Thursday, September 24, 2015

Another Bad Month for Kansas Revenue

By Duane Goossen

August general fund tax collections were startlingly bad, down $30 million (6.8%) from expectations. August was not a one-month outlier. Tax collections have missed expectations every month since the last official consensus revenue estimate.

Anemic tax collections spell trouble for Kansas finances. Lawmakers based the FY 2016 budget on the consensus revenue estimate completed in mid-April. They assumed enough revenue would come in during the remaining months of FY 2015—April, May, and June—and in FY 2016 to leave a meager $88 million in the bank on June 30, 2016. There is little room for error. Everything must work perfectly for the state to just scrape by.

But revenue immediately began going off track. April/May/June revenue fell $26 million short of expectations. Now in July and August, the first two months of FY 2016, tax revenue is already $35 million below expectations. That puts general fund tax revenue $61 million below the assumptions made when the budget passed, wiping out most of the hoped for ending balance.

The Department of Revenue released its August report in a new format. Rather than only containing information about the taxes collected by the Department, it also included transfers, interest income, and other small revenue sources. The report format is new for the Department of Revenue, but not new for the state. Kansas Legislative Research and the Division of Budget have been producing reports containing that information for many years, issuing their reports a few days after the end of each month.

The “new” report does present a more complete view of state general fund revenue, but if misinterpreted can lead to a misunderstanding of the state’s financial situation. The amount collected from tax sources still remains the most important information to track in the report. August tax collections were $30 million less than estimated. However, the report also showed $24 million of “unexpected” transfers into the general fund, allowing the Department to imply August revenue was only off by $6 million.

The transfers were not calculated into the August estimate because they had just been ordered at the end of July by the governor. The final version of the FY 2016 budget included $50 million in unidentified expenditure cuts that the governor would make later. The governor did make cuts, but instead of reducing expenditures by the full $50 million the governor chose to transfer $24 million from other funds. The revenue estimators did not know the governor would substitute transfers for cuts when the August estimate was produced.

The transfers do not change the financial situation that lawmakers had counted on in their FY 2016 budget, but the shortfall of $30 million in tax revenue in August certainly does.

Kansas finances are still reeling from the 2012 and 2013 tax cuts which dropped the state’s revenue stream far below the amount needed to cover basic expenses. Lawmakers have not fixed that yet.

— This entry was originally posted on the Kansas Center for Economic Growth website.

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