Massive Cuts Proposed to Close Kansas' Projected Revenue Shortfall

by | April 21, 2016 AT 11:06 AM

By Bryan Lowry
 
Gov. Sam Brownback plans to take more money from the state's highway fund, cut higher education spending and scrutinize other options -- including a plan that would cut funding for schools -- to close a widening budget gap.
 
The sweeps will force the highway department to delay 10 projects slated to start in fiscal 2017 and 15 the year after that, including projects in Harvey and Reno counties.
 
The state must cut spending by more than $290 million over the next 15 months in order to maintain a balanced budget, based on projections offered by the state's economists Wednesday.
 
Budget director Shawn Sullivan laid out three possible solutions, including one plan that would enact a 3 to 5 percent across-the-board cut to state government, reducing K-12 education funding by $57.2 million for the fiscal year that begins in July.
 
Another option would be to delay state payments to the pension fund.
 
The governor's preference, however, would be to use expected proceeds from the state's master tobacco settlement to issue $158 million in bonds, Sullivan said.
 
The state's economists have lowered revenue estimates by $93.9 million for the current fiscal year, which ends in June, and by $134.7 million for the next fiscal year.
 
The reduction is primarily related to individual income taxes, which are now projected to bring in $233 million less in revenue over the two-year period than the state had forecast in November.
 
That drop was partially offset by increases from nontax revenue sources. The state now faces a $140.1 million budget hole for the current year and $151.3 million budget hole for next year.
 
Sullivan presented what he called the best three options to close the budget hole.
 
Under all three scenarios, the governor plans to sweep $70 million from the state's highway fund for the current fiscal year and $115 million for the next fiscal year.
The sweeps mean the Kansas Department of Transportation will delay 10 projects in 2017 and 15 projects in 2018, including a $47 million modernization project in Reno County on K-14 that was set to begin in October.
 
<h4>Option 1</h4>
 
The governor would ask the Legislature to empower him to move forward with a controversial proposal to use the state's expected proceeds from a tobacco settlement to issue bonds to close the budget hole for next year.
 
About 20 other states have made similar moves with their tobacco settlement money, Sullivan said, adding there would be no impact to the early childhood programs that are funded by the settlement.
 
The state would leave $42 million from the settlement intact each year to pay for the children's programs, while other portions of the settlement would go to the banks that had purchased the state's future revenue stream from the settlement for the next 20 to 30 years.
 
The governor would also carry over a 3 percent cut to higher education into the 2017 fiscal year. He cut this amount from universities' current year budgets earlier in the face of underperforming revenues.
 
<h4>Option 2</h4>
 
Instead of using the tobacco settlement, the governor would rely on the state's pension fund. Brownback's office announced earlier this month that it would delay a $93 million April pension payment.
 
Under current law, the governor would be required to pay this money back by September with 8 percent interest.
 
The governor now would ask the Legislature to push back the repayment deadline by 12 months.
 
Sullivan said that this would not affect current retirees' benefits or the state's ability to pay off the pension fund's unfunded liability in the long term.
Sullivan said it was likely that the governor would have to use some portion of the pension payment for the budget hole in any scenario, even if the Legislature does not approve pushing back the deadline.
 
Under this scenario, the governor would still do the highway fund sweep and proceed with the higher education cut. The administration would still need to cut another $25 million from the budget.
 
<h4>Option 3</h4>
 
The final option is to enact across-the-board cuts to state government, cutting most agencies by 3 percent. Under this plan, K-12 education would lose $57 million.
 
The Kansas Department for Aging and Disability Services would lose $11 million and the Kansas Department for Children and Families would lose $4.2 million.
 
Wichita State University would undergo a 5 percent cut -- or $3.7 million -- in state funding under this plan. Kansas State University and the University of Kansas would also face 5 percent cuts, losing $5.1 million and $6.8 million respectively.
 
The Kansas Department of Health and Environment would see its environmental funding reduced by 3 percent and its health funding reduced by 5 percent, resulting in an overall cut of nearly $36 million.
 

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