Topeka Kansas revenue forecasters on Thursday raised their official estimate of state tax collections over the next year and a half by a combined $225 million, citing recent increases in sales tax and corporate income tax collections.
But the actual increase is likely to be higher than that because the new forecasts do not include much of the impact from changes in individual income taxes that lawmakers approved this year, something the forecasters said was too hard to predict.
The full impact of those tax changes will become clearer when farmers and business owners who had been exempt from state income taxes since 2013 pay their 2017 taxes in April, May and June.
Thursday’s report from the Consensus Revenue Estimating Group was mildly good news for lawmakers, who are under pressure from the Kansas Supreme Court to increase K-12 education funding.
But the amount by which the revenue estimates were raised is still not enough to fund the $600 million annual increase in school funding that plaintiffs in the lawsuit are seeking, let alone to restore funding for higher education and the state pension system, which have taken steep funding cuts in recent years.
The new estimates call for total tax collections to go up by $102.4 million, or 1.6 percent, over the previous estimates made in April, and subsequently revised after lawmakers passed major tax changes in June.
For the fiscal year that begins July 1, forecasters raised the estimate of total tax collection by $122.3 million, or 1.9 percent.
Raney Gilliland, director of the nonpartisan Legislative Research Department, said Thursday’s report represented conservative estimates because, despite positive monthly revenue reports so far this fiscal year, forecasters still see warning signs in the state’s economic outlook.
“We anticipate that there will be, or has been, a reduction in the growth rate in Kansas personal income, coupled with a reduction in the Kansas gross domestic product,” he said.
Gilliland also pointed to continued weakness in the agriculture sector and the oil and gas markets, which are major drivers of the economy and state tax collections in central and western Kansas.
He said the value of Kansas crop production this year is expected to be at its lowest level since 2009, and that the value of agricultural land is expected to continue declining, which affects farmers’ ability to access financing.
Regarding the oil and gas industries, Gilliland noted that as recently as fiscal year 2014, severance tax receipts totaled $125.8 million. This year, they are projected to total only $37.5 million, falling to $30 million in the following fiscal year.
He said that was mainly due to declining supplies at the Hugoton natural gas field in southwest Kansas, as well as continuing low prices in the petroleum markets.
Shawn Sullivan, Gov. Sam Brownback’s budget director, said there has been positive growth in retail sales taxes and compensating use taxes — which is the sales tax people pay for items purchased out of state or online, but which are used in Kansas — and corporate income taxes.
But he said the estimating group made no change to the estimates for personal income taxes, even though those have been exceeding the previous estimates for the last four months.
The tax bill lawmakers passed, over Brownback’s veto, reversed course on many of the tax cuts he had championed in 2012 and which went into effect in January 2013. Those changes were projected to increase revenues by $590 million this year alone.
Of that amount, however, roughly $270 million was to come from the more than 330,000 farmers and business owners whose nonwage income had been exempt from state income taxes the previous four years.
“Much of that we expect to receive in the last three months of the fiscal year, so in April, May and June,” Sullivan said. “We don’t know yet whether that will be $200 (million) instead of $270 (million), or $300 (million) instead of $270 (million), or right at $270 (million). That part is just a big unknown at this point, and we’re going to continue to track it closely.”
Sullivan was also at a loss to explain why there had been recent growth in retail sales tax collections, something that had been relatively flat for the past year. In previous reports, the forecasters attributed that to falling prices for many things consumers buy, such as used cars, groceries and consumer goods, trends that he said have not reversed themselves.
Based on the two-year budget that lawmakers approved this past session, the new estimates mean the state can expect to have an ending balance in its general fund of nearly $280 million this year, or 4.2 percent of expenditures, and $355 million, or 5.3 percent of expenditures, next year.
By law, the Legislature is supposed to budget for a 7.5 percent ending balance each year, something it has been unable to achieve for the last several years.
Senate Majority Leader Jim Denning, R-Overland Park, said those ending balances still do not give lawmakers much room to increase K-12 education spending or to restore cuts to things like the Kansas Public Employees Retirement System. He noted that lawmakers deferred roughly $200 million of payments into KPERS this year.
“So there’s not that much wiggle room,” Denning told reporters after the new numbers were released. “That is to say, if we knew that sales tax growth would go from zero, which is what it was in May, and now in May, June and July it just magically goes up to 3.8 (percent) and nobody knows why, if we would have known that sales taxes would have produced that kind of growth, we wouldn’t have postponed so many KPERS payments.”
Sen. Laura Kelly, D-Topeka, the ranking minority member on the Senate Ways and Means Committee, said it was difficult to say whether increasing K-12 education funding or restoring cuts to things like KPERS and higher education was the highest priority.
“This is like asking me which child do I like the best,” she said. “I can’t give you an answer. I think we have a responsibility to do all of them. Clearly we need to put more funding into our schools. Clearly we need to restore the KPERS funding and clearly we need to stop robbing from transportation. So I can’t pick a favorite.”
The state also receives other kinds of nontax revenue in its general fund such as interest, transfers from other funds and agency earnings. Those estimates were revised upward by $5.9 million this year, and downward by $1.06 million next year.