The Kansas Consensus Revenue Estimating Group met in early November and issued a new forecast for Kansas revenue for fiscal year 2011, the current fiscal year. The new estimate is $5.785 billion, which is 11.4 percent above receipts in fiscal year 2010. A large reason for the increase in revenue is the one cent per dollar statewide sales tax that went into effect on July 1, 2010, which was the first day of fiscal year 2011.
In its forecast for the Kansas economy, the group’s report dismisses the likelihood of a double-dip recession. “Concerns of a double-dip recession nevertheless have waned over the summer, and assumptions are that modest growth will continue in the national and state economies in 2011 and 2012.” Not all economists would agree with this forecast.
Kansas employment has increased slightly; with nonfarm employment increasing by about 1,000 jobs over the past year. From April 2008 to February 2010, Kansas lost 75,800 jobs, according to the Kansas Department of Labor. Unemployment claims data verifies this trend: “One positive sign relates to initial unemployment claims data, which throughout most of 2010 have been well below the same time periods studied for 2009.”
Kansas budget going forward
At a meeting of the Special Committee on Assessment and Taxation last Friday, members were warned about the expiration of the temporary sales tax and its impact on the fiscal year 2014 budget. At that time the sales tax is scheduled to fall from 6.3 percent to 5.7 percent, with 0.4 percent remaining to fund highways. This means the state’s general fund faces a “significant decrease,” according to Chris Courtwright, principal economist for legislative research. The number mentioned was $308 million less sales tax revenue in fiscal year 2014 than in fiscal year 2013. This, said Courtwright, is sure to be talked about “a lot” over the next two years.
Alan Conroy, Director of Kansas Legislative Research Department, briefed committee members on the status of the budget. Perhaps the most significant challenge legislators face is that the budget estimate for fiscal year 2012 includes $491.7 million — nearly one-half billion dollars — in federal stimulus (ARRA) funds. These funds were designed to be a short term boost to the states, and the states will not be receiving this money during the next fiscal year. Overall, the budget for fiscal year 2012 is estimated to have an ending balance of minus $492.4 million, which is almost exactly equal to the loss in ARRA funding. This is the gap between spending and revenue that the legislature will be grappling with during the session that starts in January.
Other challenges need to be faced. Conroy said that last budget benefited from a $149 million transfer from the highway fund to the general fund. There were other such transfers, described as “extraordinary” by Conroy.
Also, school finance in 2012 is assumed to be funded at the level of $4,012 base state aid per pupil. Conroy said that current law prescribes funding at $4,492 bsapp, which would require an additional $327 million in spending.
The current fiscal year is short about $60 million dollars, and the legislature will have to deal with this.
Analysis
The prepping for the expiration of the temporary sales tax increase is already going on, with legislative research staff warning committee members of the large budget shortfall to appear in fiscal year 2014 “if no other changes in policy are made” and if “current law” remains in place.
Odds are that the sales tax will not go away, if past history is a guide. In 2002 the legislature raised the sales tax. A fiscal note accompanying the bill stated: “The state sales and compensating (use) tax rate would be increased from 4.9 to 5.3 percent, effective June 1, 2002. The rates would then be reduced to 5.2 percent on June 1, 2004; and to 5.0 percent on June 1, 2005.” But the two scheduled reductions never took place.
Similarly, the Kansas budget benefited from the federal stimulus program, as did all states. We used that money to keep our spending high when tax revenues would not cover the spending. This action has left the Kansas budget in terrible shape, and it’s unknown what steps the governor and legislature will take to make up for the nearly $500 billion gap in the budget.