The general fund became structurally unbalanced immediately after the 2012 income tax cuts were implemented, but the situation has become especially dire now with reserves used up and the highway fund tapped out.
Look closely at revenue. The latest Consensus Revenue Estimate (CRE) forecasts total general fund revenue in FY 2017 at just under $6.0 billion, but that total already includes previously authorized one-time transfers of about $400 million from many different funds (especially the highway fund). That means real income, actual money coming in during FY 2017 to pay bills, is just under $5.6 billion. And the CRE forecast for FY 2018: Just under $5.6 billion. And for FY 2019: Just under $5.6 billion. Before the tax cuts the general fund took in more than $6.3 billion annually, but by FY 2017 income has dropped under $5.6 billion without any prospect for improvement.
Now consider expenses. Even a constrained set of expenses for FY 2017 totals over $6.3 billion. Block-granted school funding, and emergency budget cuts to Medicaid providers and higher education have already been baked into that number. And those expenses will certainly grow in FY 2018 and beyond. Medicaid costs always rise. Required contributions to the retirement system (KPERS) increase each year. Enormous pressures across state government—no raises for state employees in 9 years, understaffed hospitals and prisons, underfunded schools—will push costs up.
The Legislative Research Department’s general fund profile outlines the grim structural problem. If the gap is closed only by cutting expenses, another $349 million must be chopped during the 6 months that remain of FY 2017, then an additional $582 million cut from services in FY 2018. Closing the gap by forcing expenses below $5.6 billion may be theoretically possible “on paper,” but highly dangerous and irresponsible, if actually done.
Alternatively, the governor and some lawmakers may promote some type of one-time solution—selling assets, borrowing, paying bills late—to address the remaining $349 million shortfall in FY 2017. (Remember, lawmakers have already approved about $400 million in one-time transfers for FY 2017.) But doing that does nothing to fix the structural problem. It only delays the inevitable reckoning and makes Kansas poorer in the process.
Kansas simply needs more ongoing revenue. The recent Rise Up coalition proposal provides a plan that restores financial solvency and tax fairness, without resorting to damaging program cuts or one-time solutions. The situation that Kansas faces requires a broad plan, more than just closing the LLC loophole. It’s either restore revenue to meet expenses, or whack away at education, highways, human service programs, and public safety.
The task ahead is critically important, though not politically easy. Many key services, which have already been cut or constrained, now hang in the balance. Hopefully when the next legislative session ends, Kansas will be moving toward financial stability, no longer consigned to downward descent.
—This entry was originally published on the Kansas Center for Economic Growth website.