Kansas tax revenue expected to drop $1.3 billion over two-year period; Kansas Chamber’s proposal for reopening the state’s economy features regulation and tax relief; Department of Commerce says disruption to business transcends geography and occupation; death toll 100
This content is being provided for free as a public service to our readers during the coronavirus outbreak. Please support local journalism by subscribing to your local newspaper.
TOPEKA — Locked-down businesses, surging unemployment and consternation about a possible coronavirus recession Monday prompted downgrading of Kansas’ tax revenue projections in the next two years by $1.3 billion to force state lawmakers into the position of contemplating cataclysmic budget cuts.
The group of economists and analysts responsible for revising state revenue estimates predicted tax collections in the fiscal year ending June 30 would be down by $815 million. In the fiscal year starting July 1, tax revenue was expected to drop off $549 million because of damage caused by COVID-19 in Kansas.
These are record adjustments to tax revenue forecasts in Kansas and will wipe out most of the $925 million surplus in the state treasury. The bearish projections exceed the revenue collapse anticipated in 2016 due to income tax cuts signed into law by Gov. Sam Brownback.
In anticipation of a bleak revenue forecast, Gov. Laura Kelly said she instructed state agencies Friday to eliminate discretionary spending, shelve requests for salary increases and leave vacant job openings not required during the pandemic. She requested fee-funded agencies of state government follow the same preemptive moves.
"These initial steps are just the start of what will likely be needed to ensure long-term fiscal stability," the Democratic governor said.
The Consensus Revenue Estimating Group, which met in private to update state government revenue projections last adjusted in November, pointed to anticipated decline in sales, income and oil-and-gas tax revenue. It was a sharp pivot from the group’s expectations five months ago when their consensus was Kansas could expect steady employment, rising wages and economic growth into 2021.
The 2020 Legislature and Kelly traditionally rely on the April updates of revenue forecasts to sort out budget details for each fiscal year starting July 1. It isn’t clear whether the House and Senate will return next week to Topeka as scheduled to address the revenue shortfall or delay action until May or June when risk of infection may not be as great.
"There’s some tough decisions going forward," said Larry Campbell, the governor’s budget director.
A wildcard in the financial and political debate will be the amount of federal aid the state receives to soften economic fallout from COVID-19. It is also unclear when Kansas officials will authorize reopening of economic activity.
"Lost jobs, business uncertainty and this unprecedented shortfall is a call for action," said Senate President Susan Wagle, R-Wichita. "We need a plan to open up safely and we need it soon."
The state’s most prominent business advocacy organization recommends the plan for loosening and eliminating stay-at-home, mass-gathering and other statewide coronavirus restrictions set by Kelly must be keyed to public health metrics and accompanied by tax and regulatory relief.
The Kansas Chamber, which represents businesses interests, endorsed a 40-point proposal that would condition movement back to normalcy with a requirement that the state’s health care system be equipped to treat all patients requiring hospitalization without resorting to crisis standards of care.
The state also should be able to test everyone with symptoms of COVID-19 and monitor confirmed cases and contacts, the chamber said. In addition, the organization said the decision on initiating commerce beyond essential business activities ought to be linked to a two-week reduction in case volume.
"Kansas businesses closed because of the statewide stay-home order as well as those who have had to lay off or furlough employees are anxious to reopen and get back to work," said Alan Cobb, president and CEO of the Kansas Chamber, which has often been at odds with the governor on tax and budget policy. "But the health and safety of their employees and customers are a top priority."
The chamber’s list included a pause on state tax audits and a state tax break on coronavirus loans and grants to businesses. It ought to feature suspension of state or local inspections required to reopen a business temporarily closed because of COVID-19, Cobb said.
He said the state should give business and residential property owners a 90-day extension on property tax payments. Consideration needs to be given to a tax credit to defray costs of out-of-pocket medical expenses for treatment of the virus. Business owners need liability protection from allegations by patrons who blame companies for contracting the virus, he said.
The Kansas Department of Health and Environment reported Monday that 100 Kansas residents have died and 1,986 have tested positive for the virus. Infection has been documented in 69 of the state’s 105 counties, KDHE said.
The outbreak at Lansing Correctional Facility widened to include 47 staff and 40 inmates, the Kansas Department of Corrections said. The agency also reported the first confirmed COVID-19 infection of a staff member at Topeka Correctional Facility, the prison housing women felons. In addition, a Wichita work release inmate who tested positive was transferred to Lansing.
Virus ’body blow’
David Toland, secretary of the Kansas Department of Commerce, said unraveling of the state’s economic fabric occurred with speed and without exception.
"Like most states," he said, "the Kansas economy has taken a body blow from COVID and that extended from the ag sector to manufacturing to the service sector, professionals. Everybody has been hit. It’s urban, rural, suburban across the board."
The state commerce department distributed $5 million in bridge loans to almost 350 hospitality businesses. The no-interest loans were designed to help bars, coffee shops and motels stay afloat until U.S. Small Business Administration loans became available or individual businesses could restructure bank debt. Demand for the state program called HIRE exceeded available cash: 1,000 applicants didn’t get a piece of that pie.
He said the federal Paycheck Protection Program in the SBA delivered forgivable loans to 20,000 Kansas businesses that averaged $187,000.
That money won’t have to be repaid if used to keep staff on the payroll during the pandemic, Toland said.
The $350 billion earmarked nationally for PPP is gone, but congressional Democrats and the White House worked Sunday on a new relief package that included $300 billion to replenish the PPP fund. The legislation also is likely to contain $50 billion for the SBA’s disaster relief fund, $75 billion for hospitals and $25 billion for testing.
Toland said a separate federal Economic Injury Disaster Loan offered businesses working capital at an interest rate of 3.75%. There have been complaints EIDL dollars aren’t moving to businesses quickly enough, he said.
"We’ve been hearing a lot of frustration from folks who have not been able to tap these dollars," he said.
A work in progress
Kelly, who has issued two dozen executive orders related to the pandemic since March 16, said she would reveal an economic-transition plan by early May.
She said an outline of action proposed by President Donald Trump, who has spurred interest in protests to pressure governors to flip the switch, included broad testing as a prerequisite.
"One of the things that it says right at the very beginning is that we've gotta have the testing and the contact tracing in place before we can take the second step," she said. "I'm working with state public health officials, our emergency management team and an assortment of other experts to explore how we can tailor this guidance to Kansas."
She said the restart in Kansas could be phased in a way that reflected differences in how severely COVID-19 impacted communities.
Sixty-nine Kansas counties have reported at least one positive test for the virus, but 10 counties account for more than 80% of the 1,849 total. Half of these cases are in Wyandotte, Johnson and Sedgwick counties. COVID-19 has claimed 92 lives in 14 counties, but three-fourths were residents in Johnson or Wyandotte counties.
The full extent of the virus’s spread in Kansas is unknown because the state ranks near the bottom nationally in per-capita testing.
"We will be moving back to normal as the science allows," Kelly said.