Sunday, January 18, 2015

The Budget Is Not Fixed Yet

Dear Readers: I am now writing and speaking about the Kansas budget and state finances as a Senior Fellow with the Kansas Center for Economic Growth. New blog entries will be posted by KCEG first and re-posted here later. You can sign up to receive emailed blog posts and other information from KCEG. As always, I welcome your inquiries at Thanks for reading! Duane

Watch out! Even though the governor has proposed a way for Kansas to financially stumble through fiscal year 2015, most of his recommendations require legislative approval to become effective.

With the legislative session just beginning, anything could happen. Schools, human service programs, and other key state services are still very vulnerable to more cuts in the last half of this fiscal year.

The FY 2015 state budget is badly out of balance. General fund expenses total over $6.4 billion, but estimated revenue is less than $5.8 billion.

A portion of the $650 million-plus gap will be bridged by using up $380 million that was in the bank at the beginning of the fiscal year.

The governor has proposed transferring $217 million from other funds, most notably the Highway Fund. However, the governor does not have the power to do that without agreement from the Legislature. Moving the money creates new problems in the other funds, so lawmakers may not agree. If that happens, then something else — likely bigger spending cuts — would be imposed.

With the dire financial situation that Kansas now faces, the governor does have “allotment” power, which allows him to unilaterally cut the approved budget. He did that in December, but cut only $62 million, mostly by reducing the amount going into the Kansas Public Employees Retirement System (KPERS). He should not have cut KPERS funding. The cut breaks a state commitment and is unprecedented. Even Republican lawmakers have criticized the move, and may try to undo it. But, with the state in such a bad financial position, undoing the KPERS cut requires lawmakers to cut something else instead.

Two more things to consider:

  1. State officials determined in November that Kansas will have additional costs in this fiscal year for Medicaid ($46 million) and school finance ($59 million). However, those expenses are not yet part of the approved budget. Lawmakers must take action to put the funding in. If they don’t, it’s a cut to Medicaid and schools.
  2. Even though the FY 2015 revenue estimate was revised downward one week after the election, it may still be too high. The forecast predicts that FY 2015 revenue will grow $115 million from the amount received in FY 2014. However, after six months, FY 2015 revenue is $40 million behind last year’s pace. If revenue does not meet projections, lawmakers will need to make last-minute cuts.

Hopefully, lawmakers will settle the FY 2015 issues quickly before creating new budgets for FY 2016 and FY 2017. If they don’t, uncertainty about possible cuts late in the fiscal year will hang over state programs and schools. Plus, it’s important to know the starting point for the next budget.

Most likely the starting point for FY 2016 will be zero money in the bank. The revenue forecast for FY 2016 totals $5.8 billion. Realistic expenses for FY 2015 are already more than $6.4 billion. In FY 2016 they will be higher.

The 2015 legislative session promises to be very difficult.

(First posted January 15, 2015 by the Kansas Center for Economic Growth)

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