Governor’s budget widens structural imbalance

Duane Goossen
March 1, 2018

When Kansas legislators overrode a veto and reversed Brownback-era tax cuts, they took a huge step toward closing an enormous structural imbalance between revenue and expense in the Kansas general fund. Now, though, revisions proposed in the FY 2019 Governor’s Budget Report would widen the gap.

A year ago, as lawmakers worked to pass a budget for FY 2018 and FY 2019, they faced a dire situation in which income to the general fund was estimated to be almost $1 billion bellow expenses. The budget passed in June incorporated revenue from SB 30 (the tax cut reversal), and closed the lion’s share of the budget gap. However, lawmakers still counted on a short-term loan and an almost $300 million annual transfer from the highway fund. The chart below shows the status of the general fund at the end of the 2017 legislative session. The gap between real income (recurring revenue) and approved expenditures was $351 million in FY 2018, narrowing to $252 million in FY 2019.

Now fast forward to November. In the first months of FY 2018 (July 1, 2017 to June 30, 2018) revenue from tax collections was higher than expected. So, when the state’s revenue estimators met in early November they revised their revenue forecast upward. Plugging in the higher revenue numbers (chart below) reduced the structural budget gap to $232 million in FY 2018 and $121 million in FY 2019.

Fast forward again to January, when former Gov. Brownback proposed revisions to the approved FY 2018 and FY 2019 budgets.  The governor’s budget recommendations do not include proposals for new revenue, but they do incorporate every dollar raised from SB 30.  On the spending side, though, the governor’s budget adds spending in both years, especially for school finance, and in other parts of the budget as well.

As the chart below shows, the new spending, unsupported by new revenue, would widen the structural budget gap to $297 million in FY 2018 and $411 million in FY 2019. While there is no doubt that schools and other state agencies require additional investments as they recover from years of disinvestment, lawmakers should couple those investments with sustainable, renewable sources of revenue.

Without the revenue from SB 30, the Kansas budget would still be in crisis. That’s clear. Even with SB 30, a small structural budget gap persists. In the months following the November revenue estimate, tax receipts have continued to exceed expectations. If that trend keeps up, the structural gap could again narrow when the state’s estimators revise the revenue forecast in April. However, lawmakers face a constitutional requirement to increase spending on schools. Increasing the amount spent on schools will require new revenue, if not this session, then next.

The Kansas budget became structurally unbalanced immediately after the 2012 income tax cuts were implemented. To regain financial health, lawmakers must eliminate the structural imbalance and replenish reserves. The governor’s budget does not do that.

Duane Goossen is the Kansas Center for Economic Growth’s senior fellow.

ClayGovernor’s budget widens structural imbalance