Raising revenue or cutting spending looms for veto session

The tentative state budget agreed to yesterday by House and Senate negotiators will require additional revenue of nearly $400 million over the next two years. If the Legislature fails to pass Gov. Sam Brownback’s proposal to increase fees on certain medical providers, the gap widens to over $550 million. It will require even more money to provide a positive ending balance.

Those projections are based on actual state revenue collections through March of the current fiscal year ending June 30, and on last November’s revenue estimates for Fiscal Years 2016 and 2017. The picture could change when new estimates will be released April 20. As of March, state revenues were $48 million below estimates this year, which could signal lower expectations for future years.

Legislative budget and tax staffers presented this information to the House Taxation Committee Wednesday morning, which voted to introduce eight new bills, several of which concern the statewide property tax levy for schools. Details of the bills are not yet available.

As the committee was meeting, a coalition of organizations seeking repeal of  Brownback’s income tax cuts was holding a rally on the second floor of the Statehouse, with speakers saying tax cuts have failed to deliver positive results and are creating a budget shortfall. Later in the day, reporters said the Governor defended his policy of reducing income taxes to promote economic growth.

While continuing to support the long-term goal of eliminating the state income tax, the Governor proposed stopping future automatic income tax cuts and accelerating the repeal of certain income tax exemptions, along with significantly higher alcohol and tobacco taxes, to fund his budget plan for the next two years. KASB was the only organization to support the concept of the income tax changes in hearings last month, while the Kansas Chamber of Commerce and the Kansas Policy Institute opposed to any delay in the “march to zero” income tax rates..

However, the governor’s revenue package, which is projected to raise approximately $200 million per year in FY 2016 and 2017, would not be enough to the fund the tentative budget deal reached yesterday when combined with K-12 state funding already passed by the Legislature and signed by the Governor in H Sub for SB 7. That bill contained both appropriations and the new block grant funding law for the next two years.

According to legislative staff, H Sub for SB 7 added $59 million in 2016 and $80 million in 2017 to the Governor's budget for state contributions to the Kansas Public Employees Retirement System. Under the Governor’s original block grant proposals, school districts would have had to reduce their operating budgets to fund the increased KPERS contributions.

School leaders and legislative leaders continue to send different messages. Under H Sub for SB 7, school districts will receive $33.5 million less in local option budget state aid and $17.7 million less in capital outlay aid this year than they budgeted - a reduction of over $50 million. Under the block grant, state operating aid is essentially flat over the next two years, which means it will not be adjusted for enrollment growth, inflation and new program costs.

However, even after the cuts, state LOB aid is $111 million higher and capital outlay aid is $27.3 million higher than last year, and state spending on KPERS contributions will increase by about $59 million next year and an additional $21 million next year for “deferred compensation” to school district employees through retirement benefits. These additional KPERS dollars cannot be used for school district operations - these funds are sent to school districts as part of their budgets and immediately transferred to KPERS.