Thursday, April 28, 2016

Kansas Budget Goes Deeper Underwater

Kansas revenue forecasters just lowered expectations for tax revenue In FY 2016 and FY 2017 by $348 million, putting the budgets for those two years deeply in the red.

Make no mistake. The problem directly results from steep income tax cuts enacted in 2012 and 2013.

Note the chart below. In FY 2013, general fund tax revenue reached a high of $6.333 billion, and then fell to $5.632 billion in FY 2014 after the income tax cuts were fully implemented. Tax revenue stayed at that low level in FY 2015, growing only a scant $85 million. The revised revenue estimate now predicts tax receipts will grow to $5.865 billion in FY 2016 and to $6.039 billion in FY 2017. But remember, that growth only occurs as result of tax increases, passed in the last legislative session, that were supposed to be worth more than $375 million each year.

Again, tax revenue fell sharply in FY 2014, and has never come close to recovering, even after lawmakers imposed the biggest tax increase in Kansas history. Yes, current economic conditions have some effect on revenue collections, but it’s the 2012 and 2013 income tax cuts that have brought down the state budget.

Let’s plug in the new revenue estimate to analyze the effect on FY 2016 general fund finances. The result: With just over 2 months left, the FY 2016 budget is now $137 million underwater. That deficit occurs after a $17 million cut to universities in March, after numerous other program cuts, after freezing school funding in a block grant, and after transferring $280 million from other funds. And that’s after raising the sales tax to the point where Kansas has the highest sales tax on food in the nation.

Now look at FY 2017. Same story. Assuming the governor and legislators somehow erase the FY 2016 deficit, FY 2017 will open on July 1 with a beginning balance of zero, but estimated revenue does not nearly pay for the scrunched-up expenditures approved for FY 2017, leaving an ending balance $174 million below zero.

Between now and the end of June 2017, lawmakers will have to somehow adjust the budget by more than $300 million, not so that Kansas can flourish, but so that Kansas can just barely scrape by with no money in the bank.

This situation will keep repeating itself and continue to drag Kansas down, until lawmakers go to the source of the problem and correct it.

—This post originally appeared on the Kansas Center for Economic Growth website.

Kansas Needs a ‘No Excuse’ Revenue Estimate

General fund tax collections have failed to meet the mark every month but one in FY 2016. Each instance has triggered expressions of anguish, frustration, and despair, because every miss means something negative—more money transferred away from children, cuts to higher education, lost hope for public schools, or crumbling roads.

Kansas finances have become a high wire act with no net. Lawmakers have an empty bank account and limited options when revenue collections underperform. The financial hole stemming from the 2012 income tax cuts is so deep that even two sales tax rate hikes did not balance the budget.

The revenue estimating misses in FY 2016 follow a rocky record in FY 2014 and FY 2015, mostly a result of inaccurate forecasts of income tax receipts. In FY 2014, the consensus estimate at one point predicted income tax receipts would reach $2.525 billion, but when the fiscal year ended, collections only totaled $2.218 billion—a $307 million miss. In FY 2015, estimators again predicted income tax receipts would hit $2.525 billion, but the actual amount turned out to be $2.277 billion—a $248 million miss. The same pattern may be taking place in FY 2016. The current estimate predicts $2.450 billion, but through March the state has fallen behind last year’s pace.

Granted, establishing an accurate and predictable revenue trend does not come easily when tax policy changes dramatically, or goes where no state has gone before. But the excuses being offered for the recent estimating misses don’t add up.

Multiple administration sources have tried to place the blame on a bad economy. Yet, that does not explain the forecast errors. The revenue estimators had a realistic view of the economy last November. Read their report, and some sample excerpts below:

“Most major economic variables and indicators have been adjusted downward since the Consensus Group last convened in April.”

“Kansas Gross State Product (GSP) growth for 2015 has been reduced to 1.2 percent from the previous estimate of 2.3 percent.”

“Specific to the Wichita area, neither total employment nor manufacturing employment has returned to pre-Great Recession levels.”

“The forecasted price per taxable barrel of Kansas crude has now been reduced to $35.”

The weakening Kansas economy is not a surprise.

Lately, the governor has tried to blame the estimating process itself, intimating that some different method would work better. Don’t buy it.

The Consensus Revenue Estimate (CRE) is a consensus between the State Budget Director (on behalf of the governor) and the Director of Legislative Research (on behalf of the legislature). The two directors and their staffs receive economic data and advice from 3 consulting economists, and they rely on tax data and advice from the Secretary of Revenue.

Nothing gets into the CRE without agreement from the governor’s budget director. Everything in the CRE is based on tax information brought by the Secretary of Revenue. The governor is not a victim of some broken process. Key people in his administration are in charge of it.

The governor’s budget director and revenue secretary have been architects and supporters of the governor’s tax plan. They wanted a different revenue outcome from the one we have, maybe even truly believed in a different outcome, and perhaps that is why they have had so much trouble getting the CRE low enough. Sinking tax collections continue to put the lie to the original promises.

Huge income tax cuts, benefitting mainly the wealthy, have not brought economic prosperity to Kansas. Rather, those unprecedented tax cuts have wrecked the state budget.

Kansas does not need a change in the process of estimating revenue. What our state does need is for the key players to provide a hardheaded assessment of what really is going to happen, not what they hope will happen.

—This post originally appeared on the Kansas Center for Economic Growth website.

Friday, April 1, 2016

‘A tragic, mind-blowing loss to Kansas’

$1 billion forfeited, with more money lost each day, each hour. Inaction makes the problem worse with every passing minute. Surely such a situation should spur Kansas lawmakers to action.

For two years running, Kansas has turned down the opportunity to expand Medicaid eligibility, and to have the federal government pay the full cost. This winter the tab for saying “no” topped $1 billion and continues to mount.

Did the refusal to accept these federal dollars bring some other benefit to Kansas? Will anyone pay lower taxes as a result?

No. The money is simply relinquished, gone from the state economy, a tragic, mind-blowing loss to Kansas.

150,000 more Kansans could have had health coverage for the last two years. Most of these individuals work, but their earnings are too low for them to afford health insurance, and they are not eligible for an insurance subsidy.

Some still received health services by showing up at hospital emergency rooms, but those hospitals took a loss by providing uncompensated care. Especially for rural hospitals, such losses make financial survival much more difficult.

Most states have already expanded Medicaid eligibility. Kansas remains one of 19, predominantly southern states, that have held ideologically firm against Obamacare. That’s the reason—a blind objection to anything that might be connected to Obamacare. Policy challenges over cost or implementation strategy have all been answered.

Do you want Medicaid to look more like a private insurance plan? Then set it up that way. Arkansas did. Should recipients pay something? Fine. Indiana requires that. What about incentivizing healthy behavior? Okay. Iowa took that approach. Should expansion be budget neutral, now and in the future? Sounds great. A bill proposed in Kansas does exactly that.

Kansas lawmakers could solve this in a hurry if they did their policymaking job and figured out how to make expansion work on Kansas terms. Call it KanCare expansion, if that helps, but go forward.

When Republican Asa Hutchinson became the new governor of Arkansas in 2015, he sought to continue the state’s expansion that had been previously put in place. Explaining why, he argued that turning away federal dollars that more than 30 other states were receiving would punish Arkansas. "It is perfectly consistent, it is perfectly conservative and logical to oppose Obamacare as a federal policy and yet accept federal dollars under the Medicaid program in Arkansas."

Exactly. Hurting ourselves to protest Obamacare conjures up the old adage of cutting off the nose to spite the face.

Most Kansas citizens have arrived at that same conclusion. Whatever Kansans may think of Obamacare, independent surveys by the Docking Institute and by the Kansas Hospital Association both show wide approval of expanding Medicaid eligibility.

When Gov. Brownback dismissed expansion in his State of the State address, when House Speaker Merrick removed potential yes-votes from the health committee, when Americans for Prosperity began targeting pro-expansion legislators with negative mailers, they clung to an anti-Obamacare ideology at the expense of the economic and physical health of citizens. By refusing these federal dollars, Kansas engages in needless self-destructive behavior.

More than $1 billion has already been lost to the Kansas economy. These funds cannot be recovered, but losses can be cut going forward. A bill is ready that legislators can still pass this session. If lawmakers wait, they’ll be shortchanging Kansas hundreds of millions more.

— This column originally ran in a variety of Kansas newspapers last weekend. A version also aired on Kansas Public Radio affiliates, which you can listen to here.

Total Pageviews