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January 30, 2013
A chart worth studying from the governor’s budget outlines what the State General Fund might look like all the way through fiscal year 2019. At first glance, the future in this scenario appears quite stable and financially sound. Budgets balance for the next five years and FY 2019 ends with $529 million in the bank. However, it’s important to examine the key assumptions before drawing conclusions.
The chart, copied below, shows the governor’s proposed budget for FY 2014 and FY 2015 and projects what might occur through FY 2019. The chart comes from page 28 (and page 40) of Volume I of the Governor’s Budget Report for FY 2014.
The key assumption in this outlook is “higher revenue.” In total, the governor has proposed $541 million in new revenue for FY 2014. This scenario assumes the Legislature will enact all of that new revenue: extend the sales tax rate, eliminate the mortgage interest deduction, approve transfers from other funds. The outlook calculates that all tax revenue, including the new portion, will grow approximately 3.5 percent each year.
On the spending side, this long-term outlook projects “Aid to K-12 Schools” to be remarkably flat over eight years, along with “Higher Education” and “All Other Expenditures.” The line for human service caseloads (mostly Medicaid spending) is allowed to grow about $60 million a year after FY 2014, and the line for KPERS grows $50 million per year, both reflecting likely expenditure growth that the state must anticipate.
Absent from the chart is any expectation or plan that income tax rates might be further reduced or that the state may be required to add spending because of the current school finance lawsuit. If either of these two possibilities were inserted into the outlook, the budgets for future years would not balance.
What can we then conclude? Paying for the expected increases in Medicaid and KPERS, but just keeping school finance and all other spending basically flat, requires a large dose of new revenue in FY 2014 that must stay in place each future year. Without the increased revenue, even the modest spending levels envisioned in this scenario cannot be afforded.