Kansas withholds payment to schools, takes highway money to balance budget

Kansas withheld money from schools and emptied out the last available dollars from its highway fund to balance its books for the 2016 fiscal year that ended in June.

The state ended the fiscal year with a $76.2 million budget shortfall after tax revenues missed the mark in May and June even though revenue estimates were lowered significantly in April.

It withheld $260 million from school districts’ June payment until July.

Withholding school payments at the end of the fiscal year is not a new practice. The state has done it over the past decade and was already planning to do it again this year.

But the amount was “$75 million higher than it would have been otherwise,” said Dale Dennis, the deputy education commissioner in charge of school finance.

Gov. Sam Brownback’s budget director, Shawn Sullivan, had warned last week that the state probably would delay payments to school districts.

Districts will receive the withheld money on July 7, but mark it as a June 30 payment. Statewide, districts will receive $259.7 million in state aid that day. The state already has paid schools $317 million in general and supplemental aid in June.

The delayed payment should not affect the Wichita school district’s operations, said Wendy Johnson, a spokeswoman for the Wichita school district. “This is precisely the reason we need cash reserves – to handle cash flow when payments are delayed,” she said.

Sen. Laura Kelly, D-Topeka, the ranking Democrat on the Senate budget committee, said when past administrations had to delay payments to school districts “there was more certainty the money would actually be coming in” the next month.

“That’s not certain anymore,” she said. “We fall short every month.”

The state missed June tax estimates by $34.5 million.

Corporate income tax receipts came in $20.3 million, or 25.1 percent, below estimates and individual income tax receipts came in $17.9 million, or 8.1 percent, below estimates.

“Unfortunately, Kansas is a part of a national trend with many states reporting reductions in revenue collections because of a weak economy,” said Revenue Secretary Nick Jordan. “Corporate income tax receipts are down nationally for 2015’s fourth quarter on an average of 9 percent according to reports.”

Ken Kriz, an economist at Wichita State University, cautioned against Jordan’s use of 2015 data to explain what’s happening this year, saying that the year’s broader trends won’t become apparent for several months.

“He’s comparing quite literally apples and oranges … so I don’t see how he can sustain that claim,” Kriz said.

Brownback announced last month that Sullivan would conduct a review of why the state’s revenue estimates have proven so inaccurate, which has made it difficult for policymakers to budget.

Kriz said the numerous tax changes in recent years – cuts to income tax, increases to sales tax and changes to exemptions – make it difficult to predict revenues.

“When you’re changing everything, I don’t know how you forecast in that environment because you literally are almost starting with a new tax structure,” he said.

The state found another $23.6 million to sweep from the state’s highway fund, the last remaining sales tax dollars in the highway fund. Dedicated highway money from other sources must go toward transportation projects.

It also will take money from the Kansas Department of Corrections and unspent money in the Children’s Initiatives Fund, which is dedicated to pay for children’s programs.

That will leave the state with a positive ending balance for the fiscal year, as required by Kansas law.

Sullivan announced the budget moves Friday afternoon, saying in a statement that because “the full effect of the consensus revenue estimates being off was felt in early June, it would have been very difficult to make traditional allotments with only a few weeks left in the fiscal year.”

Brownback and other state officials approved taking out a $900 million certificate of indebtedness, which is essentially a loan the state makes to itself, last week to help cover cash flow problems during the 2017 fiscal year, which officially began Friday.

This story was originally published July 1, 2016 at 2:24 PM with the headline "Kansas withholds payment to schools, takes highway money to balance budget."