There’s a $350 million elephant in the room, and it’s time to acknowledge it.
The state is suffering a record $350 million shortfall — and growing. I’ve received numerous visits, calls and emails from constituents asking: How did we get here?
At the end of the last legislative session, legislators left town believing we had a balanced budget. Unfortunately, there was a sharp downturn in the state’s revenue stream, oil prices decreased dramatically, and Kansas has not been able to overcome a persistent decade-long rural recession. Coupled with expensive and overreaching federal regulations, the state has had a difficult time bouncing back, which has resulted in a budget shortfall of $350 million for Fiscal Year 2017 and $580 million for FY 2018.
It wasn’t until days after the November election that we — both legislators and the public — were informed of the massive revenue shortfall. The governor chose to defer the responsibility of making difficult budget cuts to a brand new Legislature that did not gavel in until early January.
To put this in perspective, the state has experienced similar possibilities of negative ending balances nine times in its history. Every one of those times, former governors on both sides of the aisle have used his or her executive authority to make the necessary budget adjustments to ensure legislators are able to walk into session with a balanced budget, so they can focus on other policy priorities.
Because the governor chose not to use his executive authority to balance the budget, this legislative session is consumed by filling this budget hole. He presented a budget proposal to the Legislature in January that borrows $317 million and cashes out large sums — over $1 billion — of one-time money, and uses creative gimmicks to “balance the budget.”
The governor’s plan, as presented, is neither structurally sound nor fiscally conservative. Instead, it:
• Depletes the state’s assets. The governor has proposed that the Legislature authorize the securitization of the Master Settlement Agreement (MSA) from tobacco companies. Much of this money currently funds early-childhood development programs.
• Neglects to pay scheduled KPERs retirement payments in FY 2017, FY 2018 and FY 2019 to the tune of $540 million, and adds $6 billion to the state’s unfunded liability.
• Allows some Kansans to skirt income taxes. The budget proposal continues to allow certain business owners to skirt income taxes. This loophole was an unintended consequence of the 2012 tax rewrite.
• Raises tobacco and liquor tax, incentivizing Kansans to cross the state line to make these purchases, driving down taxable revenue in Kansas and shifting these tax revenues to bordering states.
While projections from the governor’s office show that his plan will produce a positive ending balance in the next few fiscal years, the state’s finances quickly begin to tank in FY 2020. Projections provided to my office by the Kansas Legislative Research Department estimate that in FY 2021 (coincidentally, shortly after his term as governor ends), the state will once again be faced with a negative ending balance — should we start paying our bills, including highway funds and KPERS payments — putting us right back where we started.
Legislators on both sides of the aisle are dedicated to composing a real, long-term structural fix to the state’s ongoing budget issues. I feel that the governor’s budget proposal falls short of this expectation. These are hard times for Kansans across the state, and there are tough decisions ahead for members of this diverse Legislature — possibly including revenue increases and significant decreased spending — to do right by the Kansans who sent us here.
The Senate has put all nonbudget-related legislative activity on hold until we concoct a structurally balanced budget that has enough votes to pass the Senate. As soon as we can do that, we’ll begin work on a new school finance formula.
I will be the first to admit that this is not an easy process, nor is it a pretty one. There’s a chance that the Legislature will debate a handful of solutions before one sticks. They call it “making sausage,” and that’s pretty ugly. Still, I remain confident that this Legislature can and will produce a stable, long-term budget solution that Kansans can be proud of.
The Kansas Senate will not kick this can down the road any longer.
— Susan Wagle, R-Wichita, is the president of the Kansas Senate.