Kansas leaders agreed Thursday to borrow $675 million to cover the state’s expenses during low-revenue periods of fiscal year 2015 after sparring over the state’s long-term fiscal outlook.
The decision came during an unusually heated meeting of the State Finance Council in which Democratic and Republican leaders debated whether income tax cuts have drained the state’s resources or created economic growth.
The state has approved a certificate of indebtedness each year since 2000 to cover expenses during periods when revenue is light. The money is borrowed from the Pooled Money Investment Board, which oversees the state's investments. The certificates must be paid back by the end of the fiscal year.
Shawn Sullivan, the state’s budget director, said he had full confidence the state would be able to pay back the borrowed money.
"We're much better than we've had in years past. We're going to be good. We've got a growing economy,” Sullivan said. “We’re going to be good.”
The state has $294 million on hand and expects to have about $425 million by the end of June, which marks the end of fiscal 2014, said Elaine Frisbie, the deputy budget director.
Democrats pressed Sullivan and Frisbie on whether the state would be able to pay back the borrowed money next June, noting the state missed its revenue targets in April and May by more than $300 million. If the state is not able to repay the money, budget cuts would be necessary.
"What I'm trying to do is have some confidence in the numbers here,” said House Minority Leader Paul Davis, D-Lawrence.
Sullivan repeated the administration’s stance that the shortfalls were caused primarily by a drop in capital gains revenue caused by the federal fiscal cliff and would not extend into next year.
But Davis pointed out that Kansas income tax revenue for the first four months of 2014 had declined by 24 percent compared with the national average of 7 percent.
Sullivan clarified that the revenue decline was caused partly by tax cuts, but maintained his stance that missing estimates was caused by the fiscal cliff’s impact on capital gains.
Last year, the state borrowed $300 million. In 2009, it needed $775 million to pay its bills.
Gov. Sam Brownback pointed to the comparatively low dollar figure required last year as proof that the state had improved its financial management, according to a 2013 article from the KHI News Service.
Senate Minority Leader Anthony Hensley, D-Topeka, took out the article during the meeting and pressed the governor on whether the need for $675 million this year was proof that the state’s finances were deteriorating.
"I don't share the confidence that the budget director has that we'll be in the position to pay these back by June 30th (2015),” Hensley said.
The governor struck back against the criticisms, mentioning that the state’s unemployment rate is below 5 percent.
“We’re in a far better situation. We’ve got a record number of people working in the state of Kansas. If we hadn’t cut taxes, particularly for small business to create jobs and opportunities, we wouldn’t be in near as good a situation as we are,” Brownback said.
“We always told you there’d be a dip in revenues for a couple of years before it pulled back up. But the focus was always getting more money in people’s pockets and creating jobs,” Brownback said. “And that’s happening, so we’re in a much better situation than we were when I came into office.”
The two had a heated exchange. “Governor, I beg to differ,” Hensley said.
“Well, I beg to differ with you,” Brownback said, cutting him off.
"If you want to propose raising taxes, that's up to you guys,” the governor said to Hensley and Davis, the Democratic candidate for governor.
Sen. Ty Masterson, R-Andover, remarked that finance meetings have been less acrimonious in the past. “We’re in a political year,” Masterson said with a laugh.
House Speaker Ray Merrick, R-Stilwell, chastised Hensley for politicizing the typically routine decision on whether to borrow money to cover the bills.
"Whatever we're doing, it's working in Johnson County. Thank goodness,” Merrick said.
Senate President Susan Wagle, R-Wichita, also defended the tax cuts. She said that her constituents, who have been looking over their tax bills for 2013, have pleased with the results.
"The government has less money to spend. But that's what the people want. They want more money in their pockets,” Wagle said.
The governor was visibly frustrated after the meeting. He said he objected to Hensley politicizing the meeting and also accused the media of overlooking the state’s successes, including last year when the state surpassed revenue estimates by $69 million.
“Come on guys, let’s give me a little fair play here,” he told reporters. “You’ve spent a month talking about this fiscal situation and I was begging you to cover it last year and nobody would dig into it. You could have written the story then.”
The governor disagreed that he was trying to have it both ways by taking credit for high revenues last year — which he acknowledges were caused partly by the capital gains phenomenon — and blaming shortfalls this year on the federal government.