Kansas’ budget gap mostly melts away with new fiscal forecast that boosts tax collections by $463M

photo by: Nick Krug

Kansas Statehouse in Topeka, February 2014.

TOPEKA — Kansas saw most of a projected state budget shortfall melt away Friday with a fiscal forecast that is less pessimistic about the economy and tax collections than a dire estimate issued this spring during a statewide lockdown for the coronavirus pandemic.

The forecasting group boosted the state’s forecast for tax collections by $463 million or 6.3% for the current 2021 budget year that began July 1. The group also issued its first calculations for the 2022 budget year that starts in July 2021, and while the forecast predicts a drop in tax collections of 2.1% or $166 million, that’s due largely to the end of a temporary, pandemic-induced move to help income taxpayers.

The Legislature’s nonpartisan research staff, which participated in the forecasting, now projects a $153 million budget shortfall for the state’s 2022 budget year, an amount that almost can be covered by an internal shuffling of government funds that Democratic Gov. Laura Kelly already has proposed. Legislative researchers projected in July that the state would need to close a shortfall of nearly $1.5 billion in its 2022 budget.

“The picture has changed drastically,” Larry Campbell, the governor’s budget director, said during a Zoom news conference. “This is encouraging.”

But Campbell and J.G. Scott, director of the Legislature’s research department, stressed that the economic picture remains uncertain. The new forecast was released only hours after the state health department reported 5,418 new coronavirus cases since Wednesday, the highest number yet.

The new fiscal forecast reflects a belief that the total value of the state’s goods and services will grow a little faster than previously thought and that corporate profits will be stronger. But it’s slightly more pessimistic about growth in Kansas residents’ disposable income.

The old forecast was issued in April, about three weeks after Kelly issued a statewide stay-at-home order to curb the spread of the virus. Kelly lifted that order in early May and the Republican-controlled Legislature later forced her to accept local control over rules for wearing masks, restrictions on businesses and limits on public gatherings.

“Do we think things are better now? Yes,” Scott said of the economic picture. “Do we think that they’re really good now? I would say, you know, no. They’re not as bad as what we thought they were going to be.”

The state’s twice-a-year fiscal forecasts guide governors and legislators in making budget decisions. The drastic change in the budget picture in just six months shows how assumptions about the economy can shadow what they do.

Campbell said Kelly “will still be looking at tightening the ship as best we can.” However, the new forecast means she and legislators are far less likely to be forced to consider big tax increases or drastic cuts in aid for public schools, social services or other programs.

The new forecast projects that Kansas will collect more than $7.8 billion in taxes during the current budget year, when the previous projection was less than $7.4 billion. Tax collections ran 6.4% ahead of the old, pessimistic expectations through October.

The forecast predicts that the state will collect a little less than $7.7 billion during the 2022 budget year.

However, Scott said that reflects a more “normal” amount. Kelly delayed the state’s annual income tax filing this year from April to July to help individuals and businesses hit by economic fallout of the pandemic. That artificially shorted income tax collections for the 2020 budget year and artificially inflated them for the current 2021 budget year.

Kelly responded to the April forecast by outlining a plan to erase any potential shortfall during the current budget year, partly by delaying the repayment of internal borrowing during past fiscal problems. Delaying that repayment remains an option and could erase all but about $20 million of the remaining projected shortfall.

The governor also postponed a scheduled aid payment to public schools and used extra federal pandemic aid for social services and higher education to lower state spending. She said her actions were designed to affect state services as little as possible, but it also pushed problems in the current budget year into the 2022 budget year.

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