Kelly’s budget plan spares schools for time being

Governor Laura Kelly released a plan  to address a projected $700 million state general fund budget deficit for fiscal year 2021, which began July 1, without cuts to the major components of the school finance system. (Follow this link to Governor’s press release and further details.)

But to make the plan work, she will need help from the Kansas Legislature. Over 45 percent of the savings in the proposal require Legislative approval. The Governor can achieve the rest of the plan through her statutory “allotment” authority, which allows the Governor to make targeted spending cuts if the state general fund ending balance is projected to drop below zero.

In April, the state revenue estimates were lowered by $1.2 billion over two years from the estimate used when the Legislature adopted a budget in March. Budget Director Larry Campbell says he projects approved spending would result in a $704.4 million deficit without action.

State aid for K-12 education accounts for over 50 percent state general fund spending.  The Governor’s plan avoids large cuts in K-12 funding by delaying payments on state debt, using federal aid for the COVID pandemic and delaying more end-of-the-year school finance payments, as well as numerous relatively small cuts in selected programs. Many of these items are “one-time” adjustments that could push budget problems into fiscal year 2022 unless the state economy and tax revenues rebound quickly, or more federal funding is received.

These types of budget strategies have been used by previous administrations, both Republican and Democrat. Governor Kelly’s proposals are likely to receive some criticism for avoiding budget cuts in fiscal year 2021 but pushing the issues in FY 2022 and beyond.

However, Legislative action or inaction that would force deeper cuts in the current year would be more likely to lead to cuts in school district operating budgets, which in turn could mean cuts in school salaries and positions and fewer service to students. School districts are in the process of developing budgets for the 2020-21 school year, which must be approved in August.

The biggest single source of budget relief in the Governor’s plan is repayment of $264 million borrowed several years ago from the state Pooled Money Investment Board, which manages idle funds for state agencies. Governor Kelly proposed repaying that amount in her original budget recommendation for FY 2021, when the state projected higher revenues and a larger general fund ending balance.

The Legislature has already approved a $132 million payment for this year, fiscal year 2020, and the same amount for next year. In her proposal Monday, the Governor calls for making the 2020 payment but then borrowing back and delaying the 2021 payment. The effect is to add $264 million in revenue to the FY 2021 not provided in the budget passed by the Legislature.

The Governor’s plan also reduces $146.7 million in human services funding that is replaced by federal aid through a higher Medicaid matching formula; and $26.3 million in higher education funding that is replaced by federal Governor’s Emergency Education Relief (GEER) funding.

More savings is achieved by increasing the delayed final school district aid payment by $77.4 million at the end FY 2021 (next June). Each year since 2005, several hundred million in school districts aid payments due in June are actually paid after July 1. However, school districts are required to count those payments as having been received in June. It is an accounting device that allows the state to reduce K-12 spending in a fiscal year without school district funding being “cut” in that same year by using school district cash balances to cover the time until state aid is paid a few days later in the next year.

Although the Governor’s plan does not reduce the main elements of the school finance formula, it does reduce several smaller K-12 aid programs. It eliminates $5 million for school safety grants that the Legislature added to the Governor’s original budget proposal, reduces funding for the school base mental health program by $3.9 million, reduces funding for Career Technical Education Transportation by $1.04 million, and reduces the Beloit Juvenile Transition Crisis Center funding by $300,00. The plan also cuts $8.5 million in funding for postsecondary career and technical education funding for high school students in the Board of Regents budget.

The Governor’s plan also places a one-year moratorium on KPERS death and disability contributions, saving approximately $47 million, which the administration says is feasible because of a healthy balance in the fund; and would return almost $20 million in unspent state funding for Coronavirus response. The state has received over $2 billion in federal Coronavirus relief. The Governor also proposes over $40 million in reductions across other state programs

The Governor is also asking the Legislature to release $44.3 million appropriated for Evidence-based Juvenile Programs in the Department of Corrections for other purposes. Those funds were set aside for local programs after juvenile justice reforms reduced the cost of state juvenile programs. The Kelly administration says those funds are not currently being requested for use, and the level of funding actually being spent will be continued.

The next official state general fund revenue forecast is scheduled to be released in early November, which should include revenue projections for FY 2022 and 2023.

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