March 28, 2016
Kansas’ monthly revenue estimates – at one point roughly split between overestimating and underestimating money flowing into state coffers – turned too rosy over the past year.
Gov. Sam Brownback’s administration said it is seeking improvements to the revenue forecasting system and consulting with experts in other states to identify potential changes after Kansas missed revenue targets 11 of the past 12 months and long-range forecasts have been downgraded over the past two years.
The state will release the March revenue report on Friday, and if trends hold, the amount of revenue taken in will fall below estimates. The monthly reports, ammunition in a never-ending war over the state’s tax policy, did not used to be as frequently dour, a review of the estimates shows.
Between January 2013 and December 2014, revenue exceeded or effectively met estimates 14 months, more than half the time. Since then, however, revenues have only exceeded estimates twice: February 2015 and November 2015.
The reports hold real-world consequences. Brownback has made budget cuts in the past in response to below-estimated revenues. After the February report, he ordered across-the-board cuts to state colleges and universities. Last spring, after a long-range revenue forecast downgraded revenue, lawmakers raised cigarette and sales taxes in an effort to fill a $400 million budget hole.
The monthly reports can also signal how the more far-reaching revenue forecasts might lean. Released twice a year, lawmakers set the state budget using the forecasts. The next forecast will be released in April. If revenues have consistently missed estimates on a monthly basis, it suggests the next forecast may downgrade the amount of revenue expected.
Lawmakers have in the past groused about the estimates. Nearly a year ago, Rep. Mark Hutton, R-Wichita, said the consensus revenue estimating group – which produces the forecasts – had experienced a rough couple years.
At the time, Hutton suggested the group, made up of university economists, legislative staff and administration staff, have been gun-shy about downgrading the forecast as far as it needed to go. Since then, the forecast was downgraded yet again.
The administration indicated Monday it is seeking to adjust the estimating process.
“We are consulting with experts from other states to help identify possible process changes to increase the reliability of estimates going forward and will continue to do so until the process is improved,” Eileen Hawley, the governor’s spokeswoman, said.
Mark Peterson, a political science professor at Washburn University, told The Topeka Capital-Journal about a year ago, for a similar review of estimates, that the revenue estimating group has a natural tendency toward conservative estimates. The newspaper asked him Monday about his comments in light of the past year.
“The bottom line is, I think, the estimates have gotten less reliable,” Peterson said. “But I think it’s also a reflection of the fact the economy is just not responding. All of the things that were promised with the revision of the taxation system have failed to materialize as predicted.”
Republicans have asserted the national economy is to blame for revenue troubles. As the session began in January, Senate President Susan Wagle, R-Wichita, told a gathering of Senate Republicans that the state was in its current situation because of an international recession.
Brownback also blamed economic challenges after February’s revenue report. In February, revenue was $53 million, or about 15 percent, off estimates. It was the largest miss, percentage-wise, since April 2014. “This is an economic problem, not a tax policy problem,” Brownback said in response.
Rapidly falling oil and commodity prices have affected the Kansas economy. There is no global recession currently, however, though some economists have warned of trouble ahead.
Critics of the tax policy have maintained the 2012 cuts have resulted in revenue drops, and consequently make accurate predictions of revenue difficult. They defend the estimating process, noting its historical accuracy.
According to the Kansas Center for Economic Growth, a group critical of the tax policy, since the inception of the consensus revenue estimate in 1975 and until 2013, actual revenue to the state was about 0.2 percent above estimates. However, in fiscal year 2014, once the tax cuts were in full effect, revenue fell 5.6 percent below predictions.
“Though some say there is room to improve the estimating process, the CRE’s past performance speaks for itself,” the group says on its website. “Even through the worst of the Great Recession, the CRE group largely anticipated the resulting loss of revenue. Its final estimates were only a little over 2% off. It’s clear that the tax cuts, which caused such a sharp drop in actual revenues, are why the CRE group’s estimates in 2014 missed the mark by so much.”
Hawley said the governor had met recently with a group of certified public accountants, who attributed revenue declines to a downturn in the oil and gas sector, as well as businesses paying less overtime than a year ago. More businesses are also limiting employees to 30 hours a week in response to the Affordable Care Act, Hawley said.
Hawley said the overly optimistic estimates also include sales and severance taxes, which are unrelated to the 2012 income tax cuts.
Read more from the Topeka Capital Journal here.