April 20, 2016
A handful of university economists and state officials will meet Wednesday behind closed doors in Topeka to revise their estimate of how much tax revenue Kansas will collect over the next year.
It’s a process the state has used since the late 1970s for budgeting purposes. But a string of missed estimates in recent years has made it controversial.
Between January 2013 and December 2014, monthly revenue collections generally tracked with projections. But since then, revenues have consistently failed to meet monthly targets even though the bar has been lowered several times.
When the Consensus Revenue Estimating Group met in November, it lowered its 2016 and 2017 estimates by a combined $353.6 million. Since then, Gov. Sam Brownback and lawmakers have been scrambling to balance the budget.
Brownback insists a sluggish economy caused by low crop and oil prices is responsible for the shortfalls in revenue. And he says the consensus estimating process itself also may be contributing to the problem. His office recently announced that it was reaching out to experts in other states for advice on how to fix it.
But former Kansas Budget Director Duane Goossen says Brownback’s criticism of the revenue estimating group is an attempt to divert attention from the real cause of the revenue shortfalls, the income tax cuts he pushed through the Legislature in 2012.
“Those tax policy changes upended the budget,” says Goossen, now a senior fellow at the Kansas Center for Economic Growth. “If income tax policy were still the same, if businesses were still paying taxes on their business income, if rates had not changed, Kansas would be collecting more than $1 billion a year more now than we are.”
Elizabeth McNichol, a researcher for the Washington, D.C.-based Center on Budget and Policy Priorities, also says the tax cuts, not the estimating process, are the likely reason for the revenue shortfalls.
“If you look back at the accuracy of the estimates, even up to and including the Great Recession, Kansas was doing fine,” McNichol says. “The thing that changed was this really large tax cut, this big policy change.”
In 2014, McNichol evaluated the estimating processes used by all 50 states. Her report says Kansas’ process is one of the best because it produces a single revenue number that the governor and lawmakers agree to use for budgeting.
“A consensus process that brings both the Legislature and the governor’s side in and also outside experts is the best way to come up with a state revenue estimate,” she says.
In some states, the governor and Legislature develop separate estimates. That, McNichol says, makes budgeting more difficult.
In Kansas, the law requires the executive and legislative branches to resolve their differences — at least on the revenue number — behind closed doors as a part of the estimating process.
Raney Gilliland, director of the Kansas Legislative Research Department, represents the Legislature in the estimating process. He says while it sometimes can be hard to reach consensus on a revenue number, the process has generally worked well.
“It can be more difficult, it can take some time,” Gilliland says. “But it’s not hostile. It’s always amicable.”
But when the numbers are off as they have been recently, it causes big problems: The governor and lawmakers must cut spending, raise taxes or do both to balance the budget.
Last year, with Brownback threatening to veto any attempt to roll back his signature income tax cuts, lawmakers reluctantly voted for big increases in sales and cigarette taxes to end the longest session in state history.
The memory of those final weeks is making many lawmakers anxious as they prepare to return to the Statehouse to wrap up the 2016 session.
If, as many expect, the revenue estimating group substantially lowers its projections, it will force Brownback and lawmakers to once again scramble to balance the budget. And it would likely force a contentious debate on legislation to repeal the portion of the 2012 tax bill that allowed more than 330,000 business owners and farmers to stop paying state income taxes.
With support for repealing the exemption growing, even among Republicans, Brownback is said to be softening his opposition. Sen. Jim Denning, an Overland Park Republican, says the governor has backed away from his veto threat that prevented a repeal vote last year.
Read more from the Kansas Health Institute here.