Monday, August 18, 2014

New Budget Numbers Show Hard Reality

By Duane Goossen

The Kansas Legislative Research Department (KLRD) has released updated budget numbers.  We now know exactly what happened in fiscal year 2014, and have confirmation of the very difficult financial situation ahead.

In FY 2014, State General Fund revenue plunged $688 million from the year before as a result of dramatic tax policy changes instituted in 2012 and 2013.  Even though FY 2014 spending was lower than 6 years earlier, expenses still exceeded the diminished revenue amount by $329 million, bringing the state bank balance down to $380 million.*

For FY 2015, the governor and lawmakers have already approved a budget that sets spending** $351 million higher than estimated revenue, pulling the bank balance all the way down to $29 million.***

But remember, the FY 2015 revenue estimate is far too optimistic.

The FY 2015 revenue estimate was set last April with incomplete information.  The estimate forecasts growth of $321 million over actual FY 2014 receipts.

That’s not going to happen.

In July, the first month of FY 2015, receipts were already $31 million lower than the previous July.  Not a good start.

What if receipts in FY 2015 only equal the receipts received in FY 2014? Then, before this fiscal year is over, the state will need to cut approved spending by $292 million just to keep the State General Fund solvent.

Imagine the bright side for the moment. Imagine that receipts do come in as predicted and the state ends FY 2015 with $29 million in the bank. What does that then mean for FY 2016?

Expenses will be growing just to cover new Medicaid costs and required increases for the state retirement system. Revenue will at best be flat as even more income tax rate reductions kick in.  KLRD predicts that lawmakers will have to cut $238 million to keep the SGF balance above zero.

Again, that’s the optimistic scenario.

The KLRD profile shows that if Kansas stays on the present course, the state will have a $1.3 billion negative balance by the end of FY 2019. However, the state cannot let the SGF go below zero, so something must give way.

Kansans, we have to face a hard reality.

The governor’s tax plan has torn up the budget. The problem is coming fast and hitting hard. Education and key state services are in great jeopardy.

* Last month the state budget director reported a FY 2014 balance of $434 million, but without any of the supporting revenue and expenditure information that KLRD now provides.  As it turns out, that reported balance figure was only “cash-on-hand” and did not take into account encumbrances—essentially, checks written but not yet cleared.

** The FY 2015 approved spending amount includes expenditures of $24.1 million that have “shifted” from FY 2014 to FY 2015.  The spending was approved for FY 2014 but was not spent—perhaps because a construction project was behind schedule or some similar reason.  Although not spent in FY 2014, that spending authority has shifted forward to FY 2015.

*** State law requires the ending balance to be 7.5 percent of expenditures.  With spending set at $6.325 billion, the ending balance should be $474 million.  Lawmakers exempted themselves from the ending balance law for FY 2015.

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