Sunday, December 7, 2014

Momentous Budget Session Ahead

By Duane Goossen

Lawmakers have quite a job awaiting them. During the next legislative session they must first fix the existing FY 2015 budget, and then look into the future and create new budgets for FY 2016 and FY 2017.

None of it will be pleasant.

Fiscal year 2015 (shown below) is almost half over. Expenses total $6.427 billion, but estimated income only reaches $5.768 billion, leaving a $659 million gap to bridge.

A portion of that gap can be closed by using up the $380 million that was in the bank at the beginning of the year, but that still leaves another $279 million to go, just to get to an ending balance of $0.

Zero is the minimum balance. It should actually be much higher. State law and financial prudence require an ending balance equal to 7.5 percent of expenses — about $500 million. However, that’s an impossible goal for this year. Just achieving a zero balance will not be easy. 

The Speaker of the House and several other lawmakers have announced their intention to solve the problem with spending cuts alone.

Good luck.

That almost certainly means cuts to public education. Kindergarten through 12th grade education accounts for over half of general fund expenses. Medicaid, an unrealistic area for reduction, accounts for another 20 percent. Without reductions to K-12 education, the cuts to the remaining portions of the budget — higher education, other human service programs, and public safety — would be impossibly deep.

Other legislators have expressed the hope that revenue will turn out to be better than estimated. Not likely. The current FY 2015 revenue estimate was dramatically revised downward after the elections, but may still be too high.

Many budget watchers are predicting that a transfer from the Highway Fund will ultimately be used as a short term repair to the FY 2015 budget and a way to avoid education cuts. A $279 million transfer would require cuts to road programs, but the transfer would count as a revenue increase to the general fund, allowing FY 2015 expenses to remain at $6.427 billion. But in that scenario, the real pain is simply delayed until FY 2016 (see below).

The FY 2016 beginning balance will be zero under almost any scenario. Estimated revenue totals $5.811 billion. That means, without more revenue, there will be $5.811 billion to spend. That’s it. In FY 2016, some one-time expenditures can be taken out of the spending base, but the state will face new costs for Medicaid and KPERS, pushing expenses above $6.5 billion, and creating a more than $700 million imbalance.

In FY 2017, the official revenue estimate totals $5.877 billion. New Medicaid and KPERS costs will keep coming.

Here’s what lawmakers cannot escape: Current expenses are more than $6.4 billion a year and rising.

Without new, ongoing revenue, that set of growing expenses must somehow be whittled down and made to fit within a revenue stream that appears to be roughly $5.8 billion per year and staying relatively flat.

Kansas had better figure out a way to get some more revenue, or a lot of program cuts lie ahead.

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Readers: The Kansas Budget Blog will take a holiday break. Watch for new posts in early January. Thanks for reading! And Happy Holidays!

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