Latest News

Kansas may delay tax refunds, paychecks

The story originally was published in The Wichita Eagle on Feb. 17, 2009.

Income tax refunds and state employee paychecks could be late after Republican leaders and the Democratic governor clashed Monday over how to solve a cash-flow problem.

Payments to Medicaid providers and schools also could be delayed.

"We are out of cash, in essence," state budget director Duane Goossen said.

The move places state taxpayers, workers and schoolchildren in the middle of a political battle over budget cuts.

Republicans, who hold majorities in both chambers, blocked Gov. Kathleen Sebelius' proposal to borrow $225 million from healthy state funds to cover shortages in accounts used to meet the state's payroll and issue tax refunds.

GOP leaders said they won't approve the IOUs until Sebelius either cuts the current budget herself or signs the bill they passed last week slashing $326 million - including $32 million for education - to balance the budget.

Republican leaders said they had no choice, that by law the state can't borrow any more money from itself. Sebelius and Democrats disagree and accuse the GOP of playing politics with people's paychecks.

"Through their refusal to act today, the Republican legislative leadership is jeopardizing our citizens' pocketbooks for no other reason than to play political games - games in which the only ones set to lose are Kansas families , workers and schools," Sebelius said in a written statement.

Replied House Speaker Mike O'Neal: "While we all can agree that these are trying times for Kansas families, seniors and business owners, the Kansas House of Representatives respectfully disagrees with breaking the law in order to gain political capital."

The Senate approved the budget-cutting bill Thursday, but the governor has yet to receive it. It is being proofread and could reach Sebelius as early as today.

Her spokeswoman has said she will carefully consider it. She could sign it, veto it or veto portions of it.

Lower tax revenues

Kansas' cash-flow problem stems in part from the worsening recession and lower-than-expected tax revenue. As a result, the state had only $10 million in its checking account Monday morning.

Most immediately, that means the state does not have $24 million to cover payroll for the state's 42,000 employees and about $20 million for payments to Medicaid providers such as doctors, hospitals and nursing homes, Goossen said. Usually the state processes the payments on Wednesday and sends the checks out Friday.

"State employees simply have no more to give. Paychecks shouldn't be held hostage for political maneuvering," said Lisa Ochs, president of the Kansas Organization of State Employees.

Kansas taxpayers also are due about $12 million in income tax returns. The state stopped payments on the refunds Friday.

Washburn University political science professor Bob Beatty likened the impasse to the 1995 budget battle between President Clinton and U.S. House Speaker Newt Gingrich. That dispute prompted a shutdown of the federal government. He said Kansas legislative leaders are making a dangerous gamble.

"Gingrich went too far," Beatty said. "If you go too far, you lose."

Options for borrowing

The state will pay its bills -"in a lawful manner," said O'Neal, R-Hutchinson.

At issue is whether the state can borrow now from other state funds. Such loans - called certificates of indebtedness - have routinely been used in the past when the state runs short on cash.

The move is similar to a family shifting unused money from one banking account to another to temporarily cover an expense, then putting the money back into the original account later.

The state would borrow unused money from one state agency's fund to pay immediate expenses for another agency, then replenish the borrowed amount later. The money has to be paid back by June 30, when the budget year ends.

State leaders already have authorized $550 million in certificates this fiscal year - $300 million last summer and $250 million in December.

In December, Republican leaders worried the state wouldn't have the money to pay itself back. That's the concern now, they say.

They say that although the state has borrowed from itself before, it has never borrowed this much in one year.

The Kansas Finance Council - which includes Sebelius and six Republican leaders - must approve any certificates of indebtedness.

"We cannot issue more certificates if the funds will not materialize by the end of the year," O'Neal said in a statement. "Without the revised 2009 budget bill, there is no way that we can legally issue a certificate knowing full well that the money will not be available to retire the debt."

Legislative leaders contend that if Sebelius had made cuts to state programs in late 2008, then the state wouldn't be facing this problem. She could still make cuts to programs, guaranteeing the money would be available at the end of the year, O'Neal said.

Goossen said even if the governor ordered the cuts, called allotments, it wouldn't fix the current predicament.

"The problem today is we don't have cash to pay our bills in a timely fashion," he said. "Allotments only allow the governor to hold spending back."

State Treasurer Dennis McKinney, a Democrat, said the legislative leaders' move put the state's reputation as a reliable bill payer, and its credit rating, at risk.

"This is taking a budget fight one step too far," McKinney said.

Other ripples

In addition to payroll spending, the tax refunds and Medicaid payments, payments to schools and cities could be affected eventually if the impasse continues.

The state is scheduled March 2 to pay $185 million to public schools and $25 million to cities and counties to offset money lost when the state abolished the machinery and equipment tax, Goossen said.

Diane Gjerstad, lobbyist for Wichita schools, said she didn't expect the district to be harmed. She added that the situation pointed to why districts need to have their own contingency fund.

"If the state is short, we want to be able to make our payroll," she said.

Andover schools would be able to pay employees for the near future, said district spokeswoman Keturah Austin.

"If the state didn't make it on time in February, we have enough cash reserves for one month," she said.

  Comments