The Kansas economy is growing at a rate fast enough to pay for all-day kindergarten and other proposed spending increases, Gov. Sam Brownback said Friday.
Democrats and some economists have expressed skepticism that the state can handle a spending increase after massive tax cuts.
Brownback asserted with confidence Friday that the state is on track to pay for its expanded budget through new prosperity that will be brought on by low taxes.
“We ended last year with a 12 and half percent ending balance, which I’d love to see that reported,” he told reporters at a news conference.
The state actually ended fiscal 2013 with an 11.6 percent ending balance. Interim budget director Jon Hummel later confirmed that the governor “misstated” the percentage. He said the $700 million figure the governor offered as the state’s reserve fund was accurate.
Brownback particularly defended his proposal to phase in all-day kindergarten statewide. That would increase spending by $16.3 million in fiscal 2015 and cost about $80 million in five years.
“I think we can do it with a healthy ending balance,” he said.
“I’m traveling the state, assessing what’s taking place and I think we’re going to be in a position to do it,” he said. “But you can’t start it (all-day kindergarten) a year or two from now … you need to get it started now because the system takes some time to integrate it.”
Secretary of Revenue Nick Jordan has repeatedly said that the state will be able to pay for the governor’s budget proposals, pointing out that revenue for the current fiscal year surpassed projections by $7.4 million.
Senate Minority Leader Anthony Hensley, D-Topeka, compared Jordan to Harold Hill, the fast-talking salesman from “The Music Man,” on the day the budget was released.
Hensley has criticized the governor’s office for not including a five-year projection with the budget, as most governors have done in the past.
Brownback’s spokeswoman, Sara Belfry, said the governor’s office chose not to include a five-year projection because of controversies in past years and instead focused on a two-year cycle because those numbers are more reliable.
“Why do they think they’re the exception?” Hensley asked Tuesday. “How can they then project all this job growth if they think you can’t look at the out years five years ahead?”
Hensley and other Democrats have pointed to April projections by the nonpartisan Kansas Legislative Research Department that estimated the state would face a $213.6 million deficit in 2017 before the governor asked for new spending. That deficit would continue to grow each year thereafter, unless the state cuts spending or increases revenue, according to the projections.
The department’s analysis shows the state spending nearly all its reserves from 2013 through 2016.
“Those are the experts. Those are the economists. Those are our own research people,” Hensley said.
Brownback pushed back hard Friday against claims that the state will fall into a budgetary hole, and reiterated his belief that tax cuts are generating growth.
“It’s belief based on practice. We’ve done this now for three years in the face of people saying you can’t do this,” Brownback said. “There have been a number of naysayers on the other side of the aisle that, ‘Oh this is not going to work.’ And it is working! So that’s what I’m basing it on.”
Role of spending
Chris Courtwright, the research department’s principal economist, would not confirm Republican predictions of prosperity or Democratic prophecies of doom when he testified before the House Taxation Committee on Tuesday.
He was careful not to take a firm position when quizzed by representatives from both parties about whether enough growth would be generated to cover the state’s budget in the long term. Proponents of the tax changes say that more money in Kansans’ pockets will lead to more spending and that sales tax revenue can make up for reductions in income tax revenue.
“I suppose what happens in the next five years depends not just on the revenue side of the equation, but also on the expenditure side of the equation,” he said when asked if the state would build up a long-term deficit.
“If you guys would leave the law alone for a while it would be easier … to get you a measurement,” he joked.
Rep. Steve Brunk, R-Wichita, a member of the taxation committee, said that the economic models projecting deficit fail to factor in more spending by consumers and businesses in wake of the tax cuts. He called it a “static” model and said the state will only begin to see the true growth this year, the first filing year under the new tax law.
Brownback echoed that sentiment Friday.
“Your growth numbers and what you calculate for growth is critically important on those projections. And I strongly believe we’re going to be able to do this off of growth,” Brownback said.
“We will be able to handle this. Otherwise I wouldn’t propose it,” he added, referring to funding for all-day kindergarten.
Ken Kriz, director of the Kansas Public Finance Center at Wichita State University, said the administration can make the argument that the tax cuts will fuel growth, “but eventually you’re going to need numbers to back it up.”
He said both parties are overstating the impact of the tax changes.
Art Hall, director of Center for Applied Economics at the University of Kansas, said the tax cuts will generate economic growth but added, “The next question is over what time frame.”
Hall said the tax cuts will position Kansas to be competitive over the next decade, and they should not be expected to work immediately in a budget cycle.
“Think about them as a strategic competitive position,” Hall said. “The economy is not a machine.”
Hall also said the state should cut spending along with taxes.
Deficits to come?
Sen. Ty Masterson, R-Andover, said he would like to cut spending, but that political realities might not make that possible.
Masterson, chair of the Senate Ways and Means Committee, said he is not worried about projections that show the state flirting with budget deficits in the future.
“Projections are what they are by definition: projections,” Masterson said. He added that everyone agrees projections will be wrong – they just disagree by what percentage. In his opinion, projections become inaccurate past two years.
He said he approaches budgets year by year, and is confident that the tax cuts will generate enough growth in the long term to cover the state’s expenses.
Kriz called this short-term thinking.
“The reason you do a budget is to be forward-thinking,” Kriz said.
Kriz noted the Government Finance Officers Association, an organization composed of state and local finance officials, recommends that government budgets should include a forecast of three to five years ahead.
He said that tax cuts are unlikely to generate enough growth to cover both the loss in revenue and an increase in spending.
Kriz advised that the state should wait for economic growth to occur before making expansions like all-day kindergarten, rather than counting on it. He compared it to “going to the mall and dropping a load on your credit card” without knowing how much money to expect in a paycheck.