Monday, November 12, 2012

State officials disagree over consequences of tax cuts

By SCOTT ROTHSCHILD, The Lawrence Journal-World

With the impact of Gov. Sam Brownback’s tax cuts becoming clearer, Democrats warn of debilitating cuts to state services while Brownback’s team says the budget is manageable.

Brownback, a conservative Republican, will send to the Legislature in January a budget proposal that “keeps K-12 fully funded (and) covers all essential services,” according to Steve Anderson, the governor’s budget director.

Democrats, however, are doubtful, given new state revenue projections released last week.

“Local schools and core services will now face deeper cuts because Gov. Brownback pushed through a tax plan whereby the workers pay taxes, but the bosses do not,” said House Minority Leader Paul Davis, D-Lawrence.

The numbers show that for the last complete fiscal year, total receipts to the state’s all-purpose general fund were $6.4 billion. But that will drop to $6.17 billion for the current fiscal year and to $5.46 billion for the next one.

When the 2013 legislative session starts in January, Brownback and legislators will make adjustments to the current fiscal year budget and then start work on the next one, which begins July 1.

Why the big drop in revenue? Tax cuts.

Earlier this year, Brownback signed into law cuts that lower the state income tax rate and exempt the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes.

Asked how Brownback will manage the projected $1 billion two-year drop in revenue, Anderson said, “We don’t anticipate cuts near that amount. I will leave that to the governor when we put the budget out in January.”

There are ways to soften that blow. The state is carrying a healthy surplus of $473 million, and Anderson has directed state agencies to submit budget requests with scenarios for 10 percent cuts. He exempted public school funding, which makes up half the state budget, from that directive. In addition, the temporary portion of the state sales tax increase that is set to expire next year could, if made permanent, produce another $262.3 million.

But extending the temporary sales tax is a politically explosive subject.

In 2010, after several rounds of budget cuts during the Great Recession, moderate Republicans and Democrats approved increasing the state sales tax from 5.3 cents per dollar to 6.3 cents per dollar, with a portion of the increase helping pay for the new state transportation plan. Under the law, the state sales tax will decrease to 5.7 cents per dollar in 2013. Those who paid a political price for approving the increase don’t think it would be fair to make the tax permanent to pay for tax cuts.

And Anderson warns against spending down the surplus, saying the state needs a cushion should an emergency occur. He cited political tensions in the Middle East and economic problems in Europe that could impact the financial status of the U.S. and Kansas.

The falling revenue projections, the proposed 10 percent cuts and Brownback’s recent statement about considering extension of the temporary state sales tax increase are among the reasons Democrats claim the tax cuts were irresponsible.

Anderson said the administration will make the tax cuts work, but he also said that the tax-cutting package Brownback signed into law wasn’t the one the governor had proposed. Rather, Anderson argued, the package was forwarded to the governor by Republican legislators.

“It was the only choice he had to sign,” he said. Democrats and moderate Republicans had urged Brownback to make another choice: veto the bill and continue working on alternatives.