Spending proposals in the Legislature would leave Kansas hundreds of millions of dollars in debt – unless lawmakers generate enough new revenue to support them.
The budget bills under consideration wouldn’t cut state agencies, might restore some funding for the state’s pension system and would boost pay for state workers.
But they would place Kansas more than $800 million in the hole over the next two fiscal years under current tax laws.
The proposals assume lawmakers will pass a package of tax increases to bring in additional revenue. Most lawmakers have shown little appetite so far to reduce spending as an alternative.
But how much taxes might be increased remains unclear, as does whether Gov. Sam Brownback would approve any increases or if lawmakers could go around him if he doesn’t.
Which comes first?
The Legislature’s first attempt to raise taxes failed.
A plan the Legislature sent to Brownback last month would have raised personal income tax rates, reinstated a third tax bracket, and once again taxed pass-through business income. The bill passed the House 76-48 and the Senate 22-18.
Brownback vetoed the bill. A veto override effort fell three votes short in the Senate.
The absence of a plan to increase taxes confronted lawmakers on Friday.
The House Appropriations Committee wrestled with whether to fund the state’s pension system at recommended levels for the next two years, an addition of millions of dollars. The state withheld a payment to KPERS last year.
The panel approved adding the spending in an 11-10 vote, over the objections of of the committee chairman, Rep. Troy Waymaster, R-Bunker Hill. He warned against giving a sense of “false hope.”
Rep. Erin Davis, R-Olathe, said state agencies had been cut and cut and that the state should meet its pension funding obligations. But she said lawmakers shouldn’t add spending they don’t yet know they can pay for.
“It’s not something I can support at this time to go ahead and make our deficit larger and larger without a tax plan not even on the horizon,” Davis said.
New revenue forecast
Lawmakers who oppose added spending say the Legislature can take out the new spending if needed later in the session after the state’s revenue outlook is clearer.
State officials will release a new revenue forecast on April 20. The forecast could upgrade the amount of money Kansas expects to take in next fiscal year.
Lawmakers and Brownback may have also forged a tax deal by then. It’s also possible the Legislature will have passed a tax plan with a veto-proof majority.
Rep. Steven Johnson, R-Assaria, who chairs the House Tax Committee, said he was comfortable moving forward on the budget.
“The preferable way is to have the budget, and then the tax plan,” Johnson said.
He said he would have been concerned about that approach if the House and Senate hadn’t already passed a tax increase with reasonable margins – referencing the plan that was vetoed by Brownback.
Rep. Kathy Wolfe Moore, D-Kansas City, supported putting the additional KPERS spending into the budget. If lawmakers don’t put together a realistic budget now, it’s not going to happen, she said.
“I think whatever we end up passing out of this committee – I’ve said it before – I think will drive the tax plan,” Wolfe Moore said.
Although the Senate’s budget committee passed a budget proposal last week, the House committee is still deliberating. A Senate debate on the budget is possible this week.
Under the Senate budget, state workers would receive a 2 percent pay increase. State employees haven’t received an across-the-board raise in nearly a decade.
The pay raise would cost the general fund about $22 million next year.
The budget also includes additional funding to the University of Kansas and Kansas State University. The funds will partially reverse a 5.1 percent cut made last year.
KU and K-State were cut by a greater percentage than other state universities, prompting accusations of unfairness.
The chairwoman of the Senate Ways and Means Committee promises the legislative session will end with a balanced budget.
Sen. Carolyn McGinn, R-Sedgwick, said if a bill to increase revenue isn’t passed, the Legislature will make cuts.
“We’re not going to leave this place with an unbalanced budget. And I don’t know we can leave it up to the governor. We’ll take the corrective action that we need to do before we leave town,” McGinn said.
Last year, lawmakers passed a budget that assumed Brownback would make more than $80 million in cuts. In turn, the governor cut university and Medicaid spending.
But after revenue reports fell short of expectations and it became clear Kansas faced a new budget shortfall, Brownback opted not to make further cuts. His decision to allow the Legislature to balance the fiscal year 2017 budget angered Senate President Susan Wagle, R-Wichita, and has been a continuing source of tension between the two.
“When we walked out the door when session ended last year, the budget was balanced,” Wagle said last week.
Kansas faces a budget shortfall in the current year of about $280 million. The budget shortfall for the next two years stands at about $1.1 billion.
Brownback has said a rural recession affecting agriculture and commodity prices has depressed revenue. Others say the governor’s 2012 tax policy that cut taxes on individuals and businesses plays a large role in downgraded revenue projections.
Rep. John Carmichael, D-Wichita, said lawmakers are recognizing that budget cuts alone won’t balance the budget or bail lawmakers out of the ongoing financial pressures facing the state.
But Carmichael said the Legislature strengthens the governor’s hand each day that passes without a tax plan and budget in place.
The Kansas Supreme Court has given lawmakers a June 30 deadline to enact a new school finance formula. Some estimate that several hundred million dollars in additional education spending is needed.
As that deadline, along with the new fiscal year on July 1, approaches, Brownback’s budget and tax plans may look more attractive.
For example, the governor has proposed securitizing annual funds the state receives from a legal settlement with tobacco companies. The funds now go toward early childhood programs. Securitizing the settlement dollars could possibly generate more than $400 million in one-time money.
“We place ourselves closer and closer to an absolute crisis where the governor will take action and the Legislature through its delay will have compromised our ability to affect the outcome,” Carmichael said.
Even if the budget bill doesn’t balance right now, it needs to keep the deficit as small as possible, Rep. Kyle Hoffman, R-Coldwater, said, adding that minimizing the deficit will help keep tax increases as small as possible.
But Hoffman appeared divided over the best path forward.
“I keep going around in my mind, actually, too – taxes, budget first?” Hoffman said. “It is just a quandary in some ways.”