It seems that a modest increase in state revenue is burning a proverbial hole in the pockets of some Kansas legislators.
Eager to share the state's current good fortune with Kansas taxpayers, lawmakers are looking favorably at a whole package of tax cuts for individuals and businesses.
Tax cuts, of course, are a perennial political favorite. Everybody loves one. The only problem is that the tax cuts the state approves this year may spell trouble a few years down the road.
When Gov. Bill Graves was running for re-election in 1998, tax cuts were high on his list. During his campaign, he proudly claimed credit for $2.5 billion in cuts. They included a multi-year suspension of the unemployment tax collected from state employers and reducing the state's tax levy for public schools from 35 mills to 20 mills. It was a popular campaign theme, but it turned out not to be good public policy.
By January 2001, Graves was telling legislators that the $68 million increase in education spending included in his proposed budget wasn't enough and they should look for more money. By the end of the 2001 legislative session, revenue estimates were cut by $74 million for the next budget year and $111 million for the year after that. Legislators increased the state's gasoline tax by 1 cent per gallon and approved other tax increases to balance the budget.
And that was before the events of Sept. 11, 2001.
By March 2002, the state was facing a budget shortfall of $698 million. Graves ended his term by cutting millions of dollars from the current year's budget, primarily in the area of social services, public schools and higher education. One of his last official acts was $78.1 million in cuts in November 2002.
It was not a happy time, and yet, many legislators seem to want to risk sending the state back down that road.
Although the Kansas Senate has passed about $40 million in tax cut proposals, the Kansas House is looking for about $20 million more. Among the measures approved by the Senate were new exemptions from the state's business franchise tax, which will cost the state more than $10 million next year, and new state income tax exemptions for Social Security benefits that will total $5.4 million next year and $6.5 million by 2010.
The House wants to fully phase out the franchise tax over three years, which would cost the state more than $40 million a year. Why not, they ask. This is taxpayer money, why not give it back to the taxpayers?
The tax cuts passed this year may work for one year, but their effect will multiply in years to come. In the meantime, the state has not yet resolved the issue of funding deferred maintenance at state universities and other important state issues. A new highway program will be on the agenda next year and probably a new school finance plan the year after that.
As the revenue the state will lose from income tax on Social Security benefits grows, so will the demand on the state-financed KPERS retirement fund. Exemptions to the income tax may benefit retired Kansans, but what if the overall tax cuts result, as they did in 2001, with large cuts to social services for needy Kansans, including cuts in senior meals programs?
These are questions legislators need to ask themselves as they consider additional tax cuts. Running a government that is "high and tight," as Graves used to say, is one thing, but solid fiscal management also requires legislators to consider the consequences of their actions when the state faces less prosperous times.