Archive for Sunday, June 9, 2002

Problems looming for 2003 budget

June 9, 2002


— As they dealt with this year's budget problems, many legislators said the state faced its worse financial crisis since perhaps the Great Depression.

Legislators needed their longest annual session ever 107 days to deal with those problems, and many have concluded they didn't quite resolve them, even with $252 million in tax increases.

Now some state officials are worried that the problems a new governor and legislators will face next year will be worse.

Revenue collections, particularly for individual income taxes, have fallen short of expectations, and there's no real indication that the slide will stop this summer and fall.

"We're headed for a whole new set of tough decisions," said State Budget Director Duane Goossen. "In fact, this session may have been just a warm-up."

Legislators approved, and Gov. Bill Graves signed into law, a budget that spends $4.42 billion from the state general fund for fiscal 2003, which begins July 1. That budget rested on a quickly eroding foundation.

The foundation was the forecast made March 8 by state officials and university economists for state general fund revenue collections in fiscal 2003. The general fund is where the state deposits most of its tax revenues and the largest source of money for Kansas government programs.

Those estimates showed the state would end fiscal 2002 with $194 million in the general fund, and that the tax increase would provide enough money for a slightly smaller budget in fiscal 2003, with relatively healthy cash reserves.

But even as they took their last votes on May 31, legislators knew the estimates would never hold up. For the current fiscal year through May, the revenue collections fell $181 million short of the forecast.

Rough road ahead

That's only the beginning. Graves and Goossen expect the total shortfall to be at least $190 million and possibility as high as $215 million or $220 million.

The same hole would be present in fiscal 2003, then get worse if revenue collections continued to lag behind estimates.

"There's been some acceleration on the down side," said Senate President Dave Kerr, R-Hutchinson, a candidate for governor. "Our revenues are falling off more than anyone anticipated."

Even if the most optimistic number holds up, Graves will probably be forced to trim spending just to prevent a deficit at the end of the fiscal year. That means that without more spending cuts, the tax increases lawmakers approved weren't large enough to do the job.

"It just goes to show that the next governor is going to be faced with a very serious budget situation," said Senate Minority Leader Anthony Hensley, D-Topeka.

2004 budget a puzzle

Meanwhile, Goossen and his staff are beginning work on the fiscal 2004 budget, which the next governor will submit to the Legislature.

And fiscal 2004 remains a puzzle in terms of revenue.

Previously, when trying to assess how budget decisions would play out in future years, the Budget Division and Legislative Research Department had assumed revenues would grow about 3.8 percent in fiscal 2004, compared with fiscal 2003. State officials and university officials won't come up with the first official 2004 forecast until November.

But Goossen said his staff is having trouble coming up with numbers to plug in for fiscal 2004 in various documents.

For the current fiscal year through May 31, general fund revenue collections are not only short of the official forecast but a full 10 percent lower or $404 million less than actual revenue collections for the same 11 months for fiscal 2001.

"That's huge," Goossen said. "That's a revenue free fall."

More expenses

Making the situation worse are anticipated increases in costs for social services the state is required to provide to receive federal funds to cover the cost of medical care for the poor and elderly. The Budget Division is assuming the state will spend at least $50 million more in fiscal 2004 than in fiscal 2003.

Added on top of that would be increases in pension and health insurance costs for state employees, as well as the beginning of payments on bonds issued for various projects, including a new juvenile correctional institution in Larned and a renovation of the Statehouse.

"The pressures will be huge," Goossen said. "Any new governor coming in, I expect, will face a more difficult time this coming January than Bill Graves did this past session."

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