TOPEKA CAPITAL JOURNAL: Kansas collected $100 million less than estimated during past year after revenue fell in June

By Jonathan Shorman
July 1, 2016

Kansas revenue collections fell about $33 million short of estimates in June, concluding a financially troubled year in which the state took in more than $100 million less than anticipated.

The figures show the state economy straining over the past year. Numerous revenue sources fell and, in some cases, plunged. Taxes hiked a year ago by lawmakers showed increases, however.

During the 2016 fiscal year that ended June 30, Kansas took in $5.57 billion in tax revenue, less than the $5.68 billion projected — a shortfall of 1.9 percent for the year. Overall, Kansas collected about $59 million more this year than last year, at a growth rate of about 1.1 percent.

Kansas collected 15 percent less in corporate income taxes compared to the previous fiscal year — a drop of $62 million. Individual income tax was down 1.3 percent, or $28 million.

“Unfortunately, Kansas is a part of a national trend with many states reporting reductions in revenue collections because of a weak economy,” revenue secretary Nick Jordan said. “Corporate income tax receipts are down nationally for 2015’s fourth quarter on an average of 9 percent according to reports.”

Oil and gas severance taxes took the largest hit, with collections plunging by more than 75 percent for both sources. Kansas collected $50 million less in fiscal year 2016 in oil severance than in fiscal year 2015.

On the flip side, after the Legislature increased cigarette taxes, tobacco tax collections shot up by 56 percent, or nearly $50 million. Kansas took in $141 million more in sales tax than the previous year, an increase of 6.6 percent.

For the entire fiscal year, several revenue sources — such as the sales tax and tobacco tax — were essentially in line with estimates, with a few large exceptions.

Corporate income taxes were 9 percent below estimates for the year. Individual income taxes were down 3 percent for the year. Oil severance fell nearly 18 percent below expectations.

For June alone, revenue sources fell mostly below expectations, resulting in collections coming in $33.5 million below estimate. Among the largest misses were corporate income taxes, which were off by 25 percent, and gas severance taxes, which were 60 percent below projections.

The June revenue report followed a $76 million shortfall in May. The June figures continue a nearly uninterrupted pattern over the past year of below-estimated revenue figures. Gov. Sam Brownback’s administration is in the midst of a review of a revenue estimating process after the almost-unbroken streak of misses during the last year. The review eventually will put forward recommendations to improve accuracy.

The review appears primarily focused on the estimating process itself, rather than the state’s tax policy, which the governor’s critics say contributes to the repeated over-estimating of expected revenue. The state’s tax policy has harmed the ability to fund the state’s budget, they contend.

“Several policies eroded the well-being of Kansas children since 2011, but none more so than the passage of irresponsible and unsustainable tax policy in 2012,” said Annie McKay, president of Kansas Action for Children. “The saga behind the governor’s trademark initiative has been well documented. Perhaps the most unfortunate consequence of the fiscal mess it created, however, is the false assumption that Kansas must now choose between its most important investments.”

The Legislature went through a wrenching debate over taxes in 2015, arguing over whether to repeal tax breaks on businesses. Owners of limited liability companies currently may collect income from their LLC tax-free, and that policy remains in place although lawmakers hiked sales and tobacco taxes.

Brownback recently opened the door to re-examining tax policy, however. “Let’s take a good look at it,” the governor told 580 WIBW radio in early June while speaking about business taxes.

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