Kansas tax revenue needs to grow faster, budget director says

Kansas won’t be able to completely pay for key services – such as school funding, pensions and Medicaid – unless tax revenue grows at a faster rate than in the past.

Kansas tax revenue has grown on average about 1 percent each year over the past three years. But that’s not enough to keep up with the state’s obligations, state budget director Shawn Sullivan said Wednesday.

Kansas needs to experience a higher rate of natural growth of tax collections than it has in the past few years to fully fund spending increases required by law, he said.

"To me, just one man’s opinion, the largest challenge moving forward to the state … has been the growth of tax collections from year to year," and how the amount – whatever it is – should be allocated, Sullivan said while briefing lawmakers.

Sullivan’s comments suggest that the battles over taxes and spending that have dominated Kansas politics over the past few years are not over. Even after lawmakers voted to roll back much of Gov. Sam Brownback’s 2012 tax cuts in June, money issues may continue to confront the Legislature.

Whether the newer, higher income tax rates passed by lawmakers will grow revenue enough to pay for increasing obligations isn’t yet clear. The new law has been in effect for less than two months.

Kansas needs revenue growth of about 2.5 percent a year to pay for increases required by law for public schools, state worker pensions and Medicaid caseloads, Sullivan said. That’s growth of approximately $150 million a year.

Traditionally, revenue has grown about 3.5 percent going back to the 1990s, Sullivan said.

By contrast, in the fiscal year that ended June 30, revenue grew by $58.6 million, or 1 percent, over the previous year. The growth rate was 0.7 percent the year before that and 1.5 percent the year before that.

Sullivan’s statement comes after Revenue Secretary Sam Williams predicted that lawmakers may have to raise taxes again in two years unless they cut spending. Williams made the prediction in a June op-ed article.

The new tax law raises personal income tax rates, restores a third tax bracket and eliminates an exemption for certain kinds of business income. Over time, it will also restore several tax credits and deductions, including for child care and medical expenses.

Lawmakers approved the new tax rates after rounds of budget cuts over the past few years.

The tax increases are projected to raise about $1.2 billion over two years. Taxpayers still will pay less than they did before the 2012 tax cuts.

Lawmakers also passed a $15.6 billion budget. Brownback criticized the budget as funding a "legislative wish list," though he did not make any line-item vetoes to cut spending.

Everybody wants more money, said Rep. Dan Hawkins, R-Wichita. That means either making government more efficient or you have "runaway taxes," he said.

"If we want government to be everything for everybody, it costs money. And how much do you want to be taxed?" he said.

Rep. Barbara Ballard, D-Lawrence, said the drop in revenue from the 2012 tax cuts was predicted. Lawmakers moved to reverse that policy, but it will take time.

"We knew (revenue) wasn’t coming in in 2012. We knew it two years ago. And we still did nothing about it," Ballard said.

"We waited until it was almost a catastrophe where people couldn’t afford it anymore in order to make that change."

This story was originally published August 23, 2017 at 2:43 PM with the headline "Kansas tax revenue needs to grow faster, budget director says."