Kansas' Revenue Projections Sink Again After Deep Tax Cuts

by | April 22, 2015

By Brad Cooper

Fed new revenue forecasts Monday, Kansas lawmakers now face roughly $400 million in tax increases or budget cuts in the wake of deep income tax cuts.

The latest revenue outlook revealed a deepening budget hole that will test a conservative Legislature's no-tax willpower when it reconvenes next week.

With Kansas' economy growing at a slower rate than the rest of the country, fiscal analysts reduced the state's revenue estimates by $200 million for fiscal years 2016 and 2017, increasing the budget deficit lawmakers must tackle.

While income tax receipts are expected to hold steady the next two years, the state suffers from losses in severance taxes because of a soft oil and gas market and a decline in corporate income taxes.

The new estimates mean the state faces a $400 million gap -- a chasm Republican Gov. Sam Brownback has proposed closing with tax increases on cigarettes and alcohol as well as slowing tax cuts enacted in 2012 and 2013.

"Unfortunately, with revision of revenues downward, it does make balancing the budget more of a challenge than it already was," Brownback's budget director Shawn Sullivan said after the estimates were released Monday.

Brownback already faced strong resistance to his proposal for raising $200 million, including about $100 million in tax increases on cigarettes and alcohol.

Many conservative lawmakers -- about a third of the House and about half the Senate -- are on record opposing more taxes.

However, leading lawmakers in the Kansas House have said they are willing to look at options for raising taxes, even if that might mean that some conservatives have to renege on no-tax pledges.

"We are going to look at all revenue options and pursue the fairest and least harmful route," Overland Park Republican state Rep. Marvin Kleeb said in a statement.

Kleeb chairs the House tax committee, which has been reviewing alternatives for raising taxes in recent months.

Possibilities include increasing sales and gas taxes or imposing a tax on e-cigarettes. Lawmakers also have looked at a tax on "passive income," which includes earnings from rent.

Lawmakers are also looking at closing a quirk in state law that lets wages go untaxed for owners of limited liability companies, sole proprietorships and the like.

However, some lawmakers are open to the idea of raising taxes even though they said they would prefer not to.

"Never say never," state Sen. Steve Fitzgerald, a Leavenworth Republican, said in a recent interview. "I don't want to raise taxes. I want to see more cuts on the expense side."

State Rep. Mark Kahrs, a Wichita Republican, took a firmer stand against taxes.

"I was not elected by my district to go to Topeka to raise taxes," Kahrs said in a recent interview. "They sent me to Topeka to control spending and limit the growth of government."

Senate Minority Leader Anthony Hensley of Topeka said Brownback's emphasis on consumption taxes would hurt the taxpayers who could least afford a tax increase.

The new estimates, Hensley said, "mean that the budget will be unfairly balanced by raising taxes on low- and middle-income Kansans while protecting wealthy Kansans who benefit from Brownback's tax cuts."

The tax cuts that Brownback pushed through the Legislature were sold as a way to charge up the Kansas economy in the aftermath of the Great Recession.

However, fiscal analysts pointed out that the state is still struggling when compared to the rest of the country, even as the Brownback administration touts data that it claims show the Kansas economy is thriving.

Legislative research director Rainey Gilliland told reporters that the state's economy still appears to be growing slower than the rest of the country.

The Kansas gross state product is growing at a rate of 2.3 percent this year, down from the 2.5 percent that was expected when state revenues were estimated last fall. Kansas personal income, meanwhile, is predicted to grow at a rate of 3.4 percent, down from the 4.2 percent that was estimated last fall.

Brownback's budget director countered with numbers showing that the state has gained 17,000 new jobs in the first quarter of this year. He also said that that wages have grown 2.5 percent since the summer of 2014.

(c)2015 The Kansas City Star (Kansas City, Mo.)