photo by: Peter Hancock

Budget Director Shawn Sullivan takes questions about the administration's proposals for balancing the state budget during a joint meeting of the House and Senate budget committees.

Topeka ? Kansas lawmakers Thursday grilled Gov. Sam Brownback’s budget director over the administration’s proposals to balance the state budget over the next 16 months, and particularly over the governor’s refusal to consider any new taxes.

“The short answer is that he doesn’t believe now is the right time to have a debate or discussion about raising taxes, particularly on small businesses,” Budget Director Shawn Sullivan told a joint meeting of the House and Senate budget committees.

Sullivan’s appearance before the joint panel came one day after new revenue estimates were released showing that the state general fund is likely to take in $228 million less than previously forecast between now and the end of the next fiscal year.

Based on spending lawmakers have already approved, that would create a projected $140 million deficit in the current fiscal year that ends June 30 and a $151 million deficit in the next fiscal year that begins July 1.

photo by: Peter Hancock

Budget Director Shawn Sullivan takes questions about the administration's proposals for balancing the state budget during a joint meeting of the House and Senate budget committees.

To address those shortfalls, the Brownback administration has laid out three options, all of which begin with sweeping roughly $185 million out of the state highway fund to shore up the general fund both this year and next year, and extending for another year a $17.7 million, or 3 percent cut, in funding for the state’s six universities, including Kansas University.

“We continue to work with the governor’s office and legislators in support of stable funding for higher education in Kansas,” KU vice chancellor of public affairs Tim Caboni told the Journal-World on Thursday.

Both of those are actions the governor has authority to take on his own. But most of the remaining actions in the governor’s plans would require legislative approval.

Among those, included in the governor’s first option is selling off part of the state’s interest in future tobacco settlement money to raise about $158 million in cash for fiscal year 2017, an idea that met with great skepticism, both inside and outside the Statehouse.

Kansas currently receives about $58 million a year in tobacco settlement money. Of that, the administration proposes to keep about $42 million — the amount that now goes to the Children’s Initiative Fund to pay for a variety of health-related and early childhood education programs — and to “securitize” the remaining $16 million per year.

Rep. Kathy Wolfe Moore, D-Kansas City, argued that in future years, inflation would erode the value of that $42 million per-year payment, resulting in funding cuts for children’s programs.

“Because $42 million that applies today, in 2016, probably won’t be (the same) in five, eight or 10 years,” she said.

But Sullivan said lawmakers would always have the ability to recommend additional funding for those programs out of the state general fund.

If lawmakers are unwilling to do that, the administration’s second option calls for delaying for yet another year, until fiscal year 2018, a $92 million payment into the state’s retirement fund that was supposed to have been made on April 15 but which Brownback delayed because of revenue shortfalls the state has already suffered so far this year.

Under the budget law currently in place, that money must be repaid to the Kansas Public Employees Retirement System no later than Oct. 1, 2017, with interest at an annual rate of 8 percent.

Such a move would not affect the benefits paid out of KPERS to current or future retirees. But it could lengthen the amount of time it will take Kansas to restore the troubled pension system to a financially stable level.

“I’m catching flack on that already,” said Rep. Barbara Ballard, D-Lawrence, referring to constituents who, she said, have complained that “we’re going to use their retirement money because we don’t have enough money.”

The third option offered by the governor — and the one thought to be the least popular _ would involve across-the-board cuts ranging from 3 percent to 5 percent for most state agencies, excluding public safety functions, debt service payments and a few other categories. That option would include a 3 percent cut in base funding for public schools, or $57.3 million, according to the Kansas Association of School Boards. It would also involve a 5 percent cut in Medicaid costs, which Sullivan said would likely translate into reduced reimbursement rates for hospitals, physicians and other health care providers.

Sullivan and officials in the Legislature’s nonpartisan Research Department offered various reasons to explain why revenues are failing to grow as expected: a sluggish state and national economy; depressed prices in the agriculture and energy sectors; and lower-than-expected growth in Kansas personal income.

But when asked why the administration refused to consider rolling back any of the tax cuts Brownback championed in 2012 and 2013, Sullivan pointed to the state’s record employment levels and the number of businesses moving to Kansas to argue the tax cuts are producing economic benefits.

The most controversial of those tax cuts has been the total exemption on non-wage income derived from certain kinds of business activities, which has eliminated income taxes for more than 330,000 farmers and business owners.

“This puts all of us in a difficult situation,” said Sen. Laura Kelly, D-Topeka. “It’s clear to anybody looking at it with a rational eye that we have a huge problem that we need to address, and we are not in any way, shape or form addressing it. Everything we’ve got in here is either more damaging on our agencies and institutions, or they’re one-time fixes.”

Sullivan, however, argued the tax cuts are not the cause of the state’s budget problems.

“It’s not that the $150 million to $200 million we would get in (from closing the business income loophole) is the sole reason we have a structural shortfall,” he said. “If you look at our expenditure categories, education and Medicaid has played a large part.”

He said the administration hopes that over the next two to five years, personal income and retail sales will return to their historic averages of 2.5 percent to 3 percent annual growth and that the agriculture sector will rebound.

After the hearing, the two committee chairmen, Sen. Ty Masterson, of Andover, and Rep. Ron Ryckman, Jr., of Olathe, said they would begin sifting through the governor’s proposals when the full Legislature returns next week.