With higher revenue forecast, legislators review budget issues

Following last Friday’s release of new official revenue estimates, leaders of the Legislature’s budget committees yesterday received a briefing on issues they will face in the 2019 session. 

The new estimates project the state general fund will take in $300 million more than expected in the current fiscal year ending June 30, 2019, and result in an ending balance of over $900 million or 12.6 percent. 

However, commitments the Legislature has already made could whittle the ending balance down to $308 million dollar by 2021, with expenditures exceeding revenues by the same amount. In addition, state agencies have submitted requests for budget enhancements totaling $1.3 billion over three years. 

The five-year school finance plan passed last session in response to the Gannon decision is now expected to add $89.3 million in state funding next year, FY 2020, and an additional $99.3 million in 2021. Those amounts are included in state budget projections under current law. In addition, contributions to the Kansas Public Employees Retirement System are scheduled to increase $266 million next year and $44 million more in 2021. School districts account for $255 million and $12 million of the increase. 

Transfers from the State General Fund for school district capital improvement (bond and interest) aid are expected to increase $27 million over the next two years. 

These increases are built into the state’s budget profile, but do not include any funding to address the Supreme Court ruling that the Legislature must include an inflationary adjustment to its five-year plan. The State Board of Education has proposed an adjustment that would require an additional $93 million in 2020 and $90 million in 2021. 

The current budget outlook also assumes that human service caseloads (basically state matching requirements for federal health and social service programs) will increase by $55 million this year, drop by $21 million in FY 2020 and increase by $51 million in FY 2021. 

It further assumes the Legislature will end the practice of transferring money from the state highway fund to subsidize the state general fund. These amounts have totaled nearly $300 million in recent years. The state is also supposed to begin paying $132 million for property tax reduction and revenue sharing to cities and counties in FY 2021. This aid has been suspended for 15 years. 

Incoming Governor Laura Kelly will propose her first official budget to the 2019 Legislature in early January, with specific proposals for all state agencies and programs. Although the new revenue numbers provide some flexibility, additional funding for schools to meet the Supreme Court’s ruling will face a great deal of competition. 

Transportation. The Legislature could continue to shift dollars from the highway fund to the state general fund, but there is strong support for restoring money for roads and bridges, and interest in developing a new state transportation plan. The current budget profile also assumes the state will continue to use $45 million from the SHF to pay for school district transportation aid. 

Tax cuts. Senator Kelly campaigned for Governor with support for reducing the state sales tax on food, which brings in over $400 million per year in revenues. Any reduction in this tax would likely be phased-in. Some Legislators are likely to push for cuts in the state income tax to “return the windfall” from changes in the federal tax code, although the impact of these changes is not clear. 

Social services. Kelly also strongly supported expansion of the state Medicaid program, although there is considerable dispute over how much this would cost. Given concerns over foster care and other children’s programs, there will likely be efforts to boost funding for these programs, as well. 

Higher education. The Board of Regents is seeking $85 million over two years to restore cuts in base funding for state universities, $27 million for community and technical colleges and Washburn University, $25 million to create a new needs-based scholarship program and $3 million for career technical education. 

Other education programs. The State Board’s request for $90 million per year in 2020 and 2021 suggested adding the money in base state aid. But there are other ways additional funding could be used. Sen. Kelly has strongly supported expanding early childhood education and made that a central campaign issue. 

Although the current school finance plan assumes special education state aid will be increased by $7.5 million in 2020 and an additional $7.5 million in 2021, the percentage of special education “excess cost” is projected to drop from 83.2 percent in the current year to 75.3 percent in 2021 because special education costs are expected to increase even faster. The State Board of Education has proposed funding to raise to special education aid to 95 percent of excess cost – the goal set by state law – by 2023, which would require adding about $30 million more per year. 

Last year, the Legislature created a $10 million pilot program for school-based mental health services in partnership with community mental health programs. The 2019 session will have to decide whether to continue and expand that program beyond the initial nine districts. 

The Legislature approved funding to allow all Kansas juniors and seniors to take one ACT test and one ACT Workkeys test at no charge. The Board of Education and Board of Regents are also trying to develop a plan to allow high school students to take up to five college courses through concurrent enrollment agreements with no tuition. The cost of that program has not been determined. 

Finally, the Legislature must decide whether to continue a $5 million grant program for school building safety.

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