May 23, 2017

Monday was the fifth anniversary of the enormous, revenue-depleting tax cuts signed by Gov. Sam Brownback in 2012, and lawmakers marked the occasion by debating legislation (Senate Bill 30) that would have raised income taxes by almost $600 million per year. SB 30 would have restored the third income tax bracket, set rates at 3.1 percent, 5.25 percent and 5.7 percent, and repealed the LLC exemption. Although the bill failed 53-68 in the House, this is largely because only 14 Democrats supported it — the rest want to secure a better deal.

SB 30 would have covered the projected $900 million shortfall that Kansas faces over the next two years, but that number underestimates the extent of the state’s overall financial burden. While the bill would have been a drastic improvement over the status quo, the Legislature needs to make sure that the tax package it finally passes will fully address the gap between revenue and expenditures. Moreover, the state needs to figure out how to pay its bills without extracting $300 million from the highway fund year after year.

Here’s what the $900 million figure leaves out: the hundreds of millions of dollars that will be required to fund K-12 education in Kansas. It’s impossible to know exactly how much the Supreme Court will require the Legislature to allocate to our state’s schools, but estimates range as high as $800 million. A proposal released by the House K-12 Budget Committee in early April would have increased education funding by $750 million over the next five years, but the most recent bill would only raise about $450 million over the same period of time. The committee passed that bill 10-6, but didn’t include a recommendation — an indicator that lawmakers had considerable reservations about the level of funding.

Many legislators have suggested that $450 million won’t be nearly enough to satisfy the court, which means more money will have to be allocated before the June 30 deadline. Meanwhile, the state’s recurring revenue is expected to be around $5.7 billion in fiscal years 2017 and 2018 — not nearly enough to cover its expenditures, which stand at around $6.3 billion this year and $6.4 billion next year. This discrepancy is the source of the shortfall, which is why this year’s budget pulled $291 million out of a long-term investment fund.

Again, the real shortfall is much larger than $900 million over two years — Duane Goossen is the senior fellow at the Kansas Center for Economic Growth, and he points out that the projected $6.4 billion in expenditures for FY 2018 don’t “address the increased spending needed to fix school finance.” If the school funding obligation ends up being $750 million over five years, the shortfall would be roughly $850 million in 2018 alone — much more than the amount that would have been generated by SB 30. And this doesn’t even account for the liabilities the state is assuming by withholding pension payments taking out loans that will have to be paid back.

This is the problem that lawmakers have to find some way to confront: if they pass a comprehensive tax package that still doesn’t achieve structural balance, they’ll be forced to revisit the issue in the immediate future. While SB 30 would have put Kansas in a much stronger fiscal position, the legislators who voted for it need to explain how they’ll close the remaining budget gap. They also need to explain why it would have been a better solution than a full repeal the 2012 tax cuts that have cost our state billions of dollars over the past five years.

Read more from the Topeka Capital Journal here.

ClayTOPEKA CAPITAL JOURNAL: Editorial: Waiting for a better tax deal in Kansas