Topeka ? A relatively stable economy has masked a significant problem with state government’s finances. The problem is likely to catch up with legislators and Gov. Kathleen Sebelius before she leaves office in January 2011.

The state expects to spend more money than it will collect in general revenues during the current fiscal year, which began July 1. It’s already on course to do the same during the next fiscal year.

Sebelius and legislators have committed to higher spending on public schools in recent years, and costs keep rising in Medicaid, which covers medical services for the needy. Not only have legislators avoided tax increases, they’ve made targeted tax cuts to help keep the economy moving.

They’ve been able to mix new commitments in spending with selected tax breaks because revenues are flowing into the state treasury at a healthy enough rate. But if – and more likely, when – revenue growth slows, state officials will be struggling with projected budget shortfalls.

Some agencies will feel a pinch next year, when Sebelius and legislators draft a budget for the 2009 fiscal year. They’re likely to tighten spending in some areas to keep the promises they’ve made in recent years.

“It makes for a tight budget,” said Senate President Steve Morris, a Hugoton Republican. “We just have to depend on the economy to keep us going.”

Each fall, the executive branch works on spending proposals for legislators to consider after the new year begins. Each November brings a financial forecast that tells governors and legislators what the state should collect and spend.

The state has experienced regular boom-and-bust cycles in recent decades, so even one-term governors have enjoyed good financial times and wrestled with bad ones. Gov. Bill Graves entered office in January 1995 promising to bring stability to government. The late 1990s brought large tax cuts, but Graves left office in January 2003 having pushed through higher taxes to prevent budget cuts.

Since then, the state has faced financial issues that easily could have forced taxes higher again. They included a projected budget shortfall exceeding $800 million in 2003 and court mandates to provide more money to public schools.

Sebelius, a Democrat, even proposed two tax increases in 2004, for schools at the beginning of the year and for health care at the end. The Republican-controlled Legislature took neither seriously.

But she and legislators closed the 2003 budget gap by restructuring the state’s ongoing transportation program, cutting off aid to local governments and some creative financial maneuvers.

As for school funding, she has simply gambled that revenue growth will cover the new spending, and legislators went along. The state promised to phase in $831 million in increases in aid over four years, ending with the 2008-09 school year.

Revenue growth also allowed the state to keep its existing Medicaid program intact, despite higher costs that mirror the inflation in health care generally.

Budget Director Duane Goossen expects those costs to grow 8 percent or 9 percent a year into the near future. One Budget Division projection puts the additional costs at $60 million for the next fiscal year.

And roughly two-thirds of the state’s $6 billion in general revenue is committed to public schools and the Medicaid program.

What’s telling is a financial profile contained among the first few pages of the Budget Division’s report summarizing the budget for the current fiscal year. It projects that spending outside public schools, higher education and Medicaid won’t grow in fiscal 2009, remaining at less than $1.4 billion.

That profile also shows that the state can sustain its spending by eating up its cash reserves, which have bulged in recent years because of revenue growth.

With cash reserves exceeding $900 million on June 30, the state has some leeway. But it expects to burn up $532 million in reserves during the current fiscal year. The Budget Division projects the state burning through another $252 million in fiscal year 2009.