Kansas officials have explanations for low tax collections, but don’t mention the same contributing factor when touting high collections.
In March, Kansas Governor Laura Kelly, in response to the COVID-10 pandemic, delayed the due date for Kansans to file and pay income taxes from April 15, 2020 to July 15, 2020. 1 This change was bound to affect state tax collections for April, and it did.
When presenting tax collections for the month of April 2020, the Department of Revenue explained: “As predicted, the State of Kansas saw a decrease in total tax collections when compared to April of Fiscal Year 2019. These reductions are largely due to announced tax date extensions, which gave relief to Kansans while moving collections into the Fiscal Year 2021.” 2
Specifically, individual income tax revenue for April 2020 fell by $526 million (65.0 percent) from April 2019. 3 Corporate income tax collections also fell, but caused a much smaller effect. (Over the past five years, individual income tax collections have accounted for about 45.0 percent of total tax collections, while corporate income tax was 6.7 percent of the total.)
For Kansas state government, the fiscal year starts on July 1, and is named for the calendar year in which it ends. Fiscal year 2020, for example, began on July 1, 2019, and ended on June 30, 2020. So not only was a lot of collections shifted from one month to another, the shift also crossed the fiscal year boundary.
When July 2020 tax collections were released, the governor’s office commented:
The State of Kansas starts Fiscal Year 2021 by surpassing its total tax-only collections by $484.6 million compared to July of last fiscal year. …
The State collected $619.6 million in individual income taxes for the month; an increase of $395.3 million, or 176.3%, compared to the July of Fiscal Year 2020. However, these collections were $30.4 million, or 4.7%, less than the estimate for the month. Corporate income tax collections were $69.8 million; $5.2 million, or 6.9%, less than estimated but an increase of $54.6 million compared to July of FY 2020. [Kansas Governor’s office news release, August 4, 2020. Available at https://governor.kansas.gov/kansas-total-tax-collections-484-6-million-ahead-of-july-of-last-fiscal-year/.]
Note there is no mention of why the July income taxes were so much higher than last July. While I have presented only an excerpt of the news release, the remainder does not mention the shift of tax deadlines as the reason for the increase.
When announcing August 2020 tax collections, the governor released this, in part:
The state is $35.6 million, or 2.4%, ahead of projections for the year with $1.5 billion in total tax collections for the fiscal year. When comparing total tax collections over the same timeframe to the previous fiscal year, the State of Kansas is $531.0 million, or 53.5%, ahead of Fiscal Year 2020. [Kansas Governor’s office news release, September 1, 2020. Available at https://governor.kansas.gov/state-of-kansas-tax-collections-40-2-million-above-estimates/.]
Here, the press release touts large revenue growth for the fiscal year. But only two months of the fiscal year have passed, and for one of these, collections benefitted mightily from the shift of tax deadlines. The news release did not mention this as a factor in the fiscal year’s increase in tax collections compared to the previous year.
It is not the case that the governor and state officials are not aware of the effect of shifting tax deadlines on revenue. The governor mentioned the shift in April to explain low collections.
But there was no mention of the same factor when celebrating high collections.
I asked the governor’s office and the Department of Revenue to explain this, but there was no response. Michael Austin, who is Director of the Sandlian Center for Entrepreneurial Government at Kansas Policy Institute, said: “Unfortunately it’s another example the administration is more focused on hiding bad press, than to simply present Kansans with facts and reasonable analysis. With July and August income tax revenues offsetting last year’s decline, it’s clear the tax extension moved revenues from April to July and August.”
The example Austin referred to concerns a chart of COVID-19 data that was presented in an unorthodox manner that bolstered the administration’s positions.
The Kansas budget is volatile, with rising spending and a large deficit.
Figures from Kansas financial reports show that state spending has risen. Based on that and shifts in revenue flows, deficits are large.
The following tables and charts show actual data through fiscal year 2019. Figures for 2020 are revised estimates, and for 2021, the figures are from the approved budget. The primary source of data is Kansas Comparison Report: The FY 2021 Governor’s Budget Report with Legislative Authorizations.1
The revised estimate of receipts is $826.9 million less than the estimate from November 2019. The revision takes into account estimates of the effect of the pandemic, while the November estimate was made before the coronavirus was known, at least in the United States.
A large reason for the reduction in estimates of receipts is a change in tax due date: “The individual income tax estimate was decreased by $620.0 million in FY 2020 based on the deferment of $560.0 million in tax year 2019 balance dues and estimated payments that now will not be paid until July 15, 2020.” That effect was noticed in July, when individual income tax receipts were $395.3 million higher than in July 2019. 2
Because of the deferral of so much tax revenue from fiscal years 2020 to 2021, receipts in 2021 are forecast to rise by 5.9 percent.
In the following table, spending increases from the general fund average 4.0 percent per year for 2011 through 2021. For the same period, revenue increases average 3.3 percent.
The deficit of revenue compared to spending in 2020 is slightly over one billion dollars. The state issued a certificate of indebtedness of $900.0 million to compensate. This is a loan that must be repaid by the end of fiscal 2021, which is June 30, 2021.
Regulation reform could jump-start Kansas economy after COVID
By Michael Austin.
The COVID-19 outbreak has not only posed a severe public health risk, but actions to combat it now risk a global economic collapse. With nearly half of all Kansas hourly jobs gone, the Kansas Department of Labor is overwhelmed processing unemployment claims. Roughly 40 percent of Kansas small businesses are shuttered, with more than half of them saying they are weeks away from closing permanently.
Kansans need a pathway through this economic disaster. Will we come back stronger than ever before, or fall deep into an economic depression? To paraphrase our state maxim, we can reach for the stars and find better days ahead if we follow the common-sense path.
First, Kansas needs occupational licensing reform, with the most excellent examples of success from Gov. Laura Kelly herself. In March, Kelly waived some licensure requirements, making it easier for physicians to work in Kansas. This fantastic move needs expansion, not a reversal once the virus passes.
From nurses to HVAC technicians, all licensed professionals should be able to work as soon as they cross the border. Good licensing reform protects the public, encourages movement into Kansas, and provides Kansas young adults with a flexible career path.
Kansas needs regulatory reform. Due to the statewide stay-at-home order and voluntary action, countless Kansas businesses shut their doors to “flatten the curve.” Pulling back regulations can prime them to reopen them quickly.
The Kansas Department of Commerce could create a one-stop-shop for all state applications and fees. KDHE and local agencies can fast track the reopening of restaurants with a history of reliable inspections. It takes four and a half weeks to read Kansas state regulations one time (assuming reading 40 hours a week). Allowing businesses to open doors quickly, when public safety allows, gives Kansans precisely what they need to get back to work.
Our leaders must also realize that we need a financially solvent government that encourages the Kansas spirit more than ever. That’s not an invitation for more stimulus, and issuing more debt to Kansans. Such methods didn’t work in 1932 and 2008, and it won’t work today. Kansas policymakers should work to simultaneously grow the rainy day fund while lowering the tax burden on Kansans. That means enforcing performance-based budgeting, matching tax dollars to specific improvements in Kansans’ lives. It also means passing the tax windfall, which rewards Kansas for their donations and gifts during the public health crisis. Finally, restore honesty in property taxation, so Kansans don’t lose their homes when times already are trying.
The COVID-19 outbreak is not a crisis to be seized upon. Any Kansans policy must focus on “flattening the curve” today. Tomorrow, however, we’ll need different guidelines to jump-start the recovery.
Kansas — and America — will recover. The next decade can be better than the last if we give families and businesses the flexibility to grow stronger. Whether the difficulties last for six weeks or six months, our nation’s founders gave us the blueprint to make striving for the stars possible.
Michael Austin is director of the Sandlian Center for Entrepreneurial Government at the Kansas Policy Institute.
Kansas spending is rising, and will probably rise at a faster pace.
Figures from Kansas financial reports show that state spending has risen, and based on approved budget, will rise at a faster pace.
The following tables and charts show actual data through fiscal year 2018. Data for fiscal years 2019 and 2020 are based on figures approved by the legislature and governor, plus estimates regarding the future economy.
In the following table, spending increases from the general fund average 7.3 percent per year for 2010 through 2020. There is a budget surplus, primarily due to changes in tax law that produced a 15.0 percent increase in receipts to the general fund in 2018.
Based on currently-approved figures, the general fund will swing from surplus to deficit in 2020.
Click charts for larger versions.
Following charts show increases in spending for the general fund and all funds spending (see below for an explanation of the funds). These charts are adjusted for inflation where appropriate, and show spending per resident, along with spending as a portion of private sector production and personal income.
The Governor’s Budget Report for 2020 explains:
The State General Fund receives the most attention in the budget because it is the largest source of the uncommitted revenue available to the state. It is also the fund to which most general tax receipts are credited. The Legislature may spend State General Fund dollars for any governmental purpose.
Special revenue funds, by contrast, are dedicated to a specific purpose. For instance, the Legislature may not spend monies from the State Highway Fund to build new prisons.
Other examples of special revenue funds are the three state building funds, which are used predominantly for capital improvements; federal funds made available for specific purposes; and agency fee funds, which can generally be used only to support specific functions related to the agency collecting the fee. The Economic Development Initiatives Fund, the Children’s Initiatives Fund, the Kansas Endowment for Youth Fund, the Expanded Lottery Act Revenues Fund, and the State Water Plan Fund are appropriated funds that function the same as the State General Fund.
The principal that “may not spend monies from the State Highway Fund to build new prisons” is often violated in practice, and example being the well-known transfers from the highway fund to the general fund.
By Michael Austin
Director, Sandlian Center for Entrepreneurial Government
With a new Kansas Governor-elect and State Legislature, Kansans voted to make a change. Despite many elections however, the Kansas economy has been slowing for the past 40 years. While the new administration cites government as the solution to this problem, history shows that government is primarily the cause. Kansans need of a new way of thinking. They won’t get that from a Democrat or Republican as governor.
Kansas has had a storied life in celebrating freedom and improving its quality of life. Through our abolitionist beginnings to creative developments in industry, Kansas led in economic freedom with Wichita at its center. Legendary Wichitan entrepreneur Colby Sandlian got started in the 1950s, noticing permits for single-family homes averaging 150 a week. At the time, local government zoning staff had fewer than 10 employees. Today, Wichita averages around 45 permits a week with a local government zoning staff of near 50 individuals. While other factors have been at play in Wichita, economic vitality and government bureaucracy seem to have an opposing relationship.
Kansas families are nearly $12,000 poorer than the national average with 172,000 fewer available jobs. Like Wichita, with this sluggish growth, Kansas has more government jobs than the national average. Government is essential to a civilized society, but it can only act through taxes taken from Kansans. The bigger the government, the bigger the burden on families and commerce.
Kansans can’t keep up with inflation because government growth limits employers’ ability to attract qualified employees. Kansas government growth also creates and supports monopolies; forcing low-income consumers to pay higher prices for goods and services. Worst of all, Kansas government growth forces around 10,000 Kansans a year to abandon the state. Other states and countries that provide similar governmental services with fewer taxes entice Kansans to leave. This is likely to get worse under an ObamaCare expansion and record government spending growth, financed with high taxes.
We can give Kansans tools to demand their government return more choices and change course. For this reason, the Kansas Policy Institute created the Sandlian Center for Entrepreneurial Government. It captures the observation above and the entrepreneurial spirit needed to make Kansas a better place to live and work.
Reversing economic immobility, we will show where Kansas is headed if government taxes and spends. We’ll advise how government can better listen to Kansans, helping them keep more of what they earn while enacting the best policy to grow private wages and jobs. We’ll provide pathways to sensible regulations, ensuring public safety and encouraging new innovative businesses to keep prices low for Kansans. Most importantly, we’ll teach public organizations to provide better services at a better price to reverse the trend of out-migration seen in Kansas and Wichita.
For Kansans to live closer to the American dream, they need a responsive government that allows more opportunities and ensures their tax dollars are spent wisely. Politicians come and go, but the principles that can make this a reality never change.
—
Michael Austin, Sandlian Center for Entrepreneurial GovernmentMichael Austin is the Director of the Sandlian Center for Entrepreneurial Government at the Kansas Policy Institute. In this role he is responsible for educating public organizations and the public on taxes and budget, using economic research to turn government inefficiencies into effective policy solutions. Before joining the Sandlian Center, Michael served as an economist in various roles of Kansas state government. As an adviser to former Kansas Governor Sam Brownback, Michael’s work made him the first to discover the drop in commodity and energy prices that plagued Kansas and the region, later termed “The Rural Recession.” Most recently as Chief Economist in the Kansas Department of Revenue, his research and presentation on the Federal Tax Cuts and Jobs Act, and its effects on Kansans jumpstarted discussions ensuring it will be a key concern in the upcoming Kansas legislative session.
Michael is a New York City transplant, living with his wife and two children in the Lawrence Area. Michael is a Washburn University School of Business Scholar earning his Bachelor of Business Administration and double majored in management and economics. Michael also graduated from the University of Kansas’s Department of Economics with a Master of Arts with honors. Email Michael at Michael.Austin@kansaspolicy.org.
