June 9, 2016
Gov. Sam Brownback is smart to call for a review of the state’s tax revenue estimating process. The state needs to determine why estimates have been so far off and how to make them more accurate.
But the review needs to be honest. That means being open to the possibility that Brownback’s tax cuts are contributing to the missed estimates – something Brownback has thus far rejected out of hand.
Brownback announced last week that he had selected retired Wichita businessman Sam Williams to lead the review of the estimating process. Williams will work with state budget director Shawn Sullivan on the process, schedule and structure for the review.
Brownback has been understandably frustrated by the missed estimates. Since February of last year, the state has only met its projected monthly tax collections twice – last November and this past April, the same months it significantly lowered the estimates.
The estimates are crucial, because the state budget – including funding to schools, jails, social services and other state functions – is based on them. When the actual collections come in less than expected, it can lead to difficult midyear budget cuts, especially when the state doesn’t have an adequate cash reserve.
Brownback and Kansas Department of Revenue officials have blamed the missed estimates on the drops in oil, crop and cattle prices (and on President Obama). But those price declines have been well-reported and should have been accounted for in the estimates.
And as Scott Drenkard, director of state projects for the Washington-based Tax Foundation, noted, other states face the same economic forces yet aren’t badly missing their revenue estimates.
“This is a problem unique to Kansas,” he said.
Drenkard thinks the main cause of the missed estimates is the elimination of state income taxes on pass-through income. People have reorganized their businesses to take advantage of the exemption, making it difficult to predict state tax revenue.
The Kansas Center for Economic Growth also noted that from the inception of the consensus revenue estimating process in 1975 through 2013, actual revenue to the state was about 0.2 percent above estimates. But in 2014, the first full year after the tax cuts, revenue fell 5.6 percent below predictions.
There likely are several factors for the missed estimates. But for the review to have value, it can’t pre-emptively rule out a reason that Brownback doesn’t want to hear.
Read more from the Wichita Eagle here.