Nov. 1, 2017
Kansas lawmakers took a giant step toward financial health in June! By overriding Gov. Brownback’s tax bill veto, a bipartisan supermajority dramatically reduced the structural budget deficit in the state’s general fund. But much more work must be done before Kansas finances recover from the disastrous and unaffordable income tax cuts of 2012. Kansas still has a structural budget gap.
Let’s examine the current Fiscal Year 2018 budget—first by looking at revenue, then at expenditures, and then both together:
Revenue. Including new revenue generated from the June tax bill, Kansas now officially forecasts tax receipts to reach $6.385 billion in FY 2018. In addition to tax receipts, estimators also expect $51 million to come in from interest income and agency earnings. However, bond and interest aid for school construction—$195 million in FY 2018—a “demand transfer” or “deduction from revenue” must be subtracted from the tax income. The net result totals $6.241 billion. That’s the amount of recurring revenue that Kansas anticipates receiving in FY 2018. It’s not enough to pay the bills, so lawmakers also authorized the transfer of $288 million from the highway fund to the general fund and borrowed $118 million through a short-term loan that must be repaid in later fiscal years.
Expenditures. Approved expenses in the FY 2018 budget total $6.592 billion, up from $6.301 billion in FY 2017. Virtually all of the increase was designated for public education as lawmakers worked to return to a school funding formula that would meet the constitutional tests of equality and adequacy. Appropriations for other major areas of the budget—higher education, human services, public safety, and general government—actually went down slightly in FY 2018.
The chart below shows revenue and expenditures together. A structural budget gap of $351 million persists between recurring revenue and expenses. While far less than the gap that lawmakers faced last January, the current gap must be closed before Kansas can return to financial health.
The future. Likely, the amount of recurring revenue will improve in future fiscal years. For example, the state’s estimators expect tax receipts to grow in FY 2019, with recurring revenue reaching $6.356 billion. But expenses will definitely grow, too. Lawmakers must add more dollars for school finance. Certainly larger bills are ahead for Medicaid and the Kansas Public Employees Retirement System. And the damage from many years of underfunding state hospitals and correctional facilities still need to be addressed.
The structural budget gap that remains will not heal on its own. Without further action to improve state general fund revenue, Kansas will continue to heavily use highway funds for other purposes and function with little financial flexibility. Reserves that were used up during the tax experiment have not been replenished, and money borrowed must now be repaid.
While lawmakers and Kansans who worked to repeal the tax experiment should be congratulated for turning the state’s financial ship in a better direction, the damage from years of diminished revenue has been significant. Much work remains for Kansas lawmakers in the next legislative session.