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January 22, 2013
The recently released governor’s budget for fiscal year 2014 relies heavily on raising new revenue in order to balance. Without revenue raised by extending the 6.3 percent sales tax rate and eliminating the mortgage interest income tax deduction, the budget will go into the red.
It’s not hard to imagine the Legislature passing the governor’s spending proposals because the governor recommends keeping most spending remarkably close to current levels. The budget uses highway fund dollars and gaming monies to pay for some expenses currently covered by the State General Fund, which makes SGF spending appear to go down, but overall the budget does not contain dramatic spending cuts or increases.
However, the governor’s revenue proposals have a much tougher path to get through the Legislature. What if the Legislature chooses not to pass the two most controversial revenue proposals? Without the sales tax increase, the governor’s budget would have $262 million less revenue in FY 2014 and $297 million less in FY 2015. Leaving the mortgage interest income tax deduction in place means $163 million less revenue in FY 2014 and $132 million less in FY 2015.
The governor’s budget uses these proposed revenue increases to support spending rather than further reducing the income tax rate. Subtracting just these two revenue increases brings the ending balance in FY 2014 almost to zero and puts the ending balance in FY 2015 at $400 million below zero. The chart below summarizes that scenario.
The Legislature will vote on the spending side of the budget separately from the tax increases. If at the end of the session the Legislature has passed something similar to the governor’s spending budget but not the revenue increases, some very hard choices still will have to be made.
—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.