March 1, 2016
About halfway through a town hall with Lt. Gov. Jeff Colyer and state budget director Shawn Sullivan in Olathe Saturday, a man asked the question on the minds of many Kansans.
“Why don’t we have any money?” he said, eliciting laughter from the several dozen in attendance.
“It seems we’re shuffling money around to whittle the fat, whittle the meat, now we’re down to whittling the bone. We saw a proposal to jockey around money for KPERS retirement funds, the KDOT budget is whittled down over a billion dollars. Roads are going to run into the ground. The state’s been around 155 years and last year was the largest tax hike in Kansas history. That’s with a Republican governor, Republican House, Republican Senate.”
He concluded: “Why do we got no money?”
How Colyer and Sullivan answered is instructive in understanding how Gov. Sam Brownback’s administration views the state’s ongoing budget woes. Their answers indicate they view the seemingly never-ending budget challenges as fundamentally problems of spending, not revenue.
The questioner referenced legislation passed last month allowing Brownback to withhold the last quarterly KPERS payment this current fiscal year, which ends in June, and pay back the amount with interest during the first quarter of the new fiscal year – a short-term way of helping to make ends meet.
He also alluded to the tax package passed last year that raised sales and cigarette taxes to help balance the budget, as well as the numerous transfers over the years from the Kansas Department of Transportation’s state highway fund to help keep the state in the black.
The town hall exchange came before the official release of the February revenue numbers on Tuesday. But regardless of what the figures turn out to be, the question and answer sheds light on how the administration plans to handle the budget moving forward.
Colyer and Sullivan’s answers seem to indicate the current era of budget triage – involving a shifting and ongoing combination of transfers, allotments and legislatively-approved cuts – will continue into the future. Responding to the man, they spoke exclusively of how the rising demands of state programs strain the budget, but did not address tax policy.
Sullivan said education spending has increased by about $380 million over the past two years, he said, with Medicaid rising by about $150 million over the same time. He said the administration is trying to hold the line on spending and not grow the government – a “very difficult” thing to do, he said.
“The challenge is with the huge increases we’ve had with education and Medicaid, although we have tried to make several reforms in both those areas, and that have caused us to have to move money around from highways to the state general fund and do other one-time transfers,” Sullivan said.
“It’s kind of the balancing act that the Legislature tries to do, that the administration tries to do in order to balance the budget to make sure we’re continuing to invest in education and the other things that are priorities.”
And education spending may yet surge again. The Legislature faces a June deadline to comply with a state Supreme Court ruling on equitable funding among school districts. Even if lawmakers solve the equity puzzle without boosting spending, a ruling that could come next year over whether funding to schools is adequate could call for hundreds of millions in additional money to schools.
Colyer acknowledged increases in Medicaid and education spending, but also drew attention to state pensions. The Legislature passed KPERS reforms in 2012 to help reduce the system’s unfunded liability. Last year, the state also issued $1 billion in bonds for KPERS, further reducing its liability.
“We’ve made some really big shifts that we’ve had to do, which were to prioritize the most important programs in the state and keep KPERS intact. So we’re in a very tight situation right now, no doubt about it,” Colyer said. “But those are some of the gyrations, some of which we couldn’t control.”
But what the state does control – as Democrats, moderate Republicans and others have argued – is its tax policy. The 2012 tax cuts, which cut personal income taxes, continue to deprive the state of revenue that otherwise would be flowing in, they say. The tax cuts also eliminated taxes for the owners of limited liability corporations – a provision called the “LLC loophole” by critics.
The state, after Brownback called for Kansas to move away from taxes on productivity and toward taxes on consumption, is also now more reliant on sales taxes for revenue at a time when sales tax revenue in Kansas and other states is falling below expectations.
Annie McKay, director of the Kansas Center for Economic Growth, has compared the tax policy to fielding a basketball team without the full number of players.
“At the end of the day, it’s time for the Governor and policymakers to understand Team Kansas won’t win until we’ve got all the players back on the court,” McKay wrote on the center’s website in February.
“This will require closing the loophole that prevents 330,000 Kansans from paying income tax – a policy passed in 2012 that has kept Kansas from playing without a full team for the last three years, to the detriment of revenues month after month after month.”
Read more from the Topeka Capital Journal here.