New estimate adds $306 million in state revenues for current year

The Kansas state general fund is expected to receive $306 million more in revenue during the current fiscal year ending June 30, 2019 than projected last April. 

The official state Consensus Revenue Estimate released Friday projects continued strong revenue growth in the current year and sets the first official revenue projections for Fiscal Years 2020 and 2021. Here is a link to the “short memo,” which summarizes the results. A longer document will follow. 

Incoming Governor Laura Kelly will use those estimates to prepare to her first budget proposal in January when the 2019 Legislature convenes. By state law, the Governor is required to develop a budget based on November estimates, which are updated every year in April. 

KASB will present a live video update on the new CRE with chief legislative economist and tax expert Chris Courtwright Tuesday at 12:30. 

Here are some highlights of the new estimate. 

Almost all of the additional revenue expected is from individual income taxes. State sales tax collection is virtually unchanged. 

State experts say there is now strong evidence that the revenue cost of the 2012 income cuts was significantly understated. As a result, state revenues dropped more than expected for years after the change in rates. When the income tax cuts were largely reversed in 2017, state revenues have been higher than expected. 

Based on SGF spending already approved for the current year, the new revenues result in a projected ending balance of $905 million, or 12.6 percent. An updated “profile” for the SGF shows that balance dropping to $308 million, or 4.0 percent, by 2021, based on current law and certain assumptions. 

New estimates projects that state tax revenue will grow by about $200 million in FY 2020 and over $100 million in FY 2021, but that increase will be offset by higher transfers out of the state general fund. Under current law, SGF transfers would increase from $31.2 million this year to $268 million next year and $429 million in 2021. These include transfers to the state highway fund, city-county aid and other programs that the Legislature reduced or suspended in recent years. 

The budget also projects increased spending of $266 million next year to get back to actuarially required payments to the Kansas Public Employees Retirement System. In recent years, the Legislature reduced those payments to deal with the state’s budget shortfall. 

The projections also include adding $89.3 million in FY 2020 and $99.3 million in FY 2021 due to the school finance bill passed last session to address the Kansas Supreme Court Gannon decision over five years. The profile does not contain any additional funding to add an inflation adjustment, which the Court said would be required if the Legislature phases in funding to address Gannon. 

The additional $300 million is welcome news for the Legislature and Governor, but will likely face strong competing claims, including the inflation adjustment for school finance, restoring funding to other parts of the state budget, including higher education and social services; a state transportation plan; and tax cuts ranging from a lower rate on food to cutting state income taxes after changes in the federal tax code.

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