Job growth not enough

It would be nice if job growth were enough to eliminate the state’s budget problems, as Gov. Sam Brownback has predicted. But that’s wishful thinking.

The reality is that the state is going to need either significant budget cuts, tax increases or a combination of both – maybe starting this fiscal year.

Brownback said Tuesday that job growth would create enough revenue to mitigate the $238 million budget shortfall the state is projected to face by the end of next fiscal year. When asked if the growth would happen at a fast enough rate to prevent the shortfall, Brownback said, “yes.”

That fast growth certainly hasn’t happened so far. Kansas has trailed the nation and most surrounding states in job growth. In fact, Kansas was one of the only states to lose more jobs than it gained between November 2013 and May 2014.

Tax revenue also has lagged. The state collected $334 million less in tax revenue than expected during the last three months of the fiscal year that ended June 30. The July collections met the estimates, thankfully. But even if tax collections come in on target each of the remaining 11 months of this fiscal year, the state could finish with only a $29 million ending balance, according to forecasts released last week by the nonpartisan Kansas Legislative Research Department.

Budget officials think the state can make it through this year without having to make any budget rescissions. Maybe, if it’s lucky. But even if that happens, bigger problems await.

The $238 million shortfall for next fiscal year already assumes that total tax revenue will increase 3.6 percent, according to legislative researchers. It also assumes that individual income tax revenue will grow by 5 percent – though because of additional tax cuts that phase in, the net increase in collections is expected to be 2.1 percent. So the growth rate would need to be significantly higher than that to eliminate the projected shortfall.

Also keep in mind that the shortfall doesn’t include an ending balance. The statutorily required ending balance of 7.5 percent for next fiscal year, based on current spending projections, is about $460 million. So covering the shortfall and restoring the ending balance could require about $700 million.

Job growth definitely won’t cover that.

Also, though the legislative researchers’ forecast includes estimates of increased costs for Medicaid, the state pension and some education expenses, it assumes that all other costs don’t increase – including state base aid to K-12 public schools. And it’s quite possible that the state could lose its pending lawsuit on school finance and be ordered by the courts to spend millions more on schools.

Where would that money come from?

It’s no wonder Standard & Poor’s and Moody’s downgraded Kansas’ credit rating. The numbers just don’t add up.

For the editorial board, Phillip Brownlee

This story was originally published August 13, 2014 at 8:09 PM with the headline "Job growth not enough."