Wednesday, January 21, 2015

Tax Cuts Are Reason For Budget Shortfall

Look back 30 years. What did it cost to purchase a car? Eggs? Electricity? Blue jeans? A house? Certainly less than today.

Most of us know instinctively that prices will likely be quite a bit higher 30 years in the future. For example, although Americans are currently enjoying a reprieve in the cost of a gallon of gas, we would be fooling ourselves to believe the price will never again rise above two dollars.

State government services and programs are no different. Over time, state spending goes up. That’s normal. Inflation pushes routine expenses higher. Populations grow, requiring more services. Greater numbers of students show up at school. The ever-rising price of healthcare drives a steady increase in Medicaid costs.

The National Association of State Budget Officers tracks spending across all states. Over the past 30 years, the average 50-state general fund spending increase has been right at five percent a year. How does Kansas compare to the rest? A little below the average. The “normal” budget increase for Kansas over that 30-year period has been 4.85 percent. Recently, in the wake of the Great Recession, spending by states has moderated somewhat — 4 percent annual average growth nationally in the last four years, 3.3 percent in Kansas.

While spending patterns in Kansas have been mainstream, Kansas has deviated sharply from the norm on revenue collections.

Last year, Kansas income tax collections dropped 25 percent as a result of the Brownback tax policy. No other state experienced anything like that. In most states, revenue collections grew. That’s normal. But Kansas revenue fell dramatically.

Kansas has been left with a financial predicament in which general fund expenses are about $6.4 billion and rising, while revenue has fallen below $5.8 billion. With even more income tax rate reductions scheduled to kick in, it’s unlikely that revenue will grow much. That situation cannot go on for long.

So far, lawmakers have bridged the difference by spending down the general fund bank balance, but now, those funds have been depleted. Most states have a “rainy day fund” from which to draw in emergencies, but not Kansas. The time of hard decisions has arrived.

Some legislators will attempt to cut spending to fit the emaciated revenue stream. But resetting expenses to some lower level carries very real consequences. Kansas courts have ruled that schools already receive unconstitutionally inadequate funding. Further cuts will hurt classrooms and kids. Reducing stretched human service programs affects the most vulnerable Kansans. Less highway maintenance means more potholes.

Alternatively, lawmakers could choose to address the root of the budget problem. Revenue has been set unrealistically low. Lawmakers have failed to provide enough income to cover regular expenses, let alone pay to bring school funding back up to an adequate level. Options to correct this include stopping the next round of tax cuts, adjusting the business tax exemption, and rethinking income tax rates.

What will it be? Will the decision-makers put all their time and energy into downsizing schools, highway maintenance, and public safety programs, or will they make a realistic assessment of what it costs to pay for key services and figure out a fair way to fund that? The Kansas legislative session has begun. Our lawmakers are choosing for us now.

(An Insight Kansas column first published by various Kansas newspapers January 16-18.)

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