Kansas economists are forecasting modest growth and healthy tax revenues, with new estimates released Thursday adding $238 million to state coffers over the next two years.
The revenue projections come ahead of Lawmaker and Gov. Laura Kelly finalizing budgets and tax cuts next week. Politicians have a projected budget surplus of $1.9 billion for the current fiscal year and a $2.5 billion surplus for next year.
“These revenue estimates demonstrate that Governor Kelly’s razor-sharp focus on growing the economy and landing new business is paying off,” said Brianna Johnson, a spokeswoman for Kelly, in a statement. “Now Kansas can continue to balance its budget, fully fund schools and pass responsible tax cuts — while increasing funding for special education.
“However, it is important to note that this is only an estimate of revenue for the next two years and does not include the impact of potential unforeseen events. Lawmakers must continue to work together to enact sensible, fiscally responsible policies that don’t throw the budget off balance in the long run.”
Kelly signed the state government’s $17.9 billion budget into House Bill 2184 on Friday, with some line item vetoes. But the more substantive or controversial spending decisions — like an $80 million pay rise for state employees — have yet to be made.
Kelly’s government is expected to make budget adjustment requests on Monday. Legislators have yet to work through the omnibus budget and have yet to pass a K-12 budget for public education. Meanwhile, tax cut proposals worth hundreds of millions of dollars are up in the air.
Does Kansas’ Budget Surplus Mean Tax Cut Plans Affordable?
House Speaker Dan Hawkins, R-Wichita, said the forecasts support the budget and tax cut bills.
“Legislators passed a tax plan that is both sustainable and provides tax breaks for all Kansans,” Hawkins said in a statement. “The balanced Republican budget sent to the governor is also sustainable while strengthening the Rainy Day Fund, making strategic investments in our state’s future, and eliminating wasteful overspending. The updated revenue estimate makes both calculations a breeze. “
Budget projections assume that fiscal 2023 will end fiscal 2023 with a balance of more than $1.9 billion and increase to more than $3 billion at the end of fiscal 2024. These budget projections include proposed tax cuts and spending changes, although the revenue projections do not include such considerations.
The $3 billion figure also doesn’t include the $520 million core funding for special education, according to the governor’s office, which reduces the 2024 surplus to just over $2.5 billion when accounted for.
While Adam Proffitt, the governor’s budget director, acknowledged that large ending balances come from taxpayers, he advised against focusing too much on the short-term surplus when passing long-term tax cuts.
“Looking at a ending balance at any given time and assuming you have enough money to cover expenses five years from now is like looking at your bank account on payday and forgetting that you’ll be paying your mortgage next month have to,” he said. “So the short answer is yes, there comes a point when money needs to be given back to citizens, but make sure you look at the money over time and the commitments over time.”
Proffitt gave no insight into Kelly’s plans for a package of tax cuts that will be overridden by a blanket income tax proposal and declined to comment on whether the new revenue estimates suggest Senate Bill 169 is affordable. He emphasized that the governor’s administration is focused on ensuring that current income exceeds current expenses.
“The governor has always been focused on looking beyond the horizon and making sure we have structural balance for years to come so we don’t find ourselves in a hole,” Proffitt said. “That’s not a direct answer to your question, but philosophically that’s where it’s always been, and I imagine it will continue to be.”
Kansas forecasts include GDP growth, lower inflation and higher unemployment
The forecasts for government revenue come from a consensus group of revenue estimation economists who base their estimates on economic forecasts. They factor in expectations such as a slowing in inflation from pandemic highs, elevated unemployment from pandemic lows, rising real GDP, slight fluctuations in oil and gas prices and production, rising demand for aircraft from Wichita’s airline industry, and rising commodity and input prices amid prolonged drought for the country’s agricultural sector.
“I still feel good about things,” said Proffitt. “It’s nice to see inflation easing so slightly, although we’d like to see it fall a little more. It’s also good to see some real GDP growth and not just nominal growth.”
JG Scott, director of the Kansas Legislative Research Department, said the group is “fairly confident” in its estimates.
“Basically, when we looked at this, we thought that inflation is falling a little and real growth is a little modest, these two together only add up to a modest increase in revenue going forward,” Scott said.
The April revisions to November estimates have resulted in state tax collectors bringing in an additional $75 million in taxes for the current fiscal year ending July 1, plus $53 million in other revenue. Estimates for the next fiscal year increased by $109 million, almost entirely due to tax revenue.
Monthly tax receipts have consistently beat expectations before and after November estimates, but officials said that was largely due to income tax shifts from the SALT parity law. This law allows certain conduit companies to pay corporate income taxes, which are then credited against the income tax burden of the owners of the company.
That has led to higher corporate taxes over the winter, but Proffitt said that reflects “a bit of artificial good news” as tax analysts expect a corresponding fall in personal income taxes this spring. Proffitt said future compensation will be approximately $40 million to $50 million.
Otherwise, the earnings are pretty close to the estimates. The new fiscal 2023 tax revenue projections reflect a 0.7% increase over November estimates, which Proffitt called a “margin of error compared to the last forecast.”
Comments are closed.