Eagle editorial: Can’t afford more tax cuts

07/03/2014 12:00 AM

08/08/2014 10:25 AM

Before the state cuts income taxes further, Democratic gubernatorial candidate Paul Davis first wants to restore funding to public education. That’s admirable, though there is a more fundamental reason to put the brakes on more tax cutting: The state can’t afford it.

In fact, the state can’t afford the tax cuts it already has implemented, as evidenced by its rapidly shrinking cash balances and recent downgrade of its bond rating.

Davis proposed freezing the tax rates at their 2015 levels of 4.6 percent for the top bracket and 2.7 percent for the lower bracket. Per the tax-cut plan approved by Gov. Sam Brownback, the rates are scheduled to phase down to 3.9 and 2.3 percent by 2018, and then keep being reduced after that based on revenue triggers.

“We need to hit the pause button,” Davis said.

Davis wants to return state base aid for schools to the prerecession level of $4,492 per pupil. It is currently $3,852.

But the way state finances are heading, it will be difficult to maintain current funding, let alone increase it.

The state reported this week that its tax collections for June were $28 million less than estimates. Counting the huge revenue drops in April and May, the state has collected $338 million less than expected (and $726 million less than it collected the previous fiscal year).

The drop in collections wipes out nearly all the cash reserves that Brownback and the Legislature were counting on for this new fiscal year. So unless the state’s revenue collections for the next 12 months are on target, which seems unlikely, the state could be forced to make midyear spending cuts, which can be painful.

But that’s not the worst of it. Because this fiscal year’s budget was already projected to spend about $320 million more than the estimated revenue, the loss of the cash reserves means that the next fiscal year’s budget (which the Legislature will draft next session) would need major spending cuts or tax increases just to get to zero, let alone return the cash reserves to the statutorily required level of about $500 million.

What makes that even more difficult is that the state’s pension and Medicaid costs will continue to increase. Also, the courts could rule again that the state is inadequately funding public education. And the state can’t keep raiding the transportation fund, which is how it’s been balancing its budget lately.

This growing imbalance, along with the state’s sluggish economic recovery compared with its peers, was why Moody’s Investors Service downgraded both the state’s and the Kansas Department of Transportation’s bond ratings.

Given all these problems, continuing to cut taxes is not just fiscally irresponsible, it’s nuts.

For the editorial board, Phillip Brownlee

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