Gov. Laura Kelly’s proposed budget would expand Medicaid, increase school funding and hire scores of workers to help fix the state’s troubled foster care system. And it would leave Kansas with $686 million in the bank next year.
The problem is how she plans to do it, Republicans say.
Kelly wants to effectively refinance KPERS, the state’s pension system. That would save $145 million next year. But it could add billions to the system’s liability over decades, Republicans contend.
Kelly released her budget proposal Thursday to mixed reviews. Many lawmakers cheer her commitment to foster care. Democrats and some Republicans want to expand Medicaid. But other GOP lawmakers are deeply skeptical – if not outright opposed – to her desire to rework the pension system.
Kelly and her staff call her approach to this year’s budget “triage.”
“It’s going to take time for Kansas to heal from the damage inflicted over the last eight years, so we don’t have a moment to lose,” Kelly said. “I worked diligently to craft a balanced budget that will usher in a new era of shared growth and prosperity. I look forward to lawmakers’ input, and working together to enact it.”
Kelly wants to spend $14 million next year to expand Medicaid (a cost that would rise in following years) and increase school spending by more than $90 million in an effort to end a years-long lawsuit over education funding. She wants to increase base pay for state employees by 2.5 percent at a cost of $63 million and raise spending on corrections officers by $3 million in an effort to fill staffing vacancies at state prisons.
To help fix the state’s troubled foster care system, Kelly also wants to hire 55 new child welfare workers at a cost of $4 million.
In total, Kelly proposes to spend $7.56 billion in general funds during the next fiscal year, which begins June 30. Her budget assumes revenues of $7.57 billion, with an ending balance of $686 million. That’s lower than this year’s current projected ending balance of $900 million if lawmakers make no adjustments to the current budget.
“The last time we saw these kinds of ending balances was 20 years ago,” said Larry Campbell, Kelly’s budget director.
The debate over her budget may hinge on whether she can convince lawmakers to make the changes to the state’s pension system she needs in order to save $145 million next year. Without that, the budget’s anticipated ending balance of $686 million falls to $541 million – a smaller cushion in case of a recession or revenue loss.
Currently, Kansas is scheduled to close a long-term pensions funding gap in 2034. Kelly’s proposal would push that off to 2049. The process Kelly wants to use — reamortization — would lower contributions to the system in the short term but result in much higher costs over the long term, KPERS has said previously.
Senate Majority Leader Jim Denning, R-Overland Park, said Kelly’s budget is built on a “house of cards.”
“In my wildest dreams I can’t imagine this Legislature forcing (the state’s pension system) to reamortize and add $7 billion to the liability of KPERS while putting everybody who gets a KPERS retirement check at risk. I can’t see the Legislature going down that path,” Denning said.
Republican leaders in the Senate issued a joint statement saying Kelly’s plan funds her budget at the expense of retirees.
Campbell said reamortization provides sustainability with no change to current or future retiree benefits while providing “manageable” employer contributions.
The KPERS board, made up of officials and financial experts, would likely oppose the move, a reality both Campbell and Denning acknowledge. Campbell indicated lawmakers would have to act to force reamortization.
Campbell pointed to areas in the budget where Kelly is moving to pay off debts immediately. She wants a loan the state previously took from itself paid off five years early at a cost of $317 million. And it reduces transfers from the state highway fund from $288 million in 2018 to $238 million by 2020.
The governor’s budget plan depends on current income projections and proposes no changes to increase or decrease taxes. While Kelly wanted to move to lower food sales taxes, that will have to wait for another year, Campbell said.
“In my opinion we are still very much in a perfect storm of uncertainty,” Campbell said. “Sweeping tax changes during a perfect storm of uncertainty is simply not prudent.”
Lawmakers will now begin debating Kelly’s budget. Final action on the budget may not come until April, when a new revenue forecast will project how much the state is expected to collect in taxes in the coming months.
Other details are still needed. Although Kelly has proposed $14 million for Medicaid expansion, she has not yet offered an expansion plan. She has said lawmakers will have a plan by Jan. 29.
Kelly asked lawmakers to approve a school funding plan by Feb. 28. The Kansas Supreme Court has set a June 30 deadline for lawmakers to approve a plan that is constitutional.
Last year, lawmakers approved increasing annual funding for education by $525 million, with the increase phased in over five years. The Supreme Court faulted the plan for not accounting for increases in inflation. Estimates show that about $90 million more is needed a year to address inflation — the approximate size of Kelly’s proposal.
Contributing: The Associated Press