Wednesday, November 7, 2012

Tax cuts started to show in drops in state revenue forecasts

By SCOTT ROTHSCHILD, The Lawrence Journal-World

The tax cuts signed into law by Gov. Sam Brownback are starting to show up big time in the form of reductions in projected revenue needed to run state government. That could mean significant budget cuts ahead.

On Tuesday, state financial experts met to determine the amount of revenue available for legislators and Brownback to make budget decisions next session.

The group's revised projection of $6.17 billion for the current fiscal year is 3.8 percent less than receipts in the last fiscal year.

But the revenue estimates take a deeper hit in fiscal year 2014, when the tax cuts are fully implemented. At that point, the state is expected to collect $5.46 billion, which is nearly $1 billion less than current revenue levels.

Does that mean deep budget cuts, tax increases or a combination of the two will be needed to bridge the revenue shortfall?

Not necessarily, said Brownback's Budget Director Steve Anderson.

"We don't anticipate cuts near that amount," Anderson said.

The Brownback tax cuts will exempt the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes. The package also decreases individual income tax rates for 2013, with the top rate dropping to 4.9 percent from 6.45 percent, and increases the standard deduction.

Brownback said the cuts will grow the economy. But House Democratic Leader Paul Davis of Lawrence said the new revenue estimates are more evidence "that Gov. Brownback's tax plan has put Kansas on the path to bankruptcy. As the rest of the country inches its way out of the recession, Kansas will face yet another devastating budget deficit."

At the news conference of the Consensus Revenue Estimating Group, Anderson repeated Brownback's vow to protect public school funding, which makes up half the budget.

Mark Tallman, a lobbyist with the Kansas Association of School Boards, said he was glad to hear Anderson's comments to on school funding but he noted, "To do that you would have to make very deep cuts in other areas of the budget or find additional revenues."

But Anderson said other variables exist.

The state has a healthy ending balance currently that could be used to cover some expenses, and Brownback has said he has not ruled out proposing to make permanent the temporary sales tax increase, although Republicans and Democrats have voiced opposition to that idea.

Anderson has directed state agencies to prepare budgets that include a 10 percent cut as a contingency plan in case something happened that cratered the economy.

He said unrest in the Middle East and economic problems in Europe have to be considered. "It would be naive for us to believe that we are an island that would not be affected by a meltdown in Europe," he said.

Asked if he thought the new revenue projections indicated the tax cuts were too big, Anderson said it might have been better to spread the cuts over a longer period of time, but that he was confident the plan will work.

Raney Gilliland, director of the Kansas Legislative Research Department, said there are many economic uncertainties, and that the state is experiencing slow economic growth.

The recent drought, Gilliland said, has had a negative impact on agriculture, and oil production because of the lack of water to use in horizontal drilling.