Monday, September 22, 2014

Kansas Out on the Edge

By Duane Goossen

Remember how state revenue plummeted in April, May, and June? Well, we finally have information that compares the Kansas experience to that of other states.

No other state dropped as far as we did — yet more evidence that Kansas is out on its own at the very end of the spectrum.

The Rockefeller Institute of Government — the go-to source for information about state revenue collections — just issued numbers on what happened across states in the April-May-June quarter.

Kansas income tax collections came in 43 percent below the same period a year earlier. We already knew that, but we did not know how Kansas compared to the rest of the nation.

The answer: Kansas had the steepest drop of all states in both individual income tax and in combined revenue.

Nationally, the average income tax decline was 7.1 percent. Income tax collections in most states went down somewhat, confirming that the timing of capital gains income likely played a small part in the Kansas decline.

However, given that the Kansas drop-off was comparatively so large, these new numbers clearly show that the Kansas decline had far more to do with tax policy changes.

The Kansas Department of Revenue wanted us to believe the drop in that period was all about capital gains, when it simply was not. That should make reporters and everyone else very cautious about taking at face value what the Department says, particularly as reports about September revenue collections emerge.

The Department has political incentive to make the September numbers look as high as possible, and has been working to settle outstanding tax collection cases — so watch carefully for one-time receipts that are counted into the total.

Also: watch carefully what the state does with revenue transfers. Delaying scheduled transfers makes monthly revenue appear higher, but only temporarily.

Kansas revenue went down $688 million in fiscal year 2014 and it's staying down at that level now during FY 2015. More income tax rate reductions are scheduled to kick in all the way through 2018, further depressing receipts. Revenue no longer comes close to covering expenses.

The dramatic changes in Kansas tax policy have caused budget problems and service reductions, but so far the effect has been softened by spending down the state bank account to cover the difference between revenue and expense. The bank account will be gone within this fiscal year.

The most profound consequences of Gov. Brownback's tax policy are still yet to come.

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