collected by the State General Fund drops from 6.3 percent to 5.3 percent, resulting in a revenue decrease of approximately $425 million (in blue). If spending in FY 2014 stays the same as in FY 2013 except for increases (in purple) for Medicaid and KPERS, the state would have a healthy ending balance of more than $600 million. Incoming revenue minus the sales tax reduction would almost balance with total expenditures.

SGF 2012-2014

Current tax law yields what looks like a fairly stable result in FY 2014. However, many things could change that. If revenue grows by more than 4 percent, the picture looks rosier, but revenue growth could be lower. Plus, while this scenario plans for larger Medicaid and KPERS costs, the state will certainly face spending pressures for school finance, higher education, state employee salary increases and other program inflation. Added spending to address those items would be possible in this scenario but would further lower the ending balance.