April 4, 2015
When lawmakers return to Topeka at the end of the month, they’ll face the difficult challenge of passing tax increases that generate enough revenue to balance the state’s finances.
Gov. Sam Brownback offered a proposal in January to increase alcohol and tobacco taxes, slow income tax cuts and reduce exemptions that would yield an estimated $211 million in additional revenue.
“We’ve got a budget pretty well agreed to. … The big thing on coming back will be a discussion on tax policy,” Brownback said during a news conference last week.
The Senate and House are negotiating a budget plan.
If lawmakers pass every piece of the governor’s tax plan – which is far from certain – and move forward with the budget as it is now, the state would be left with about $75 million in its general fund by the end of June 2016, according to current estimates.
The amount of revenue needed to balance the budget could go up or down after the state’s economists and budget officials meet this month to revise projections.
Brownback has proposed slowing scheduled income tax rates and reducing deductions, including one for homeowners. However, he has no plans to roll back tax cuts already enacted or to take away an exemption for the owners of certain businesses, such as limited liability corporations.
“I want to see us have a stable income tax policy. Put forward a plan to reduce some of the deductions on income tax, but not to raise the rates, not to go back on the zero taxes on small businesses,” Brownback said. “I think this has been a key part of our growth.”
Brownback noted that the state led the nation in private sector job growth between January and February. The state ranks 28th among all states in private sector job growth from February 2014 through February 2015.
Portions of the governor’s tax plan have proven unpopular, such as raising the tax on cigarettes by $1.50 a pack and increasing the liquor tax from 8 percent to 12 percent.
Rep. John Rubin, R-Shawnee, said lawmakers from border counties, such as Johnson, are unlikely to support these taxes, which they say will drive business into Missouri.
He said many lawmakers are adamantly opposed to any tax increase beyond closing some loopholes and exemptions.
“I’m not going to support a $200 million tax increase. I think we need to go back to the drawing board, spend more time and find more savings,” Rubin said. He predicted that what lawmakers pass in the end will differ significantly from what the governor has proposed.
Rubin wants to look at tapping surplus funds “that have been squirreled away by various agencies and school districts before we look at any tax increase at all.” He predicted a long wrap-up session.
Filling the gap
Lawmakers might have to prepare to pass more taxes than the governor has proposed, according to Duane Goossen, who served as state budget director under the three governors who preceded Brownback.
Goossen pointed out that the state is projected to spend nearly $6.5 billion from its general fund and only bring in $5.8 billion in revenue unless the governor’s tax plan passes. Transfers from the highway fund and other dedicated funds also are being used to fill the gap under the budget plan.
“If you’re going to spend $6.5 billion, the state is not financially healthy unless there’s also at least $6.5 billion worth of revenue coming in,” said Goossen, who now works as an analyst for the Kansas Center for Economic Growth. “If this gets solved by moving money from the highway fund, by transfers from other funds, yes, it’s possible to do some of that, but the state gets poorer and it doesn’t solve the problem.”
Goossen expects that the April revenue estimates will produce an even more dismal picture of the state’s finances based on its performance so far.
The state is below revenue estimates by $43 million since November, according to the nonpartisan Kansas Legislative Research Department. Corporate income tax revenue, in particular, is nearly $26 million below estimates.
Open to ideas
House Minority Leader Tom Burroughs, D-Kansas City, said in an e-mail that cobbling together a budget that relies on one-time sources of revenue would do nothing to get the state’s finances on track. He accused Republican leaders of pushing “arbitrary and haphazard tax increases that unfairly affect the middle class and working poor and do nothing to address the underlying cause of the problem.”
Brownback has repeatedly said that he is open to other ideas lawmakers have to offer. A wide variety of proposals have been floated but remain in committee, including closing sales tax exemptions for certain charities, taxing wind and solar energy production and ending a sales tax exemption on utilities for residential and agricultural properties.
Brownback said that with budget negotiations between the House and Senate progressing smoothly, the next few weeks would offer lawmakers time to reflect on tax policy.
Senate President Susan Wagle, R-Wichita, said in an e-mail that she is proud of the progress lawmakers have made so far, contending they have improved the budget outlook since the beginning of the session when the state was projected to hit a shortfall this year.
“When we return to Topeka, I’m very confident we’ll finish the job and balance the books just as we’ve always promised,” Wagle said.
Read more from the Wichita Eagle here.