Brownback does not offer comprehensive plan to fix budget but says he will work with Legislature

? Gov. Sam Brownback’s administration unveiled a package of modest budget adjustments on Thursday but did not offer a comprehensive plan for filling an estimated $400 million revenue shortfall in next year’s budget.

Budget Director Shawn Sullivan outlined the governor’s proposed budget amendments in a meeting of the House Appropriations Committee. For the upcoming fiscal year that begins July 1, Brownback calls for a mere $27.1 million in spending reductions, largely from changes in Medicaid fees and restructuring bond payments, and only $942,000 in additional revenue from state-owned casinos.

Kansas Budget Director Shawn Sullivan briefs the House Appropriations Committee on Gov. Sam Brownback's proposed budget amendments Thursday. Those changes do not address a projected 00 million revenue shortfall for the upcoming fiscal year.

Most of those changes are the result of new estimates announced earlier in the week on expected state revenues and the cost of state-funded health care and social services for the poor and elderly.

“We’ve had since Monday morning to know what the updated revenue numbers were, to know what the impact was, so we can’t put out a comprehensive budget plan of reductions between a Monday and a Thursday,” Sullivan said.

He said the administration does not plan to put forth another plan before the end of the 2015 legislative session. Instead, he said the administration will continue to work with the Legislature as the House and Senate try to hammer out a budget deal.

Rep. Barbara Ballard, D-Lawrence, who serves on the committee, said she was surprised Brownback’s office didn’t offer a more detailed solution. She also said she believes the state will have to raise taxes to fill the budget gap.

“We have to increase revenue, new revenue somewhere. It’s too big of a hole, and it’s going to get worse as we progress,” Ballard said.

Eyeing revenue increases

Republican leaders in the House indicated Thursday that it will probably take a combination of spending cuts and revenue increases to fill the budget gap this year. But the focus is likely to be on revenue increases since Republican leaders in the House have committed to make no more changes in K-12 education funding, which consumes slightly more than half of all state spending.

“My position is to hold K-12 at a steady level and fulfill our promise that we made to them in our legislation earlier this year,” said Rep. Ron Ryckman Jr., R-Olathe, who chairs the Appropriations Committee.

Rep. Marvin Kleeb, R-Overland Park, who chairs the House Taxation Committee, said there may be an effort to scale back the scope, but not the basic policy, of the massive income tax cuts enacted in 2012 and 2013, which many analysts say are the cause of the current shortfall.

Kleeb cited recent reports by the Kansas Department of Revenue showing one of the most significant tax cuts, exempting “pass-through” income from sole proprietorships and other kinds of small businesses, went further than lawmakers had envisioned, and he said there may be interest in tweaking that law to limit the types of businesses that can claim the exemption.

“I don’t think we’re going to raise taxes, but there will probably be a review of legislative intent of the small business aspect — reverting back to what we thought legislative intent was and getting that invoked in law,” Kleeb said.

Initially, revenue officials had thought the pass-through exemption would apply to about 190,000 sole proprietorships and small corporations. But recent data from the Department of Revenue show more than 300,000 tax filers claimed the exemption in 2013.

Chris Courtright, a tax analyst for the Legislature’s nonpartisan Research Department, said the cumulative effect of those tax cuts for the upcoming fiscal year is estimated at $998.6 million.

In other words, he said, if those tax cuts had not been enacted, the state would have $998.6 million more revenue next year to fund state government services.

“I think we’re going to take a very serious look at who is a true employer, and what small businesses have the ability to create more jobs,” Kleeb said. “Because if we’re going to incentivize businesses, we want to make sure we’re incentivizing those that can create jobs here in the state for Kansans.”

Deeper structural problems

Still, some outside observers said Thursday that Kansas faces deeper structural problems with its budget than can be fixed with a few modest changes in tax laws.

Duane Goossen, who served as budget director for more than 12 years under both Republican and Democratic administrations, said the budget crisis facing Kansas this year is the most serious he has ever seen.

“It’s probably more serious than what we were facing in the depth of the Great Recession,” Goossen said. “Revenue — actual ongoing revenue — is approximately $800 million below the spending that they’re working with right now.”

The budget lawmakers currently are considering, and which is still pending in a House-Senate conference committee, calls for total spending of about $6.4 billion from the state general fund next year. But the latest revenue estimates, which were released Monday, show the state will take in only about $5.7 billion.

In his original budget proposal in January, Brownback called for $211 million in new revenue through higher alcohol and tobacco taxes, and other minor changes in tax law, plus another $263 million in other kinds of “revenue adjustments,” including an assessment on the private health insurance companies that manage the state Medicaid system, known as KanCare. He also called for transferring $132.3 million out of the state highway fund.

But none of those revenue proposals has yet passed the Legislature. And in the meantime, lawmakers have added more costs to the state budget, such as annual payments on the $1.5 million in pension obligation bonds they recently approved and an additional $17.5 million in school finance costs.

All told, according to legislative budget analysts, even if lawmakers approve Brownback’s revenue proposals, the state still would need an additional $131.4 million next year just to end the year with a zero ending balance, or an additional $200 million to leave the state with the $70 million ending balance that Brownback originally proposed.