What a difference a year makes to the Kansas budget.
Total tax collections for the state came in $31.7 million higher than expected in October, bringing collections for the year to nearly $105 million more than forecast. That’s a far cry from where the state was at this time last year, when the state went through six straight months of tax revenue shortfalls that created a $100 million hole to start the legislative session.
The current revenue picture has been helped by the Legislature’s successful repeal earlier this year of the tax cuts that Gov. Sam Brownback pushed through in 2012 and tried desperately to salvage in 2017. Those tax cuts were blamed for revenue shortfalls that occurred month after month and year after year, forcing the Legislature to make deep cuts in the state budget. By last summer, there was nothing left to cut, and the state’s reserve funds at the start of the 2017 fiscal year were just two days’ worth, the lowest of all 50 states.
But it isn’t just the tax changes that have worked to improve the state’s revenue outlook. In the October report, revenue officials pointed to growth in corporate income taxes and growth in retail sales taxes, revenue sources that weren’t changed from previous years.
Since the 2018 fiscal year began July 1, sales tax receipts have come in $27 million higher than expected and $30 million higher than the same period a year ago. And corporate income taxes are $25.7 million higher than expected, a 28 percent increase compared with the first four months of the 2017 fiscal year.
Part of the reason that the tax collections have improved is that the Consensus Revenue Estimating Group changed its forecasting methodology last year, revising its official tax collection estimates downward. The group — composed of officials from the Legislature’s Research Department, the governor’s budget office and Department of Revenue, and economists from the state’s three largest universities — met last week to revise the revenue estimates for this year and to issue the first estimates for revenue collections in the next fiscal year. Expectations are that the estimates will go up because of the tax increase and the improving economic conditions.
While the revenue collections are mostly good news for lawmakers, the surplus could get eaten up quickly by public school funding. The Kansas Supreme Court has ruled that the state’s funding formula is inequitable and funding levels inadequate, and has mandated that the state come up with a plan to fix the problems by March 31, 2018. Most expect the plan to cost far more than the $105 million in extra tax revenue that the state has collected.
Still, the revenue surplus validates lawmakers’ 2017 tax decisions and puts the state back on the path to finally digging out of its deep budgetary hole.