Still some denial on state budget

Now that the election is over, state lawmakers are being more honest about the severity of the state’s budget problems – though some are still in denial about the difficulty of balancing the budget through spending cuts alone.

During the campaign, many lawmakers and Gov. Sam Brownback downplayed or denied that the state was facing large budget shortfalls. But less than a week after the election, new revenue estimates showed the state must reduce planned spending by $279 million before July, and it needs an additional $436 million in spending cuts or revenue increases next fiscal year.

And that is just to get to zero. Restoring the statutorily required ending balance next fiscal year could require an additional $450 million in cuts or revenue.

Lawmakers are now acknowledging that they face a daunting task, though they are divided on whether all options, including taxes, should be on the table.

House Speaker Ray Merrick, R-Stilwell, said that delaying or reversing income tax cuts was a nonstarter. Rep. Steve Brunk, R-Wichita, declared that the Legislature is “not going to make any changes in the tax code.” But Senate President Susan Wagle, R-Wichita, and some other lawmakers have wisely said that both sides of the budget ledger – revenue and expenses – need to be considered.

Where and how might lawmakers cover the shortfall?

K-12 education accounts for half of the state general fund spending, which makes it a natural target. But Brownback bragged during the campaign about education funding, so it would be difficult to flip-flop and cut spending now. Besides, the courts likely will rule again that the state is inadequately funding education and needs to increase spending.

Medicaid, which is about 20 percent of the budget, is also difficult to cut because it is an entitlement and KanCare contracts already have been signed. So that could leave only about 30 percent of the remaining budget – which supports prisons, higher education, social services, etc. – to absorb the spending cuts.

Lawmakers likely will raid more money from the state’s transportation fund, as they have been doing for several years. They likely also will target some state economic development programs, such as the Kansas Bioscience Authority. They may consider forcing school districts and universities to spend down some of their cash reserves – though that would penalize them for being fiscally prudent.

Lawmakers should delay future tax cuts but likely won’t. However, they may look at eliminating or reducing more tax deductions as a way to raise revenue without changing tax rates. They may also consider raising the sales tax again – though a better alternative would be to eliminate some sales tax exemptions. They should consider placing a cap on the amount of pass-through business income that is not taxed – that way the policy truly targets small businesses, as Brownback claimed, and not the wealthiest Kansans.

What is certain is that eliminating the budget shortfall won’t happen simply through “efficiencies.”

For the editorial board, Phillip Brownlee

This story was originally published November 19, 2014 at 6:07 PM with the headline "Still some denial on state budget."