Brownback orders emergency actions in face of another looming revenue shortfall
photo by: Peter Hancock
TOPEKA — Gov. Sam Brownback’s administration ordered several last-minute emergency financial adjustments Wednesday, including partial delayed payments to school districts this month, to prevent the state from ending this fiscal year in the red on June 30.
At the same time, Brownback and legislative leaders met as the State Finance Council to approve temporarily borrowing a record $900 million from state idle funds in order to maintain positive cash balances throughout the next fiscal year. That’s $60 million more than the state borrowed this year.
Budget Director Shawn Sullivan announced at the meeting that so far in June, revenues have not been coming in as expected, and a shortfall this month will add to the estimated $45 million budget hole caused by earlier shortfalls in April and May.
And with only eight days left in the fiscal year, he said, it is virtually impossible to make up that shortfall by ordering more spending cuts.
The measures announced Wednesday include:
• Delaying part of the final payment owed to public school districts at the end of this month, although he didn’t say how much, and rolling over that balance due to the first week of July.
• Sweeping $45 million out of a Medicaid fee fund held by the Department of Health and Environment.
• Sweeping the last remaining $16 million of general sales tax money out of the Kansas Department of Transportation’s highway fund.
• And cutting $3 million from the Department of Corrections, which he said will be able to make up the loss with increased federal funding.
“Obviously we don’t like doing any of these four things, but it’s the situation that we’re in for this fiscal year and what we have to deal with,” Sullivan said.
Even with those moves, Sullivan said, the state will end the fiscal year next week with only $5 million to $15 million in its general fund, which he said was the main reason for requesting increasing next years borrowing from idle funds to $900 million.
That form of temporary internal borrowing is officially known as a “certificate of indebtedness.” It involves moving money out of various fee funds and other agency assets into the state general fund in order to maintain a positive cash balance throughout the year.
By law, those certificates must be repaid at the end of the next fiscal year.
Previous administrations from both parties have engaged in such short-term borrowing routinely over the past 20 years. But Democrats said this year’s record-breaking amount underscores how serious the state’s cash flow problem really is.
Senate Minority Leader Anthony Hensley, of Topeka, called the cash shortfall “a self-inflicted crisis” and pressed Brownback to admit that his tax policies enacted in 2012 were a mistake and have been a failure.
“When is it we’re going to try to admit that what is happening in this state is wrong?” Hensley demanded of the governor. “We are in a downward spiral when it comes to the fiscal management of this state, and we have to correct our house.”
“Well, Sen. Hensley, I couldn’t disagree more with you,” Brownback replied.
He said the state’s current revenue shortfalls were due to weakness in what he called the “three-legged stool” of the Kansas economy: agriculture; oil and gas production; and aviation.
Senate President Susan Wagle, R-Wichita, the only member of the Finance Council to vote against issuing the certificates, said she thinks the Legislature needs to do more to cut spending.
“This isn’t the way I manage my finances. This isn’t the way I manage the finances of my business,” Wagle said. “This is to pay payroll. This is to pay utility bills. This is like me putting groceries on a charge card and praying that the money comes in.”
She added: “I feel like I’m rearranging chairs on the deck of the Titanic.”
Budget director Shawn Sullivan, however, pointed out that prior administrations have used internal borrowing even in years when the state was flush with cash. He said that’s because, on a day-to-day basis, the first quarter of a fiscal year is when the state has the highest volume of cash being paid out, but the lowest volume of revenue coming in.
Without the certificates, he estimated, the state general fund would be about $834 million overdrawn in mid-October. But later in the year, state funds would come back into balance.
In other matters, the Finance Council also approved a request by Kansas University to raise spending caps on four special fee funds that Kansas lawmakers imposed this year in retaliation for KU issuing $300 million in bonds to finance its Central District development area.
KU officials did not ask the council to remove the caps entirely, but only to raise the caps in order to meet expenses.
The funds affected include the general fee fund, which includes tuition revenue; restricted fee funds that are designated for a specific purpose; the student health care fund; and a fund that supports the Law Enforcement Training Center in Hutchinson.
Kelly Reynolds, KU’s government affairs director, noted that the Board of Regents recently approved a tuition increase for next year, but that KU would not be able to access much of that revenue without lifting the cap.
She also said KU students recently approved a fee increase to pay for additional staff at the student health center.