Taxes and spending: 2016 Legislature faces another budget struggle (+video)

Gov. Sam Brownback and top Republican lawmakers say they plan to cut spending rather than raise taxes after lawmakers return to Topeka next month.

The state faces a projected $170 million budget shortfall for the fiscal year that begins in July. Brownback will present his budget, including his plan to fix the shortfall, in the second week of January as the 2016 legislative session begins.

“I’m not going to tell you anything about it, so you can ask all you want,” Brownback joked during an interview. He did say he planned to find ways to cut rather than change the tax code. Lawmakers have hired efficiency experts to help in that process this session.

During the 2015 session, lawmakers met for a record 114 days as they struggled to find consensus on how to fill a budget hole, eventually settling on increasing the state sales tax.

One option Brownback would not consider last year was changing a law that eliminated income taxes for more than 330,000 business owners and farmers. He says the 2012 law, which he championed during his first term, has helped spur small-business growth and create jobs.

For proof that his tax cuts are working, Brownback pointed to a low unemployment rate – a 14-year low of 4 percent statewide in November. He said the rate is low even though one of the state’s main industries, aviation, has not recovered since the recession. The Wichita metro area had 13,900 fewer aviation jobs in October 2015 than it did seven years before.

“It’s (aviation’s) not where we were pre-recession,” Brownback said. “But that’s all a function of we’ve got to sell more jets. Unfortunately, a strong dollar hurts this state, because aviation is export dependent. … A lot of that’s beyond our control.

“My point is the tax plan’s working,” Brownback said. “Normally, you get our ‘bigs’ in trouble, and we’ve got higher unemployment rates.”

The tax cuts, which Brownback says are essential to growth, have been widely cited as the reason for the state’s budget problems in recent years, even sparking criticism from conservative-leaning groups such as the Washington-based Tax Foundation.

The governor’s budget director had to unveil more than $120 million in budget cuts and fund sweeps last month to keep the state solvent through the current fiscal year.

The cycle of budget cuts has not shaken Brownback’s faith in his tax policy.

“You’re going to get your economic growth before you experience that in the budget,” Brownback said. “So this is a thing where you’re investing before you’re getting a yield.”

‘No pot of gold’

Democrats don’t think the tax plan will ever yield the future revenue the governor is promising.

“Have you ever seen ‘The Wizard of Oz’? ‘Somewhere Over the Rainbow’? That’s kind of where he is, I think,” said Senate Minority Leader Anthony Hensley, D-Topeka. “And do you know what’s at the end of a rainbow? A pot of gold. And he hasn’t found it yet.

“There is no pot of gold. It’s a political spin that he puts on it that people don’t believe,” he said. He referenced a November poll from the Morning Consult that ranked Brownback as the least popular governor in the nation.

Hensley pushed back on the idea that the tax cuts are responsible for the low unemployment rate, pointing out that job growth has coincided with a national economic recovery. “Some people might want to give credit to President Obama for that,” he said.

Sen. Les Donovan, R-Wichita, the Senate Tax Committee chairman, on the other hand, said that business owners are using the savings from the tax break to invest in their businesses. Donovan, who owns a car dealership, said he used his savings to make a variety of improvements to his business, including putting in $140,000 worth of new asphalt.

“When I see those guys out there laying that asphalt with those machines and all that stuff, I said, ‘You know what? I’m creating jobs here,’ and that’s exactly what I was doing,” Donovan said.

Donovan had the Herculean task of trying to get the Senate to agree on a tax plan earlier this year and came close to resigning in frustration. He isn’t anxious for a repeat of the tax debate in 2016 and is hopeful that the efficiency experts the Legislature hired to audit the state’s finances will find the cost savings needed to close the budget gap instead.

“We hired these people, paid them $2.6 million to find these savings or these efficiencies …and they may come up with something. I hope so,” Donovan said. “If they do and it’s something that’s basically painless that doesn’t require laying off thousands of people, then fine, let’s do it.”

Wagle: Taxes off table

Alvarez & Marsal, the consulting firm conducting the study, will submit a report to the Legislature in January. Consultants presented some initial ideas to lawmakers last week, ranging from selling surplus transportation equipment to hiring more personnel at the Department of Revenue to improve tax collections.

Senate President Susan Wagle, R-Wichita, said taxes would be off the table this session during a Friday speech to the Wichita Pachyderm Club. She echoed that Brownback would be looking to cut spending instead.

Sen. Ty Masterson, R-Andover, the Senate Budget Committee chairman, agreed that lawmakers should find efficiencies rather than increase taxes. He said the initial recommendations are projected to save the state more money than the cost of the study.

Rep. Annie Kuether, D-Topeka, was less optimistic that the efficiency study will enable lawmakers to avoid the topic of taxes in the 2016 session.

“If we don’t do something (on tax policy), I don’t know how we get to meet our constitutional requirement,” Kuether said, referring to the requirement that the state have a balanced budget. “I don’t think we can get through the session without looking at some way to increase taxes.”

This story was originally published December 19, 2015 at 5:36 PM with the headline "Taxes and spending: 2016 Legislature faces another budget struggle (+video)."