Though it received little media attention, one of the most significant and potentially damaging parts of the state’s new tax law is a cap on spending to be triggered by revenue growth.
As Senate Minority Leader Anthony Hensley, D-Topeka, warned: “It’s a self-inflicted budget crisis of huge proportions.”
Starting in fiscal year 2018, the law requires the Kansas secretary of revenue to automatically cut personal income taxes any year that the state’s tax revenue grows by more than 2 percent – thereby effectively capping potential spending increases at 2 percent. Once personal income taxes are phased out – assuming that is possible – the state must begin automatically phasing out corporate income taxes, and then a similar tax paid by financial institutions.
Americans for Prosperity-Kansas has been pushing for spending limits for years and is pleased. “That may be the most important piece of legislation this year,” Jeff Glendening, AFP’s state director, told Associated Press.
Controlling state spending is important. But there is a reason why other states don’t have spending caps: They create more budget problems than they solve.
One of the main problems is that it is difficult for states to control certain spending, such as Medicaid. As a result, other state programs may have to be cut to keep overall spending within the cap.
For example, budget profiles that lawmakers used this past session projected state spending would increase by nearly 3 percent each year just because of Medicaid programs, the Kansas Public Employees Retirement System and school finance (and that’s not factoring in the likelihood that the state will lose the school-funding lawsuit). That means other areas of the budget would have to be cut significantly.
What will it be – more cuts to the prison system and higher education? What about inflation or raises for state employees? Or investing in programs such as early childhood education that cost more now but save money in the future?
A 2 percent cap year after year is not realistic.
Another concern – at least among those who believe state services are important – is that the cap locks in spending at recession levels, with little hope of making up for past budget cuts.
For example, overall state funding for higher education was 8 percent lower in 2013 than in 2008 (and next year’s funding was cut again). Even if the economy booms, it would be difficult for universities to recover this lost funding, because revenue gains will be redirected to more tax cuts.
State budgeting is complicated, and circumstances and priorities change. States need flexibility, not a straitjacket.