May 6, 2017
As the slog toward tax reform continues, lawmakers should remember that they’re doing more than addressing an immediate shortfall — they’re making decisions that will either lead to a structurally balanced budget or fiscal upheaval for years to come. They should also recognize that a single tax bill won’t fix everything — the destructive legacy of the past four years will be with us for a very long time. A state can’t deplete its highway fund, ignore pension payments, withhold education dollars, borrow money and slash spending on core services without suffering a range of predictable and unanticipated consequences.
While the Legislature can’t do everything this session, lawmakers need to be thinking about how the state will recover from an “experiment” that drained its reserves, defunded its highways and left its budget in a perpetual state of turmoil. Meanwhile, Kansans should never forget what a reckless bout of supply-side economics did to their state. If a future governor ever promises that massive tax cuts will be a “shot of adrenaline to the heart of this economy,” we’ll know better.
Immediately after Gov. Sam Brownback’s 2012 tax cuts took full effect, tax revenue in Kansas plunged by $701 million — from $6.3 billion in fiscal year 2013 to $5.6 billion in FY 2014. Over the next two years, tax revenue barely budged — it crept up to $5.72 billion in FY 2015 and $5.76 billion in FY 2016. As this fiscal year comes to a close, the Consensus Revenue Estimating Group expects the state to bring in a total of around $5.75 billion. If tax receipts would have remained constant between 2013 and 2017 instead of collapsing under Brownback’s cuts, Kansas would have generated billions of dollars — billions with a “B” — more than it did.
Although the Legislature has finally realized that the Kansas budget will remain broken until comprehensive tax reform is passed, the proposals under consideration still won’t generate enough revenue to cover future expenditures.
For example, the state is projected to generate about $5.7 billion in revenue in FY 2018. According to the Kansas Center for Economic Growth, “Lawmakers have not yet finalized spending for FY 2018, but both the House and Senate are headed toward a budget that spends more than $6.4 billion once required payments to KPERS are factored in.” The tax package that was considered by the Legislature earlier this week only would’ve raised around $500 million per year, leaving a $200 million gulf between revenue and expenditures. Moreover, after the Kansas Supreme Court’s recent ruling on education finance, the Legislature may be forced to invest $750 million in public schools over the next five years — a $150 million annual commitment. This puts the gap at $350 million.
None of these numbers account for other costs that Kansas will face in the long term. We don’t yet know how expensive constant KDOT sweeps will end up being — deferred maintenance and delayed projects could have a drastic impact five or ten years from now. Nor is it clear how the state will pay back the $300 million it just borrowed from a long-term investment fund or the money it has withheld from KPERS (which continues to accrue interest). And with all of these growing obligations, how will the state restore its reserves? Kansans better hope there are no economic shocks in their future because the state won’t have any financial cushion to absorb them.
Our beleaguered legislators probably don’t want to hear this, but tax reform is the first step down a very long road.
Read more from the Topeka Capital Journal here.