State Revenue Estimate Essentially Unchanged

State Revenue Estimate Essentially Unchanged

New state revenue estimates released today were almost unchanged from November projections the Governor and Legislature have been using to develop the state budget.  State general fund revenues were projected to be $29.9 million higher in the current year that the estimate released in November.  SGF projections for next year were projected to be $10 million lower than the November estimate. The net upward change of $19.9 million is just 0.3% of nearly $6.2 billion in total state general fund revenues this year.

Although revenue estimates are almost unchanged from November, state revenues are dropping significantly.  Total SGF revenues were over $6.4 billion in last year (Fiscal Year 2013), but are projected to drop to $6.2 billion this year (3.3%) and $5.5 billion next year (12.0%), due to the major income tax cuts adopted last session and the scheduled expiration of the special one cent sales tax on June 30 of this year.  The new revenue estimates indicate the loss of revenue will be slightly less than had been previously projected.  The consensus estimates are developed by staff from the Governor’s Budget Division, Legislative Research Department, and state university economists.

Governor Sam Brownback, who championed last year’s income tax cut and wants to phase-out the state income tax entirely, has called for keeping the sales tax at the current level to avoid funding cuts in “core” state services.  The Senate has passed the sales tax extension, but the House has rejected that proposal.  Both have reduced other proposals by the Governor to raise revenue by eliminating income tax deductions.  Without that revenue over the next two years, the House budget cuts state higher education funding by four percent.  The Senate plan cuts higher education by two percent.  Both keep K-12 funding mostly unchanged, with increased funding this year to maintain the base budget per pupil at $3,838 and funding increased bond and interest aid and retirement contributions over the next two years.

The budget and tax policy issues were not resolved during the regular session of the 2013 Legislature and will the key issues when lawmaker return May 8 for the final wrap-up session.

Also today, the Legislative Research Department and Division of the the Budget released new estimates for human services caseload costs in the current year and the next two fiscal years. Citing changes in state policy through the “KanCare” Medicaid program and the improving economy, a savings of almost $68 million in the state general fund is expected over the three years, with almost $130 million in all state funds.

Lt. Governor Dr. Jeff Coyer said the Governor will ask legislative leaders to use a part of what he called the “KanCare Dividend” to enhance funding in other health-related areas, such as reducing waiting lists and expanding the University of Kansas Medical Center. He said the administration remains to committed to its tax plan in order to maintain full funding of both K-12 and higher education, increase targeted health care spending, meet the statutory target of a 7.5% state general fund ending balance, and continue income tax cuts.

Although new budget profiles based on the updated revenues have not been released, that plan almost certainly requires keeping all or a significant part of the sales tax in place.  However, extending the sales tax is opposed by Democrats and some Republican moderates who see that sales tax as regressive on low income earners, especially as taxes have been cut for higher income taxpayers; and by some conservatives who support deeper cuts in state taxes and spending.

The new estimates project that state income tax receipts, although down sharply because of last year’s rate cuts, will be $61 million more than projected in November for the current year, and $26 million more for next year.  That is different than the warning of some income tax cut critics who said many more small businesses would switch their tax status to avoid the state income tax completely.  On the other hand, sales and use tax receipts were reduced by $45 million this year and $40 million next year, compared to November.  Supporters of the income tax cut said it would stimulate the Kansas economy and lead to increased spending and sales tax revenues at the state and local levels.  The new projections do not indicate that income tax cuts are having a major positive impact on economic growth; but supporters will likely point to external factors like the state’s severe drought and national economic factors like the federal budget sequestration to argue the economy would be worse if the tax cuts hadn’t been implimented.

The Senate Ways and Means Committee will meet next Thursday and Friday, April 25 and 26, and the House Appropriations Committee will meet Monday and Tuesday, April 29 and 30, to consider revisions to their respective budget positions.  Meanwhile, Governor Brownback will visit seven public universities and community colleges April 22-26 and May 6 to campaign against higher education funding cuts.