Jonathan Shorman
January 13, 2015

Oil tax revenue will miss estimates, a legislative researcher told lawmakers tasked with crafting a solution to the state’s budget deficit Tuesday. The missed target could exacerbate the revenue shortfall already facing Kansas.

The House Appropriations Committee, in its first meeting of the legislative session, also confronted figures showing income tax cuts will deprive the state of nearly $5 billion over seven years.

Chris Courtwright, an economist for the Legislature, said falling oil prices will cut into oil severance tax revenue — a tax applied on oil producers when they take oil out of the ground based on value of the oil at the time it is extracted.

“I’m not going to lie to you. We’re not going to make the oil severance tax estimate for fiscal year 2015,” Courtwright said.

In November, a group of economists and government officials released the state’s consensus revenue estimate. That estimate relied on a price per barrel of $80. The estimate before that, which was released in April, used a price of $85 per barrel.

Prices have fallen much more dramatically, however. The price per barrel currently sits at about $45 per barrel. Courtwright estimated in Kansas it is about $42.

The November estimate predicted about $89 million in oil severance revenue for the current fiscal year, which ends in June. That estimate won’t be met, according to Courtwright. But falling prices may not be reflected in the revenue report until later this month, because tax receipts can lag a couple of months.

“I anticipate when January receipts, February receipts start coming in you’re going to start to see some significant shortfalls in the oil severance tax estimate,” Courtwright said.

Courtwright cautioned that lawmakers shouldn’t overreact to one piece of good news or bad news. He said when a new revenue estimate is produced in April, everything will once again be re-evaluated and falling oil prices will be taken into account.

The state already faces a $279 million revenue shortfall during the current fiscal year. Republican Gov. Sam Brownback has made cuts to state agency budgets to compensate for the decline in revenue, but the Legislature must approve millions more in fund transfers to close the rest of the gap.

Rep. Sharon Schwartz, R-Washington, said she is trying to find a bright spot. She asked Courtwright about potential positive developments now that the state is approaching the mid-point between the November and April revenue estimates.

“If there is some good news, I suppose sales and excise taxes. Certainly, if there’s going to be some good news offsetting what I anticipate is going to be a reduction in oil severance tax revenues, I’d look especially at the sales tax as we move on through the next three or four months,” Courtwright said.

“Let’s keep our fingers crossed there’s going to be some good news on the sales tax front.”

Asked whether he was concerned about the oil revenue developments, Appropriations chairman Rep. Ron Ryckman, Jr., R-Olathe, echoed Courtwright’s comments, saying sales tax revenue would likely improve.

Annie McKay, director of the Kansas Center for Economic Growth, which has been critical of the state’s tax policy, said any gains in sales tax revenue would likely be modest and wouldn’t even begin to address the state’s revenue shortfall.

Low-income individuals would likely put gas savings toward basic items, but the savings may not spur additional spending among those with more income, she said.

“Second, so while lower gas prices probably will lead to a bit more sales tax revenue — mostly paid by middle- and low-income Kansans — the overall impact on the state’s finances is not clear because severance and gas tax revenue will decline,” McKay said.

After the meeting, Schwartz said she was hopeful Courtwright’s prediction would come to pass.

“I really think it’s been very helpful for a lot of families to see that kind of savings. And maybe there’s some things, some investments they would have made, whether it’s house repair or home repair or updating something,” Schwartz said.

Read more from the Topeka Capital Journal here.

KendraTOPEKA CAPITAL JOURNAL: Lawmakers told oil revenue will miss estimates