Monday, October 6, 2014

Revenue Down! What Does It Mean?

By Duane Goossen

In fiscal year 2014, receipts fell $688 million from the previous year.

Now three months into FY 2015, revenue is coming in below the FY 2014 level. That has very serious implications.

Travel through the numbers, looking first at a comparison of first quarter collections

Several things are of note:
  • Individual income tax collections are down $51 million from last year, a 9 percent drop. Total revenue has fallen $33 million for the quarter.
  • Corporate income tax collections were up. That’s not too surprising given that tax rates for full corporations have not changed. The exemption from state income tax given to LLCs and S Corporations affects individual income tax collection amounts.
  • The Department of Revenue has been actively trying to settle outstanding tax cases to pump up receipts, so there is likely one-time revenue in the first quarter FY 2015 totals. Plus, the state is $26 million behind on planned transfers out of the State General Fund, transfers which, if made, would have reduced the FY 2015 total even more.

What does it all mean?

The “official” FY 2015 profile for the State General Fund (shown below) assumes revenue will be $321 million higher than the amount actually received in FY 2014. Even with that optimistic assumption the ending balance is projected to be only $29 million.

If the revenue estimate were changed to assume no growth from FY 2014 to FY 2015 (shown below), the ending balance immediately goes far below zero. Remember, FY 2015 first quarter receipts are actually below the FY 2014 level right now, not flat.

The State General Fund cannot go under zero, so a scenario like this means mid-fiscal year budget cuts.

More importantly, this signals big trouble for the future. Current expenses are set at $6.325 billion. If FY 2015 revenue does not grow — which is more and more likely — it will be $672 million below expenses: a huge structural budget imbalance.

But future expenses will keep going up, while at the same time, even more tax rate reductions are scheduled to kick in.

Kansas is on a financially irresponsible path that will be very painful and difficult to fix.

 → Info sheet on the Kansas Budget
 → Duane's presentation slides from recent speaking engagements

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