Posted on Wed, Oct. 14, 2009

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Budget woes due to economy, estimates

Anti-tax groups blame the state's budget crisis on too much spending. Others, such as Kansas Secretary of Revenue Joan Wagnon, blame it on too much tax cutting.

The reality is that the Legislature determines each year how much to spend and how much to cut or raise taxes based on how much revenue the state expects to collect. And the main reason for recent budget problems is that the economic downturn caused those estimates to be off by hundreds of millions of dollars — though lawmakers also have done a poor job planning for future spending and preparing for a downturn.

Groups such as Americans for Prosperity-Kansas point out how much spending increased in recent years, and they contend that the state wouldn't be facing large budget shortfalls if it had limited the growth of that spending.

But Wagnon noted during a speech last week at Wichita State University how tax cuts and exemptions have cost the state $10.9 billion in lost revenue since 1995. And she said that without those tax cuts, the state would receive an additional $1 billion in revenue this year.

One flaw with both arguments is that they presume the Legislature would have left that much extra money lying around, which is politically unlikely (though AFP supports creating a mandatory rainy-day fund). If that money had been accumulating in recent years, business groups likely would have called for more tax cuts, and advocates for education and social services would have pushed for more funding.

As it has been, lawmakers have regularly failed to set aside even the statutorily required ending balance of 7.5 percent of general fund expenditures, or about $460 million this fiscal year. This year, they approved a budget with essentially no ending balance.

Though lawmakers (and the state's revenue estimators) shouldn't be faulted for failing to anticipate a global financial meltdown, it is fair to criticize them for not planning for the cost of tax cuts or spending increases in future years. For example, the Legislature approved court-ordered funding increases for K-12 schools in 2005 and 2006 without creating an increased revenue stream to pay for them in the future.

Lawmakers also have tended to deal with budget shortfalls by relying on accounting gimmicks that pushed problems to the future — rather than deal directly with shortfalls by cutting spending or raising taxes.

So when the economy crashed and tax revenues dropped dramatically, the state was in a bad position to respond. That's why the House Appropriations Committee had to meet this week to consider more budget cuts.

Ultimately, however, the state's budget is only as good as the health of the economy and the accuracy of its revenue estimates. And lately, both have been horrible.

— For the editorial board, Phillip Brownlee

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