The Revenue Estimates Aren’t the Problem

September 2, 2015

Long before the failed tax-cut policy of the recent past, Kansas made a wise financial decision by twice-yearly working out a reasonable estimate of how much revenue the state expects to take in. It’s not hard to see how that would help to better plan for meeting public needs and assessing the ability to react to an economic downturn. Though the revenue estimates have been off in the past couple years, it’s not because of the estimating process but rather because revenue loss from the tax cuts were so extensive that it was difficult to make an accurate estimate.

These estimates are done by the Consensus Revenue Estimating (CRE) group which consists of experts from the Kansas Division of the Budget, Department of Revenue, and the Legislative Research Department, as well as an economist each from University of Kansas, Kansas State University, and Wichita State University.

The CRE’s track record is pretty good. On average, from their start in 1975 to 2013 – the year before the full impact of the tax cuts – actual revenue came in about 0.2% above the estimates. In budget year 2014, when the tax cuts were in full effect, revenue came in 5.6% below what was expected – the biggest miss ever.

9.02.15 Revenue Estimates

Though some say there is room to improve the estimating process, the CRE’s past performance speaks for itself. Even through the worst of the Great Recession, the CRE group largely anticipated the resulting loss of revenue.  Its final estimates were only a little over 2% off. It’s clear that the tax cuts, which caused such a sharp drop in actual revenues, are why the CRE group’s estimates in 2014 missed the mark by so much. When the tax cuts went into effect, we lost over $700 million in revenue. The CRE group did estimate that revenue would drop in the budget year that began July 1, 2013, but its estimates didn’t come close to the actual loss in revenue. Why? Because the revenue loss from the tax cuts was so large that it was difficult to forecast it accurately.

9.2.15 Revenue Estimates 2
This puts Kansas into a constant state of budget crisis. It’s forced the state into making short-sighted decisions when we should be making the long-term investments in education, public health and safety, and transportation that create jobs and build a strong economy. Instead, we’re using dollars that were meant to support the needs of Kansas kids to back-fill our budget gap.

Our revenue estimating process is a sound way to plan for the future.  The estimates can give us a good picture of how the state’s ability to serve the public will shape up in the next year. But those estimates can easily be thrown off by drastic changes in tax policy – changes that have not come close to delivering the huge benefits that were promised.

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ClayThe Revenue Estimates Aren’t the Problem