The Budget Blog

Read the January revenue report with caution

Last week the state announced that January State General Fund (SGF) revenue was $61 million more than expected. While the report certainly communicates a positive result, it likely makes things sound better than they really are. Higher collections now may mean lower collections next year.

Of all the major sources of SGF revenue, only individual income tax collections performed better in January than expected, and two unusual factors explain why. First, the federal government was slow to open its electronic income tax filing system, which means that both federal and state income tax returns that ordinarily would have been filed in January were not filed. Most early filers have refunds coming due, and the refunds — if they had been paid — would have reduced the state’s January income by some portion.

More important, though, January was the first month in which new lower Kansas income tax rates were in effect. Top income tax rates dropped from 6.45 and 6.25 percent to 4.9 percent, and the lower rate went from 3.5 percent to 3.0 percent. Employers should have started withholding a lower amount from employee paychecks, but apparently not all did. The amount withheld from paychecks counts as state income now, but if too much has been withheld, large income tax refunds will be paid out next year at this time as Kansans file their 2013 tax returns.

With such a large change in tax rates, it’s not surprising that monthly tax collections become hard to predict, but the uncertainty and fluctuation complicates the budget debate. Legislators are seeing more income than expected now, but they easily could see less income than expected next year after the budget for Fiscal Year 2014 (July 1, 2013, to June 30, 2014) has been set.

A new updated consensus revenue estimate will be done in April, and at that time the estimators must take all of this into account. However, we will not have the final answer on the monetary effect of the tax rate reductions until most of the 2013 income tax returns have been filed in April and May of 2014.

The chart below, produced by the Kansas Division of the Budget, shows the receipt amounts estimated for January, the amount that actually arrived and the difference between the two.

Kansas State General Fund Receipts, FY 2013

—Duane Goossen, KHI's Vice President for Fiscal and Health Policy, served as state budget director for 12 years in the administrations of three governors — Republican Bill Graves and Democrats Kathleen Sebelius and Mark Parkinson. He also served in the Kansas House of Representatives from 1983 to 1997.