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Archive for Monday, January 19, 2004

Sebelius budget plan gobbles up state’s cash reserves

January 19, 2004

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— Legislators and the governor are supposed to sock away millions of tax dollars every year to create a cushion, so that if financial misfortune strikes, state government can avoid sudden cuts in services.

But instead of seeking to build up the state's cash reserves, Gov. Kathleen Sebelius has proposed spending part of them in the next state budget. After three years, her recommendations would nearly wipe out the state's stash of rainy day funds.

In outlining her budget last week, Sebelius asked legislators to waive the requirements of a 1990 law setting minimum cash reserves.

Some legislators viewed her plan to reduce the state's cash reserves as irresponsible. Others said they would like a bigger financial cushion but believe keeping existing programs whole is more important.

If legislators adopt Sebelius' budget or one close to it, they still might have to rein in government spending for several more years, even if revenues grow with the economy, according to projections by the governor's own staff.

"We have to still manage this very carefully, financially," State Budget Director Duane Goossen said during an interview. "You always want a bigger balance than a smaller balance for financial stability, but you have to balance that with the services you want to provide."

The state expects to begin its 2005 fiscal year on July 1 with $239 million in cash reserves, known informally as rainy day funds.

Under Sebelius' $10.2 billion budget proposal, those reserves would dwindle to $113 million by the end of the fiscal year, June 30, 2005. Were legislators to follow the cash-reserves law, they would set aside $330 million.

Sebelius' staff projected that if her budget proposals are adopted, the reserves would decline to $58 million at the end of fiscal 2006 and to only $6.5 million at the end of fiscal 2007. Such declines would occur even with assumptions by Sebelius' staff that tax collections would grow 5.1 percent in fiscal 2006 and an additional 4 percent in fiscal 2007.

"It is brinksmanship -- walking on the brink," said House Appropriations Committee Chairman Melvin Neufeld, R-Ingalls.

But other legislators argue Sebelius has little choice, at least until an improved economy swells tax revenues.

Sebelius proposed phasing in $304 million in tax increases over three years to provide additional funds to public schools. However, other budget extras for fiscal 2005, such as additional dollars for social services or pay raises for government workers, are financed by shifting money throughout the budget.

One of those shifts takes $126 million in cash reserves and spends it.

Sen. Christine Downey, of Newton, the ranking Democrat on the Senate Ways and Means Committee, compares the state to a family facing financial problems.

"You don't want to touch your savings account, but when you have to, you do," she said.

Reserves have been an issue for several years. In fiscal 2002, because of a slumping economy and the Sept. 11, 2001, terrorist attacks, state revenues declined 7 percent from fiscal 2001, and cash reserves dropped to only $12.1 million.

Many legislators supported low reserves for fiscal 2003 and the current, fiscal 2004 budget, to avoid spending cuts.

"Right now, we're down to the bare essentials on government programs, so I don't know how we can cut any programs to get the balances up to $200 million or $300 million this year," said Rep. Bill Feuerborn, of Garnett, the ranking Democrat on the House Appropriations Committee.

Neufeld said the state should start rebuilding its reserves. But Senate Minority Leader Anthony Hensley, D-Topeka, called the idea "just a myth" and said, "We're only kidding ourselves."

"At one time, it sounded good, and we did it, but I think it's a thing of the past," Hensley said.

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