Duane Goossen: Revenue Continues Downward Path

Feb. 5, 2015

Seven months into fiscal year 2015, general fund receipts remain below last year’s level. That leaves a very grim outlook for the Kansas budget.

A quick review: In FY 2014 revenue dropped precipitously—$688 million down in one year. Now with FY 2015 more than half over, revenue is $65 million under the anemic pace of FY 2014. Yet, the official FY 2015 revenue estimate, even after post-election revisions, still forecasts growth of $116 million.

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What happens if FY 2015 revenue does not grow? The FY 2015 budget was already $279 million in the hole using the assumption that revenue would reach $5.769 billion this year. The bank account is empty. A rainy day fund does not exist. If revenue fails to increase enough to meet the projection, the hole to be filled in the remaining months of FY 2015 will be even bigger.

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Several other things to consider:

  • The Kansas severance tax on oil is tied to price. With the price of oil quite low, severance tax receipts will be less than expected, but severance tax collections lag behind oil price changes, so the shortage will hit in the remaining months of FY 2015.
  • Sales tax receipts have grown only a weak 2.1 percent in the first 7 months of FY 2015. In a normal economic time, that growth should be 3 to 4 percent, and if tax policy had produced a shot of adrenaline for the economy, the growth should be much higher than that.
  • If the current FY 2015 revenue estimate ends up being too high, that means the FY 2016 and FY 2017 revenue estimates are also too high because they are based on FY 2015.

February and March receipt totals are unlikely to tell us much. If the pace of income tax refunds is slow, as it was last year, receipts will appear higher than they really are. The key months to watch are April and May.

School districts and state agencies should be very cautious. Revenue remains uncertain, and more cuts may need to be applied late in the fiscal year.

The January revenue report is further evidence that Kansas finances are far out of balance. Kansas does not have a stable revenue stream nearly large enough to cover regular, normal expenses.

Duane Goossen is a senior fellow at the Kansas Center for Economic Growth

Duane Goossen is a senior fellow at the Kansas Center for Economic Growth

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