June 30, 2016
State officials will reveal Friday how much revenue Kansas collected in June, but Gov. Sam Brownback’s administration has already lowered expectations, publicly saying the figure will likely come in below estimates.
The strength or weakness of tax collections during the final month of the fiscal year will show how far in the red Kansas ended up compared with the budget passed by lawmakers. The revenue report will expose the size of the fiscal hole Brownback must fill to close out the year.
The administration set a low bar last week, when state budget director Shawn Sullivan told lawmakers revenue returns in June would likely underperform estimates. Sullivan’s statement was unusual because the administration doesn’t normally hint at revenue figures ahead of their scheduled release.
“So far the indications are we’ll be below what the estimates are,” Sullivan said.
As of last week, individual income tax receipts were in line with collections from June a year ago, Sullivan said, but the collections needed to be $13 million higher to meet the estimate. Corporate income tax receipts will be $20-30 million off estimates for the month, he said.
Kansas is already about $45 million in the hole for the year, Sullivan acknowledged. If June collections fall below estimates, the difference will be tacked onto the deficit.
Brownback is mulling sweeping up to $16 million from the state highway fund and up to $45 million from a Medicaid fee fund to help fill the hole. Sullivan may be able to find an additional $3 million in the Department of Corrections. The final state aid payment to school districts could also be delayed until early July as well — a procedure used in previous years. The state has previously held over about $200 million from the final payment, but the Kansas State Department of Education said the amount would likely be closer to $270 million this year.
The aim is to provide the state a very small ending balance, potentially less than $20 million. It’s unclear how the shortfall will be overcome if the size of the deficit ends up significantly larger than projected. Sen. Laura Kelly, D-Topeka, worries the state will have trouble scrounging up additional cash.
“We have pretty much devastated every idle fund that we have around here. I suppose we’ll go look at some things that we haven’t looked at before,” Kelly said.
The June revenue report will come on the heels of a rough May report. Tax collections in May fell $76 million below estimates – a massive shortfall.
Over the past year, Kansas has only exceeded monthly revenue estimates a couple times. The regular misses have prompted the Brownback administration to reassess the revenue estimating process.
Sam Williams, a retired Wichita advertising executive, is leading the review. The review seeks to determine why the current estimates are inaccurate and propose quality improvements.
Sullivan said the economy has contributed to the troubled estimates. Historically, the estimates have been accurate during good economic times, he said.
“They work well when the economy is stable, when it’s growing and there’s a stable tax policy,” Sullivan said. “In our case, we haven’t had either of those things.”
The economy contracted over the past year, Sullivan said, and tax policy has changed over the past couple years. A year ago, during the longest legislative session in Kansas history, lawmakers increased the state sales tax and taxes on tobacco in an effort to generate additional revenue.
Opponents of the state’s financial policy suggest revenue forecasters have yet to set expectations low enough, resulting in the near-constant monthly misses.
“Kansas does not need a change in the process of estimating revenue. What our state does need is for the key players to provide a hardheaded assessment of what really is going to happen, not what they hope will happen,” Duane Goossen, a former budget director under Republican and Democratic governors, wrote in April for the Kansas Center for Economic Growth, a group critical of the state’s tax policy.
The release of the June revenue numbers on Friday will come a little more than two weeks after a contentious meeting of the State Finance Council. The council, comprised of Brownback and legislative leaders, issued a $900 million certificate of debt. The certificate allows the state to borrow from reserve funds during the next fiscal year to help sustain the spending during low-cash periods.
Brownback rejected the idea the record size of the certificate reflected on his fiscal management. He pointed to falling oil and agricultural commodity prices as well as turbulence in the aviation industry.
“It reflects on the nature of what’s going on in the economy,” Brownback said. “You’ve tracked oil prices in this state, what they’ve done. You’ve tracked agriculture prices – aviation.”
The state began missing estimates in 2014 even while Brownback boasted about the state’s economy — pointing to low unemployment and added jobs. Kansas saw months of large revenue misses that spring. In November 2014, days after the election, officials released a consensus revenue forecast that downgraded revenue expectations. Each twice-yearly forecast issued since has lowered projections.
Read more from the Topeka Capital Journal here.