Topeka State tax collections fell $53 million short of expectations in March, putting Kansas’ budget for the next fiscal year on shakier ground.
Many legislators worry that they will have to significantly rewrite the $13 billion budget they approved last week for fiscal year 2010, which begins July 1. A Democratic leader also said Tuesday that legislators must consider tax proposals to boost state revenues when they return April 29 from their annual spring break.
“We’re going to have some tough decisions to make when we come back,” said House Minority Leader Paul Davis, a Lawrence Democrat. “Also, we’ve got to look at the revenue side.”
The state expected to collect $427 million in taxes in March. But a report Tuesday from the Kansas Legislative Research Department said it took in about $374 million, or 12 percent less than anticipated.
One sign of the state’s struggling economy was individual income tax collections. They were about $142 million in March, when the state had anticipated $190 million — a difference of $48 million, or 25 percent.
For the current fiscal year, from July 1 through March 31, tax revenues, at $3.83 billion, were $135 million less than anticipated, or 3.4 percent.
Last week, when legislators approved the 2010 budget, the Research Department projected that the state would end the next fiscal year with $172 million in cash reserves. But that figure assumed no further shortfall in revenue collections for the current fiscal year and the next one.
With the new figures for tax collections in March, cash reserves would drop to about $66 million. That’s because the shortfall in this fiscal year is expected to repeat itself in fiscal 2010.
Most legislators believed revenues would be less than anticipated in March, but Senate President Steve Morris said the size of the month’s shortfall was unexpected.
“We were hoping that the negative numbers would be less than that,” said Morris, a Hugoton Republican.
Officials and university economists plan to meet April 17 to issue a new financial forecast, to replace one issued in November.
Legislators and the governor use the forecasts in budgeting and if the new forecast is significantly more pessimistic, the fiscal 2010 budget won’t balance. The Kansas Constitution prohibits the state from running deficit.
Gov. Kathleen Sebelius and her fellow Democrats already advocate that legislators consider freezing estate and corporate franchise taxes at their current levels, rather than phasing them out by 2011, as previously planned. Republicans support phasing out those taxes and note that freezing them provides only $19 million in revenue in fiscal 2010.
Democrats also said legislators should consider “decoupling” Kansas from the federal tax code to boost revenues. Because the Kansas and federal codes are tied, state revenues fluctuate as the federal tax code changes.
The recently enacted federal stimulus package included tax breaks, and state officials estimate those breaks will cost Kansas almost $66 million during the next fiscal year.
Morris said legislators will have to “take a look at everything,” but he said decoupling could be difficult. The stimulus package exempted some unemployment benefits from income taxes and expanded an income tax credit for poor, working families.