The state likely will have to make significant cuts in its 2015 budget due to drastic income tax cuts approved by the Kansas Legislature, a former state budget director told Kansas Farmers Union Thursday in McPherson.

The state likely will have to make significant cuts in its 2015 budget due to drastic income tax cuts approved by the Kansas Legislature, a former state budget director told Kansas Farmers Union Thursday in McPherson.
Duane Goossen served as state budget director under three governors — Republican Bill Graves, and Democrats Kathleen Sebelius and Mark Parkinson.
He has most recently served as vice president for fiscal and health policy for the Kansas Health Institute and currently writes and speaks to civic organizations on issues related to the Kansas budget.
In remarks for the Kansas Farmers Union, Goossen said Kansas’ budget is out of balance.
“The Kansas budget is in trouble,” he said. “On a line, our finances are way over on one end of the spectrum.”
The state has cut individual income taxes and eliminated some taxes for small businesses.
The governor promised lower taxes would bolster the economy, bring more jobs to Kansas and ultimately increase revenue for the state.
Goossen said this has not panned out. Kansas’ economy is growing at a lower rate compared to states that have not changed their tax policies, and revenue has not kept up with expenses.
When the recession was at its height, the state almost ran out of funds. The Kansas Legislature passed a 1 cent state sales tax to bolster revenue until the state’s economy could recover. Gov. Brownback took office six months after the sales tax went into effect. Income continued to exceed expenses until the state implemented dramatic income tax cuts.
Goossen said the shift away from income tax has been too rapid. He gave an example.
“If you cut income taxes by $100, and that person spends it all, the state only gets back $6. That has to cycle through the economy many times before it makes a difference,” he said.
Although new business filing in Kansas have set records, Goossen said they need to be compared to company dissolutions. Undoubtedly some companies are reorganizing to take advantage of the new tax policy.

Balancing the bank account
In the beginning of FY 2014, the state had $709 million in the bank. By the end of the fiscal year, which ended June 30, the state had spent $329 million more than it took in.
The state budget is starting with $380 million in the bank and is expecting to end FY 2015 with $29 million.
However, the budget was based on revenue predictions made in April. The FY 2015 budget is based on revenue higher than the actual revenue for FY 2014. In addition, the revenue in the first two months of this fiscal year have come in under revenue projections.
Official revenue projects will not be updated until a few days after the general election.
The tax reductions are set to increase in the coming years, potentially putting the state in an even greater hole. After six years of tax cuts, the state will have lost $3.7 billion in potential revenue.
“What that means is we have expenses that are headed up and have revenue that has fallen down and is going to stay down because there are even more tax reductions that are to be phased in,” he said.
The Kansas Constitution requires the state to have a balanced budget. Unlike the federal government, Kansas cannot borrow to make up budget shortfalls.
“The key rule of the state budget is that the state can’t spend more than it has, just like our own check accounts or banking accounts. If you have money in your checking account, you can write a check. If you don’t have money in the checking account, you are not supposed to write a check.”

Where will cuts come from?
If revenues don’t meet April’s projections, the state will have no alternative but to make significant cuts.
More than 50 percent of the state’s budget is dedicated to K-12 education. About 12.6 percent pays for higher education, 20 percent is dedicated to Medicaid, and 6.7 percent goes to other human services. The rest goes to public safety, agriculture/natural resources and general government.
“Ninety percent of the budget goes to education and human services,” Goossen said. “Nothing big is going to happen in the budget without affecting education and human services.”
Medical expenses continue to increase, and the state has no choice but to pay its Medicaid bills, Goossen said.
Education
This leaves education as a prime target for cuts.
Because the state has underfunded the state retirement plan, KPERS, it has had to increase funds for that program. Although that money is counted in education spending, it does not support classroom expenses.
“Increasing the amount of money spent on the pension plan doesn’t change the amount spent on kids,” he said. “It is not a bad thing, but it does not change things in the classroom.”
State funding for schools is based on a weighted enrollment numbers. The funding per student is called base state aid. That aid has steadily dropped during the last six years from a high of $4,400 in FY 2009 to a low of $3,708 in FY 2014. The state increased state aid to $3,852 for FY 2015.
School districts have been forced to turn to local option budgets for additional funds. The local option budgets allow school districts to raise up to 33 percent of their main budgets though local property taxes.
“As the state decreases aid, there will be more pressure on property tax,” Goossen said. “Mostly rural schools will have to increase property taxes or cut back on services.”
Goossen said this has resulted in a fundamental shift in the tax system with more burden falling on local property tax. Urban school districts have been able to weather cuts through increased enrollment, but many rural schools already have reached the maximum for their local option budgets.
The state has been sued alleging it is not providing adequate school funding. The portion of the lawsuit that dealt was equity was settled by the Kansas Supreme Court this spring, but a portion of the suit that addresses the issue of adequate funding has been sent back to a lower court.
No other states are pursuing tax policy changes like the ones in Kansas, Goossen said. News media from all over the nation are watching what is happening in Kansas.
“Kansas must bring the budget back in balance,” he said. “It is going to be really difficult. It is going to take a lot of energy to bring it back.”