Posted: 25 Aug 2016 09:33 AM PDT
Let’s briefly review the extraordinary budget actions of FY 2016, actions allowed by state law during times when the budget is in crisis:
Spending in the FY 2016 budget was constrained from the start, repeatedly cut during the fiscal year, and lowered further by delaying the fourth quarter KPERS payment, but in the end, expenses were still $506 million above recurring revenue, and that’s recurring revenue which included a big sales tax increase.
To bridge the structural gap, $277 million was transferred from the highway fund and $99 million from a series of other funds, and the small beginning bank balance was depleted. (The highway fund is also being used to directly pay expenses for things like school transportation.) Without all of those transfers the general fund would have been deeply in the red, but even with them, the general fund did not balance. To finish, the state pushed FY 2016 school finance bills into FY 2017 and then paid them with borrowed money in order to keep FY 2016 in the black on paper.
The $506 million structural gap, the lack of any cash reserves, the extraordinary use of one-time transfers, the delay of bill payments, and no plan in place to fix any of it caused Standard and Poor’s to again downgrade Kansas’ credit rating—our financial report card.
Unaffordable income tax cuts produced all this!
Next up for trouble: FY 2017.
—This post originally appeared on the Kansas Center for Economic Growth website.
Posted: 25 Aug 2016 09:21 AM PDT
It’s a ditch of serious financial trouble. Kansas simply does not have enough revenue to pay bills. For more than 3 years running, expenses have outpaced tax revenue by hundreds of millions a year. How has Kansas survived financially? By blowing through every dollar held in reserve, borrowing, and moving money from kids’ programs and the highway fund. The state only escaped the last fiscal year by leaving approximately $175 million in bills unpaid, promising to make payment sometime in the future.
Kansas cannot do that anymore. All those use-up-the-savings, pay-later maneuvers made the state poorer and poorer, garnered yet another credit downgrade, and took us into the ditch. We are left with a stark directional choice: impose more spending cuts, or raise revenue. Deciding how to respond constitutes the most critical job lawmakers will have when they arrive at the 2017 legislative session in January.
Many current lawmakers acknowledge the financial ditch, but say it’s a spending problem. “Clearly we’re here because we haven’t cut expenses enough,” Senate President Wagle said in June.
Certainly there have been cuts—to road projects, universities, hospitals, classrooms—just not “enough.” Yet supporters of the cut-more direction often speak abstractly, rarely specifying what “more” means. In July Gov. Brownback signaled his willingness to make even deeper budget cuts, but would not name them, saying he wants the Legislature to lead the way.
In theory at least, cuts could go a lot deeper. Cut school funding in half! Withdraw all state support from universities! Put fewer highway patrol officers on the road! Dramatic, service-ending cuts can resolve the financial imbalance, and may be what some lawmakers have intended all along. Easy reductions were implemented long ago. Even a $3 million “efficiency study” commissioned by the Legislature yielded little to alter the current dynamic.
The other route open to Kansas adds revenue back. The 2012 income tax cuts—lowered rates and “business income” exemption—caused a huge swath of receipts to disappear. Income tax collections dropped $700 million the first year and cumulatively the revenue loss now exceeds $2 billion.
Lawmakers did raise sales and cigarette tax rates in 2015 to compensate, but the new revenue only dented the amount needed to make up the income tax revenue loss. So far, lawmakers have not been willing to revisit the income tax cuts that caused the state’s financial problems in the first place.
The business income exemption has elicited the most criticism. It’s unfair. People who receive paychecks, pay taxes. People who receive self-employment income, rental income, LLC income, or farm income, don’t pay. No other state sets up its tax system in such manner, so rescinding the exemption seems an obvious first step to financial health for Kansas, although that alone will not fix everything.
Which way? That’s the question at the heart of this year’s election cycle. A choice between deeper cuts to services or raising revenue has become unavoidable. Primary election voters expressed dissatisfaction with the current state of affairs by voting out many incumbent legislators. General election voters may well choose to fire some more. Election outcomes cannot remove the unpleasant choice ahead, but what happens in November will determine the path that Kansas takes.
—This post originally appeared in a variety of Kansas newspapers.
"I will tell the people what's going on at the statehouse. I'm going to treat the capitol as a borderline crime scene. ... If businesses don't have to pay taxes, the burden should not be on those trying to feed themselves." - The Valley Falls Vindicator & Oskaloosa Independent, March 3, 2016.
Across Kansas the top 1% are looting and on-the-loose, pitting us against each other. Communities in Jefferson County need to democratically prepare themselves for food and energy autonomy.
- MICHAEL CADDELL, Publisher