Jonathan Shorman
January 11, 2016

As the Legislature kicked off the 2016 session Monday, Republican leadership and officials in Gov. Sam Brownback’s administration pointed to national and global economic turbulence as the source of the state’s budget troubles.

The assessments contrast sharply with those from Democrats and other critics of Kansas tax policy, who say tax cuts in place since 2012 are eating into revenues and creating shortfalls.

The decision to cite economic troubles beyond the state’s borders as the cause of a budget shortfall — estimated up to $19 million for the current fiscal year and at least $175 million for the next fiscal year that begins in July — coupled with previous statements from top Republicans that they don’t want to debate taxes is the best signal yet the overall tax policy will remain in place.

“We are in this situation not because of what we’ve done here in Kansas. We’re in this situation because we are in an international recession,” Senate President Susan Wagle, R-Wichita, told a gathering of Senate Republicans on Sunday night.

Wagle, sounding bleak at times, said she doesn’t believe things will “look up” in the next year. Kansas and the nation face a stagnant economy in 2016, she said.

Wagle mentioned China, where stock markets plunged last week. American stocks also took a hit. Though there isn’t currently a global recession, some economists and investors fear one is near — concerns only heightened by recent stock market losses.

In the face of that, Wagle urged fellow senators to work closely with each other and the governor’s office to ensure last year’s record-breaking 114-day session doesn’t repeat itself. Lawmakers wrapped that session by passing the largest tax increase in state history in an effort to balance the budget.

The state has been in a period of decreasing revenue forecasts for more than a year. The Legislature passed and Brownback in June signed a massive revenue package to raise $400 million. The package raised the state sales tax to 6.5 percent from 6.15 percent and also increased cigarette taxes and eliminated some itemized deductions.

The sales tax hike has had trouble recently generating additional revenue. Among Kansas’ top 67 retailers, taxable sales in November were down 5 percent, state budget director Shawn Sullivan told senators.

The drop in sales — and by extension, sales tax revenue — was reflected in the December revenue report, which came in $27 million short of estimates. Sales tax revenue was $14 million off projections.

Other states in the Midwest are following a similar trend, Sullivan said. Whether the cause stems from agricultural commodities, oil and gas issues or a combination, along with Internet sales drawing away revenue, he didn’t know. But he acknowledged that whatever the cause, the fluctuations impact the budget and the state needs to track the situation closely.

“It does make it hard to budget and to put together a budget proposal when we have so much up and down with the different tax sources,” Sullivan said.

In response to December revenue figures, which were below expectations, House Speaker Ray Merrick, R-Stilwell, said retail sales receipts were consistent with an economy struggling under President Barack Obama.

Asked what has caused the state’s budget shortfall, Rep. Lane Hemsley, R-Topeka, paved a middle path.

“Truth be told, it’s probably a little bit of everything,” Hemsley said.

Sullivan will unveil budget adjustments on Wednesday morning, following Brownback’s State of the State address Tuesday. He didn’t give any hints Sunday about what he will announce.

Duane Goossen, a former state budget director under both Republican and Democratic administrations and now a senior fellow with the Kansas Center for Economic Growth — which is critical of the state’s tax policy — wrote on the center’s website last week that, at a minimum, $175 million in adjustments must be made to next fiscal year’s budget to keep a zero ending balance.

But he warned it might not be enough. Potential future events, such as a Kansas Supreme Court ruling ordering the Legislature to boost funding to schools, could complicate efforts to balance the budget.

“Doing the bare minimum does not account for any action that may be required from the school finance court case, does not provide any ending balance, and does not deal with understaffed prisons and hospitals. And if the revenue estimate for FY 2016 is still too high, the one for FY 2017 likely is, as well,” Goossen wrote.

House Minority Leader Tom Burroughs, D-Kansas City, put it bluntly last week after the release of the December revenue figures.

“It’s official. Kansas is broke,” Burroughs said.

On Tuesday, lawmakers are expected to receive recommendations from an efficiency study of state government conducted this fall by the firm Alvarez and Marsal. Speaking to reporters Monday, Merrick said people likely will be surprised by the amount of money the study finds can be saved through its recommendations. But he indicated the state can’t depend on savings from the recommendations to balance the budget.

“That can’t be the bailout. That’s plus, anything that’s in there. It’s not something we can depend on, saying this is going to be our bailout,” Merrick said.

At the Senate GOP meeting, the acting Kansas Commerce Secretary, Antonio Soave, emphasized the importance of the national and global economic situation, also called macroeconomics, on the state’s economy. The macro situation has placed pressures on the state, he indicated, as concerns swirl internationally over low oil prices, ISIS, stock market troubles and North Korea’s recent atomic test.

The macro situation is important, Soave said, because of the role of foreign direct investment in the U.S. When money flows into the country, it often concentrates on the coasts, which he argued are becoming flooded with too much activity. In turn, that makes Kansas and the Midwest look more attractive to business.

“We have an integrity-driven environment here. We have a lot of good people and those good people provide a very good workforce,” Soave said.

Wagle wrapped up the Sunday night GOP meeting with a note of optimism, as well. The Legislature has made some tremendous reforms, she said — but the economy isn’t moving along just yet.

But lawmakers are preparing the way and getting ready for a growth spurt, the Senate president said.

“And when people feel comfortable, when they feel like they have a president that can lead, when they feel like Congress has got the budget under control, when they feel like terrorism has been subdued, they’re going to start investing again,” Wagle said.

“And at that time, Kansas is going to grow and everything you’ve worked so hard to do, we will see the fruits of our labors.”

Read more from the Topeka Capital Journal here

ClayTOPEKA CAPITAL JOURNAL: Faced with budget shortfall, Republicans point to global economic troubles as session begins