Lawmakers moving slowly on looming budget shortfall

The Kansas Statehouse in Topeka

? A week after the Kansas Department of Revenue announced a $54 million shortfall in February revenues, lawmakers appear unsure of what to do next.

With only three and a half months left in the fiscal year, some are hoping to find immediate savings from a consulting firm’s efficiency report, while others say it’s up to Gov. Sam Brownback to solve the problem.

That shortfall put the state’s projected ending balance for this year $47 million in the hole. But Brownback immediately ordered $17 million in cuts to the state’s six Regents universities, which lowered the projected deficit to about $30 million.

“Right now, the way things are structured, it’s on the governor’s back to do the cuts,” said Rep. Mark Hutton, R-Wichita, who serves on the House Appropriations Committee. “That’s what he asked for. That’s what he got.”

Hutton was referring to the recently passed budget bill that gives Brownback greater authority to make targeted spending cuts, or to transfer money between funds, if forecasts show the ending balance for the current fiscal year will fall below zero.

He also has authority to delay the state’s final quarter payment into the Kansas Public Employees Retirement System, although that money would have to be repaid with interest in the next fiscal year that begins July 1.

“As the bleeding continues, I think the pressure will be on the governor to do more and more,” Hutton said. “He was offered better solutions last year that he rejected. So he’s going to have to deal with it or change his tune.”

Brownback’s office did not respond Monday to questions about the budget situation.

Hutton was among a number of Republican lawmakers last year who encouraged at least a partial roll-back of a controversial tax cut enacted in 2012 that exempts more than 330,000 business owners from paying any state income tax on their business income. But Brownback threatened then to veto any such legislation, and he has ruled out any type of tax increase this year as well.

Others in the Legislature, though, say the problem is not with the tax code but with the state’s sluggish economy, particularly in agriculture, the oil and gas industries, and aviation.

“This is economic,” said Senate Majority Leader Terry Bruce, R-Hutchinson. “By and large, when you look at it, we have our top three industries in the state of Kansas not performing how we’d like.”

Although it is true that those industries have suffered the last couple of years, economic numbers show that two of them really are no longer the major forces driving the Kansas economy that they once were.

According to the U.S. Labor Department’s Bureau of Economic Analysis, for the last four years, agriculture has accounted for only about 4 to 6 percent of the gross state product in Kansas. Mining, which includes oil and gas production, has accounted for less than 2 percent.

Going as far back as 2012, before the recent collapse of oil and gas prices, severance taxes from those sources made up only 1.7 percent of state general fund revenues.

But the manufacturing sector, which makes up a larger share of the state’s economy has taken a significant hit in recent years, due in part to declines in aircraft manufacturing around Wichita.

In fact, while manufacturing has grown more than 13 percent nationally from 2012 through the third quarter of 2015, in Kansas it declined by more than 12 percent.

On Monday, several House committees held hearings that will continue through the week, sifting through the recent efficiency study from the consulting firm Alvarez & Marsal, looking for any opportunity for savings.

“Part of the mix will be the efficiency study, and money we can put in from the efficiency study,” said House Majority Leader Jene Vickrey, R-Louisburg.

But he dismissed any suggestion of raising taxes or using proceeds from the sale of state assets like the Kansas Bioscience Authority as a way of plugging the immediate gap.

“Selling assets and tax increases are not the solution,” he said.

“The economy needs to come back,” Vickrey said. “We’re not going to see revenues return until commodity prices are better for the ag sector, until the aviation sector is better, oil and gas. Major sectors of the Kansas economy are really in a tough place. That’s just the reality.”

Rep. Ron Ryckman Jr., R-Olathe, who chairs the appropriations committee, said discussions have been taking place behind the scenes in hopes of finding consensus on how to address the budget hole.

“We’re obviously still in communication with our stakeholders and also the Senate and the governor’s office to see what the best way moving forward is,” he said. “Our budget bill that was signed by the governor did allow for some more flexibility for him to make strategic cuts and realignments, in addition to transfers.”

But Sen. Laura Kelly, D-Topeka, the ranking Democrat on the Senate Ways and Means Committee, said she has heard little discussion about the current budget deficit and sees no easy way out of it.

“And it’s going to get worse before it gets better,” she said.