DALLAS Republicans and Democrats took conflicting views of estimates from the Kansas Legislative Research Department April 17 that showed revenues for the fiscal year ending June 30 running $103 million, or 1.8%, above estimates in November.
For fiscal 2015 beginning July 1, the estimate of $5.995 billion represents a 0.5% increase or about $75 million more than previously expected.
Despite the better than expected estimates, total tax receipts to the state on an annual basis are dropping from $6.33 billion last year to $5.97 billion this year, and then staying relatively flat next year at $6.05 billion.
Interim budget director Jon Hummell said the new estimates show that Republican Gov. Sam Brownback’s income tax cuts for individuals and businesses in 2012 are achieving results.
“From the perspective of my role as the budget director, today’s news that revenues are higher than expected and spending is lower than expected is about as good as it gets,” said Hummell, adding that “Gov. Brownback’s efforts to grow the Kansas economy and restrain government spending continue to bear fruit.”
Hummell cited a Department of Labor report that showed 50,000 new jobs have been created in Kansas since January 2011. More than 2,000 new jobs were created in March 2014, according to the report, and unemployment remained below 5% for the fourth consecutive month.
Brownback’s opponent in the governor’s race, House Minority Leader Paul Davis, said the conservative theory that tax cuts produce higher revenues because of economic growth does not hold up in the real world.
“Right now, the budget is balanced only by dipping into reserve funds,” Davis said. “If current revenue and spending trends continue, it will go underwater in 2016.”
In the 2012 session, the Kansas Legislature passed a law that consolidates personal income tax rates at 3% and 4.9%, removing the 6.25% and 6.45% top rates as well as the low rate of 3.5%. The state legislature projected the income tax cuts would reduce general fund revenues by about $800 million, or 13%, in fiscal 2014. In addition, prior sales-tax hikes expired, returning the state’s sales-tax rate to 5.7% from 6.3%.
The tax cuts forced reductions in spending, including school funding.
On April 6, the legislature narrowly passed House Bill 2506 to provide an additional $129 million of school aid to address the Kansas Supreme Court’s recent ruling that the state’s school finance formula was unconstitutional. The measure allows school districts to raise property taxes both by increasing the cap based on a percentage of state funding and tweaking the funding formula based on a higher per-pupil funding base. The bill also eliminates tenure for teachers and allows them to be fired without cause.
An additional temporary measure for 2015 permits 14 school districts to raise the cap on the Local Option Budget levy for property taxes without voter approval.
Moody’s Investors Service, which has a negative outlook on the state’s Aa1 rating, saw the new funding measure as credit negative for the state.
“It offers another challenge as the state copes with raising revenue to compensate for an income tax cut,” Moody’s noted.