Kansas’ finances are solid enough to go forward with the massive state income tax cuts legislators approved earlier this year, Gov. Sam Brownback said Wednesday, addressing election-season angst over whether the reductions will create big budget problems in the near future.
Brownback’s comments came as he announced that the state will pay off $25 million in bonds early. The debt was used to help finance Statehouse renovations, improvements at the state fairgrounds in Hutchinson and other projects.
His administration and legislative researchers also reported that the state ended its 2012 budget year with cash reserves of $466 million – more than double last year’s figure and up from only $876 two years ago.
Brownback and fellow conservative Republicans have repeatedly noted that after Brownback took office in January 2011, the state closed a projected shortfall of roughly $500 million without increasing taxes, and then built a healthy surplus. But Brownback’s critics, including moderate Republicans, worry that the tax cuts are likely to create a new budget crisis, starting next year.
Brownback and his allies believe the cuts will encourage businesses to add employees, attract new firms to Kansas and stimulate the economy. Brownback held the news conference less than two weeks before the state’s Aug. 7 primary, in which conservatives – many with his support – are trying to unseat Senate Republicans who resisted many of Brownback’s initiatives.
“We’re in excellent fiscal position right now,” Brownback said. “We’re in a fiscal position to do this tax cut. We’re doing this tax cut to get off of the trend lines we were on of losing jobs.”
The legislation will cut individual income tax rates for 2013 and eliminate income taxes for the owners of 191,000 businesses. Coupled with a sales tax reduction already scheduled for July 2013, the cuts would provide $231 million in tax relief for the fiscal year beginning July 1. That annual figure would grow to $934 million after six years.
Conservatives pushed the income tax cuts through the Legislature despite projections from the nonpartisan Legislative Research Department showing a budget shortfall will emerge by July 2014. The projections show cumulative shortfalls over five years exceeding $2.5 billion, and critics of the tax legislation fear such gaps would be closed by slashing funding for public schools and social services.
“Most of the people who I run into are not that optimistic. They’re concerned,” said Senate President Steve Morris, a moderate Hugoton Republican who faces a primary challenge from conservative state Rep. Larry Powell, of Garden City.
The legislative projections assume that state revenue, outside of the tax cuts, would grow 4 percent annually and that spending would grow almost 3 percent to cover costs associated with social services and public pensions and provide additional aid for public schools.
Brownback said his administration is committed to cutting administrative costs where it can and selling off unused state property.
He and other conservatives also contend the revenue growth projections are too pessimistic; healthier numbers would shrink or eliminate projected shortfalls in future years. Revenue grew more than 8 percent during the last fiscal year.
Brownback acknowledged that the tax cuts will “hit our revenue stream.”
“But it will come back, and it will come back stronger and higher,” he said.
Morris replied he’d like to believe that prediction will come true but, “There’s no guarantee of that.”