TOPEKA CAPITAL JOURNAL: Statehouse regulars warn Kansas fiscal knots may take years to untangle

By Jonathan Shorman
October 19, 2016

Statehouse regulars and political insiders are warning that Kansas’ fiscal problems may take years to solve, tamping down expectations a wave of new lawmakers can turn around in a single legislative session the financial woes that have been building for some time.

Republican and Democratic legislative candidates are promising to stand up to Gov. Sam Brownback and stabilize the state’s budget, where ongoing revenue misses have forced rounds of budget cuts over the past two years. But leaders of associations with a prominent Capitol presence, as well as legislative staff and past elected officials, caution that enthusiasm among legislators will run into the harsh reality of the state’s financial challenges.

Kansas Action for Children CEO Annie McKay said lawmakers need to be thoughtful in crafting a solution out of the budget mess. She advised against snap decisions.

“As we look at what’s going to get us out of the 2017 legislative session and out of this fiscal year, I think it will probably be more tough choices given that the tax policy changes, there’s only a handful that could create revenue sooner rather than later based on tax law,” McKay said. “But I would encourage us not to scramble and panic and make really poor choices that will leave us filling holes into the future.”

McKay and others spoke Wednesday at a conference in Topeka organized by the Kansas Association of School Boards. J.G. Scott, assistant director for fiscal affairs for the Kansas Legislative Research Department, ran through a litany of issues that will confront the 2017-2018 Legislature.

The state will have to make a $100 million pension payment it previously delayed. Lawmakers must develop a new school finance formula. And the state Supreme Court may order hundreds of millions in additional funding for education.

“I hope people are trying to manage expectations about coming into office and fixing all of this,” Scott said.

Former Gov. John Carlin, a Democrat, said the public doesn’t yet realize just how bad the situation is. Communication will be a major challenge, he said.

“It will take time and patience on the part of Kansans to appreciate how difficult it is, how long it will take for the kind of impact we want,” Carlin said.

Bob Totten, vice president of the Kansas Contractors Association, said caution will be needed, but that there has to be change.

“You do have to have caution to make sure you don’t mess it all up. We really are going to have to take a long-term approach at how we reassess how we’re doing taxes and where it’s going,” Totten said.

Much of what lawmakers hope to accomplish may depend on Brownback. The governor championed the 2012 tax cuts that cut personal income tax rates and eliminated taxes on business owners.

Many prospective lawmakers hope to reverse tax breaks for owners of limited liability companies, but Brownback has not indicated whether he would veto such a change – nor is it clear yet if the Legislature would be able to override the veto if he did. In 2015, he threatened to veto changes to the LLC exemption, though he didn’t repeat the threat this year.

The governor has mounted a new offensive in recent weeks to defend the tax policy. His case rests on claimed economic benefits that have flowed from the tax cuts, but he has largely sidestepped addressing ongoing budget problems.

On Monday, Brownback declined to rule out a tax increase even as he said he believes it would be harmful to raise taxes during an agricultural slump. He has said the state is in a “rural recession.”

“I’m not ruling anything in or out,” Brownback said at a news conference.

The state currently faces a budget hole for the current fiscal year greater than $60 million. The governor’s office has indicated the administration doesn’t plan to make cuts before Brownback proposes a budget in January.

Each month that passes without allotments makes balancing the budget more difficult, however, because agencies have less of their remaining budgets from which they can cut. And any tax changes that are made next spring will not go into effect fast enough to produce revenue for the current fiscal year.

That will put the Legislature in a bind. Budget cuts, at least for the current fiscal year, are a near certainty.

“I think that this year is going to be a very difficult year to get through,” Scott said.

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