State revenue forecasters said Monday that the state can expect hundreds of millions of budget dollars less than previously thought to fund schools, social programs and highway projects.
The consensus revenue estimating group lowered the official projections it made in April by $205 million. If accurate, the revised forecast means that Gov. Sam Brownback and legislators will have to raise taxes or make deep cuts in spending during the remaining seven months of the budget year to avoid a $278 million deficit. Additional cuts will be necessary to prevent a $435 million deficit in the next budget year, the analysts said.
In May, Kansas legislators and Brownback approved a budget of about $6.3 billion for the fiscal year that started July 1. That was already more than the state was projected to collect, but a healthy reserve fund was expected to cover the difference. However, lagging tax collections will force the state to spend through its reserves and cut spending.
Budget Director Shawn Sullivan said he was not counting on any tax increases. Instead, he said, the Brownback administration would focus on curbing state spending.
“The state of Kansas must continue to live within its means, just as families do every day,” Sullivan said.
Sullivan said he would begin working on a menu of options for reducing the budget and discuss with Brownback whether the cuts can wait until the Legislature reconvenes in January. If not, the governor could use his allotment authority to start cutting before then.
“Both of those are options,” Sullivan said.
Sullivan said he had already identified $100 million in efficiencies that can be implemented without reducing services. He also said the projected deficit in the current budget year is based on the state restoring some programs that it hasn’t funded in recent years. He cited the Local Advalorem Property Tax Reduction fund as an example. It was once used to help lower county property taxes.
“It would be probably fairly reasonable to suggest if we haven’t funded LAVTR in 10 years and counting, we probably aren’t going to start now,” Sullivan said.
Several factors led the forecasters to lower their projections. The income tax cuts championed by Brownback forced the biggest adjustment.
“It's fair to say estimates in April missed the marks,” Sullivan said.
A 2012 plan that Brownback spearheaded dropped state income tax rates and eliminated the income tax for owners of about 191,000 businesses organized as LLCs, sole proprietorships or other forms that produce “pass-through” income.
Sullivan said a one-time drop in taxes paid on capital gains caused by a change in federal tax policy was more to blame for the drop in revenue than structural problems with the Brownback tax plan.
Senate Minority Leader Anthony Hensley, a Topeka Democrat, disagreed.
“This is the budget crisis that was self-imposed by Governor Brownback and the Kansas Legislature,” Hensley said.
Hensley called the new projections “devastating” and said the budget crisis was “far more serious than I had even thought.”
He said the governor and Legislature could not close the gap without affecting government services.
“They’re going to have to cut school funding, raid the highway fund and very likely have to cut social services,” Hensley said. “There are some very difficult decisions ahead.”
Sullivan said economic growth eventually would close the budget gap, even as more tax cuts are set to automatically kick in during the next five years.
The state also ran sudden deficits during the national recession that began in 2008. Then-Gov. Mark Parkinson reduced spending and raised taxes to deal with the drop-off in revenues.
An infusion of federal dollars prevented deeper cuts then, said Raney Gilliland, director of the nonpartisan Kansas Legislative Research Department.
“It’s not a national phenomenon, so I don’t expect the federal government to come to our rescue this time,” Gilliland said.
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