Kansas task force proposes ending monthly tax comparisons

After months of bad news about the state budget, Kansas may simply stop announcing its monthly revenue shortfalls.

A task force is recommending that current revenue be compared only with the last year’s actual revenue, not the monthly estimates currently made by the Consensus Revenue Estimating Group, a panel of economists who develop the revenue projections that guide the state budget. The reports sent out by the Kansas Department of Revenue each month currently compare the state’s tax receipts against both the previous year and the estimates.

Democrats claim that putting out less information could help reduce what has been an ongoing political embarrassment for Brownback since he proposed – and the Legislature approved – business-friendly income tax cuts starting in 2012.

Despite lowering the revenue estimates multiple times in recent years, revenue continues to fall short of the projections. On Monday, the state announced it had fallen $45 million short of the estimate in September, putting Kansas in a more than $60 million budget hole three months into the current fiscal year.

Since income tax cuts went into effect in 2013, the state has fallen short of estimates 32 of 45 months. For comparison, the state beat estimates 24 out of 45 months prior to the tax law change.

Wichita businessman Sam Williams, who chaired the task force, confirmed that the numerous tax changes the state has made in recent years has made it more difficult to predict revenue accurately.

Williams, who made an unsuccessful bid for mayor last year, said the task force’s recommendations, including the changes to monthly revenue reports, were based on best practices from other states and the private sector.

Revenue Secretary Nick Jordan stressed that the idea of shedding the monthly comparison to estimates is only a recommendation. It will be up to the governor and other state officials to weigh that change, which can be made without legislative approval.

Jordan said that focusing on monthly performance against estimates can sometimes obscure how specific taxes are performing over a longer period. He said individual income tax receipts were below estimates in September but surpassed them for the quarter.

“If all you did was look at the monthly you’d say, ‘Oh my God. Individual income tax is down this month and it’s negative,’ when the fact of the matter is for the quarter we’re up,” Jordan said in an interview Tuesday afternoon. “There’s a lot of advantages to looking at actuals to actuals or maybe even looking at quarterly rather than monthly, so it’s a little frustrating that there’s a negative … and it’s bypassed that individual income tax was doing great the first quarter of (fiscal year) 2017.”

Jeannine Koranda, spokeswoman for the Department of Revenue, added that the monthly reports should be seen as a snapshot. “It’s hard to extrapolate the entire year by a one-month snapshot,” she said.

However, Democratic lawmakers say the push to eliminate monthly comparisons to estimates is motivated by political reasons.

“Clearly this is an effort to get that out of the news because it has been bad and it will probably continue to be bad,” said Sen. Laura Kelly, D-Topeka, the ranking Democrat on the Senate budget committee. “It’s all for political (reasons). These reports hurt the administration’s reputation. They also, going into an election, hurt candidates that are allied with the administration.”

Rep. Jim Ward, D-Wichita, compared it to a team losing a football game trying to change how the score is kept midway through the game.

Kelly said eliminating monthly comparisons would make it more difficult for lawmakers to budget. “I don’t know how we’re going to do budgets without (monthly) projections. I mean, we have to base the budget on something,” she said.

The state would still come up with a long-term revenue estimate every six months, and the nonpartisan Legislative Research Department, which works at the discretion of lawmakers, could potentially continue to provide monthly comparisons if the Department of Revenue stopped the practice.

The recommendation for ending monthly estimate reports was part of a larger package of suggestions from the task force, which was empaneled to evaluate and recommend improvements to the revenue estimating process.

The revenue estimate is the number that the Legislature is required to use to come up with a balanced budget each year. If the estimates are too high, the governor has to make mid-year spending cuts to keep the state budget balanced.

“The inability of the consensus revenue estimating group, of which I am a part, to develop accurate forecasts makes it very difficult to develop and maintain a stable budget,” Budget Director Shawn Sullivan said Tuesday in a statement.

“We built our budget for fiscal year 2016 and 2017 on estimates completed after tax legislation passed in 2015. The actuals for fiscal year 2016 were $464.7 million, or 7.5 percent less, than those estimates.”

Sullivan, who is one of the heads of the estimating group, would not say why the group’s estimates have been overly optimistic in recent years.

In addition to ditching the monthly report, the task force is recommending:

▪ Bringing industry representatives into the process, including Kansas CPAs and bankers, “to provide a more diverse and forward-looking economic outlook.”

▪ Investing in new economic modeling software.

▪ Changing the makeup of the revenue estimating group by hiring “one economist experienced with macro-economic and revenue forecasting.”

▪ Pushing the current April revenue estimate to May 1 to provide the group with more information on state tax-filing deadline collections.

This story was originally published October 4, 2016 at 11:39 AM with the headline "Kansas task force proposes ending monthly tax comparisons."