State revenue picture improves, but deficit still projected

Kansas state revenue forecasters says they expect the state to take in $477 million, or 6.6 percent, more in the current year than was projected last April. Here is a link to the official Consensus Revenue Estimate released Friday afternoon. 

However, a significant portion of those revenues were delayed from last year, so are “one time” receipts. Even with better economic forecasts, state general fund revenues in the next fiscal year, which starts July 1, are estimated to drop $224.1 million below the new current year projection. 

That means Gov. Laura Kelly and the newly elected Legislature will face a projected deficit of $152.5 million for FY 2022, or 1.9 percent of expenditures. That is the projected deficit after adding $171 million in school funding under current law, including the Gannon school finance plan, and $205 million for human service caseloads. 

The new budget projection is dramatically better than estimates this summer, which suggested a possible deficit of over $1 billion. However, the new estimates show that even after adjusting for the $152 million, spending would exceed revenues by $364 million, because the state would be spending a balance carried forward. 

The improved forecast was made possible because the economic shock created by the COVID pandemic and limits on gatherings and some business activities was not as deep or as long-lasting as expected. 

For example, in April, state forecasters expected state personal income to decline by 3.4 percent in 2020, but now expect it to increase by 1.7 percent. For 2021, the increase in state personal income was lowered to 3.1 percent from 3.4 percent projected in April, but for 2022, the projected increase was raised from 3.7 to 3.8 percent, and is expected to increase by 4 percent in 2023. 

But state officials caution there is still significant uncertainty about the ongoing pandemic, which has seen cases rising in Kansas and around the nation and world. 

Gov. Kelly will use these numbers to prepare a revised budget for the current year and a budget for next year, FY 2022, which will be submitted to the Legislature in January. Typically, the final budget is passed after a revised consensus revenue estimate in April. 

Not factored in the revenue and budget estimates is the impact of possible additional federal aid. U.S. House Democrats have been pushing for aid to state and local governments to replace lost revenues caused by the COVID pandemic. With the Presidential election and composition of the U.S. Senate not yet resolved, the prospects for additional federal aid are uncertain. 

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