TOPEKA — The 2019 Legislature and Gov.-elect Laura Kelly will view blossoming state government budget demands through the lens of an unexpected $300 million addition to the treasury, officials said Friday.
A new analysis of tax returns by the Kansas Department of Revenue revealed the value of the 2012 income tax reductions for individuals and the income tax exemption granted more than 300,000 business owners, primarily those with a limited liability corporation, had been underestimated for years. In 2017, much of that supply-side tax experiment was repealed by the GOP-led House and Senate over then-Gov. Sam Brownback's veto.
Bottom line: The state previously looked forward to $7 billion in total tax receipts during the current fiscal year. The consensus revenue estimating group pegged the revised target at $7.3 billion.
"We were significantly underestimating the tax policy changes," said Raney Gilliland, director of the Kansas Legislative Research Department. "We do believe that the estimates for the impact of 2012 tax law changes were understated."
Senate Minority Leader Anthony Hensley, a Topeka Democrat, said he was among Democrats and moderate Republicans who suspected the Brownback administration shielded from public view the real cost of controversial tax breaks designed to be a first step in a march toward elimination of the state's income tax.
"They sandbagged on the LLC," Hensley said. "I think it was absolutely intentional on their part."
Brownback's tax program contributed to crippling of the state's revenue stream and prompted budget cuts, credit rating reductions and hikes in the state's sales tax.
With escalating demands for state government spending on pensions, education and transportation, a cushion of $306 million could be useful when the Legislature convenes and Kelly delivers a budget blueprint in January.
House Speaker Ron Ryckman, a Republican from Olathe, said the state must be cautious about pledging new expenditures because of steady increases promised to public education and the Kansas Public Employees Retirement System.
"It's just math," Ryckman said. "You look at an Excel spreadsheet, year three and five years out, there's a lot of commitments that have not appeared on paper yet."
In the new report, Kansas officials said the state's sales tax revenue had come in below projections so far during the fiscal year starting in July. The state projected to take in $2.36 billion in the fiscal year, but downgraded that to $2.34 billion.
Gilliland said the economic outlook for Kansas could be characterized as "stable," with a "small uptick" in growth of Kansas personal income and continuation of a low unemployment rate. State revenue will be hurt in the future by modest oil and gas production, weakness in crop and livestock prices, and uncertainty resulting from international trade conflict, he said.
"Net farm income for 2018 is projected to be about the same it was for 2017. Crop prices do continue to struggle," he said.
Larry Campbell, budget director in the administration of Gov. Jeff Colyer, said the state was getting a better handle on tax policy changes made last year in Topeka and Washington, D.C.
"We're at the beginning period of seeing impact of federal and state changes," Campbell said.