State officials tried to downplay the $217 million shortfall in tax collections in May. But make no mistake: The revenue drop is disastrous for the state budget and Gov. Sam Brownback.
The May shortfall followed a $93 million shortfall in April. Those months’ tax collections came in a total $310 million short of the estimates made less than two months ago. Those are the same estimates upon which the Legislature based the state budget for next fiscal year.
Revenue Secretary Nick Jordan blamed the shortfalls on federal tax policy and said that the bulk of the shortfalls should be over. “The big lug is done,” he said.
Department of Revenue officials pointed to paycheck withholdings and other measures as evidence that the state economy is growing as projected.
And Jon Hummell, the state’s interim budget director, said the administration is confident it won’t have to trim already approved spending for next fiscal year, though he acknowledged that the 2015 fiscal year “is going to be close.”
How close? Assuming the shortfalls really are over (which is unlikely) and the revenue estimates are on target this month and through next June (highly unlikely), the state could end next fiscal year with only about $60 million in reserves, or about 1 percent of its budget.
Even if the state is able to squeak by next fiscal year, the problem gets much worse in later years. That’s because next year’s budget already spends about $300 million more than the estimated revenue. If cash reserves are exhausted next year, the following fiscal year would need major spending cuts or tax increases just to balance.
And keep in mind that the state’s pension and Medicaid costs will continue to increase. It also likely will receive another court ruling that it is inadequately funding public education. And the state is running out of the gimmicks it has been using to balance the budget, such as raiding the transportation fund.
The $310 million shortfall (so far) also undermines Brownback’s tax-cut strategy. After Brownback signed massive tax cuts into law in 2012, he said that his tax policy would “be like a shot of adrenaline into the heart of the Kansas economy.” When that didn’t materialize, his administration said that it could take a few years for the tax cuts to generate significant growth. Brownback said this was why the state needed a large ending balance, to cushion the loss of tax revenue.
That cushion will soon be gone, leaving Kansas with a hard, painful landing.