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January 24, 2014
Gov. Sam Brownback has recommended revisions to the already approved fiscal year 2014 and FY 2015 state budgets. In both fiscal years the governor proposes to spend more than the state receives. The governor’s spending proposals can be financed in the short term by drawing down the state bank account, but what happens after that?
The Kansas Legislative Research Department (KLRD) has released a new projection of what the governor’s proposals mean for the future of the State General Fund (SGF). The projection shows the state’s bank account dropping to almost zero in FY 2016, and in FY 2017, FY 2018 and FY 2019 substantial spending cuts must be implemented to stay solvent. Without the spending cuts, the SGF would have a negative balance of $921 million by the end of FY 2019.
The KLRD projection is particularly important because it offers credible insight into the future of the SGF that is otherwise not easily available to policymakers and the public. The governor’s budget documents do not contain any discussion or projections of what may happen after FY 2015.
How does KLRD make these projections? To estimate revenue in FY 2016 and beyond, KLRD assumes that sales tax receipts will grow 3.75 percent each year and that income tax receipts will grow 5 percent, then subtracts the cost of tax cuts that will continue to phase in.
To estimate spending, KLRD adds the likely cost of “must do” increases for human service caseloads (mostly Medicaid) and the Kansas Public Employees Retirement System, plus enough to keep school finance at present levels and continue phasing in the governor’s all-day kindergarten proposal.
The revenue assumption is generous. Four percent growth, not 5, has been the norm for this type of income tax projection in the past. The spending assumption is conservative by not taking into account any increases beyond very basic items that the state must plan for each year.
Even with generous revenue and conservative spending assumptions, the KLRD projection indicates that the state’s revenue stream does not support current spending patterns — let alone any new investments. The state cannot allow the bank balance to fall below zero, which means hard decisions are ahead. Lawmakers might be able to avoid most of those hard decisions during this legislative session by using the balance in the state’s bank account, but that puts the state in a more precarious financial position for the future.
—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.