Gov. Sam Brownback announced a $17 million cut to the state’s universities Tuesday after tax receipts fell short of expectations in February.
Kansas missed tax revenue estimates by about $53 million last month, putting the state back in a budget hole for the current fiscal year, which ends June 30.
Wichita State University, which estimated it would lose about $2 million in the cuts, froze all noncritical spending Tuesday.
The state has repeatedly missed revenue expectations in recent years, which many lawmakers and economists blame on the governor’s tax cuts.
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Brownback rejected that criticism in a news release late Tuesday afternoon after reports of the shortfall had already been widely circulated.
“This is an economic problem, not a tax policy problem,” Brownback said, blaming the state’s budget woes on the national economy.
The governor on Tuesday touted his tax plan as an economic success. “Our tax policy has been instrumental in creating more than 80,000 jobs since we took office and has resulted in a record number of Kansans working,” he said.
The state eliminated income taxes for limited liability companies and other pass-through businesses in 2012 at Brownback’s urging. It has repeatedly fallen short of tax revenue expectations in the years since the policy took effect.
Joe Henchman, an analyst with the Washington-based Tax Foundation, pointed to this as one of the reasons the state has had such poor luck in forecasting revenue in recent years.
No other state is facing such revenue volatility.
Joe Henchman, analyst at the Washington-based Tax Foundation
“No other state is facing such revenue volatility,” Henchman said in a message. “I’m guessing the pass-through exclusion is behind it.”
Work on budget fix ahead
Lawmakers return to Topeka on Wednesday after a weeklong break and will once again have to work toward a long-term budget fix. The budget, which they sent to Brownback last month, no longer balances in the face of the February revenue shortfall.
An order from the Kansas Supreme Court to address inequities in school funding among school districts, which was not addressed in the budget bill, will also likely require additional state money.
Senate President Susan Wagle, R-Wichita, called for across-the-board cuts to the budget.
The time has come to cut every government-funded entity.
Senate President Susan Wagle, R-Wichita
“We cannot continue to address ongoing revenue shortfalls with budget maneuvers, accelerated borrowing or sweeping fees and reserves. The time has come to cut every government-funded entity,” Wagle said in a statement. “The reduction will be small when equitably spread across the board. Governors and business owners have taken this responsible approach to keep their doors open and their states solvent.”
Wagle added that taxpayers “are not in the mood for another tax increase.”
Brownback said he would not support any tax increase on small-business owners as a way to right the state’s finances.
My focus is on managing spending, not on raising taxes.
Gov. Sam Brownback
“My focus is on managing spending, not on raising taxes,” Brownback said. “Our goal is not to fund the growth of state government; it is to help the Kansas economy grow.”
‘This is broken’
Rep. Jim Ward, D-Wichita, said lawmakers should “close the loophole” that has allowed 330,000 business owners to pay no state tax on their income.
“I’m sick and tired of every month dealing with lower revenues and the fiscal crisis getting worse and worse. … It’s time to face reality. This is broken,” Ward said.
Ward said lawmakers cannot address school finance in a meaningful way until they address the fact that the state is “bleeding cash monthly.”
The cut to the state’s regents system, a short-term budget fix, represents a 3 percent cut to public universities’ funding for the current year.
WSU president John Bardo said in a statement that the university estimates it will lose about $2 million through June as a result of the cut.
“Because this will be difficult to manage in a short time period, I have instructed our leadership team to freeze all noncritical spending,” Bardo said.
The state is nearly $80 million, or 2.1 percent, off tax estimates since November, when the state last updated its revenue projections, according to the Kansas Department of Revenue.
Brownback said last week that both he and lawmakers were frustrated by the state continually missing projections.
The state was $27.1 million off estimates for individual income tax revenue for February.
Revenue Secretary Nick Jordan said the state saw a sharp drop in income withholding receipts in February after growing in previous months. He said Revenue Department officials would be investigating the cause of the unexpected drop.
We hope it’s a one-month blip.
Revenue Secretary Nick Jordan
“It doesn’t seem right. It doesn’t make any sense with a 3.9 percent unemployment and wage growth that you’d have a drop in one month of your withholding,” Jordan said. “So we’re investigating that, looking at that closely. We hope it’s a one-month blip.”
A large portion of the revenue shortfall this month – like many of the past months – was in sales tax receipts, which came in $12.3 million short for the month. Jordan said this has been a trend throughout the Midwest.
The budget bill, which the governor still has yet to sign, empowers the governor to make targeted cuts in the face of a shortfall and allows him to delay payments to the state’s pension system for the current year to free up cash in the short term. The governor would have to repay any delayed pension payments with 8 percent interest by September.
Rep. Ron Ryckman, R-Olathe, who chairs the House Appropriations Committee, said the committee will focus on crafting legislation to enact cost savings based on efficiency recommendations that were submitted to the Legislature from the consulting firm Alvarez and Marsal.
“The study gives us options and solutions that will help us work within the budget realities,” Ryckman said in a message. “We will continue to prioritize our spending and look at each taxpayer dollar that is appropriated.”
The firm has estimated that its recommendations could save the state $2 billion over five years, but some of those recommendations, such as tapping school districts’ reserve funds, could be controversial.
Democrats heaped criticism upon the governor, noting that revenue shortfalls and budget gaps have become common occurrences in recent years.
“If Sam Brownback’s handling of our state’s budget were brought before a court of law, he would be found guilty of gross negligence,” said Senate Minority Leader Anthony Hensley, D-Topeka. “And in the most important venue, the court of public opinion, he will be found the worst governor in Kansas history.”
A poll by Fort Hays State University, which was released last week, found that 21 percent of Kansans approved of Brownback’s job performance.