A routine financial meeting last week at the Kansas Statehouse turned into a heated exchange between Republican Governor Sam Brownback and some Democratic lawmakers. The two sides sparred over the state’s financial policies. As KPR’s Stephen Koranda reports, the meeting previewed many of the arguments that are likely to be repeated on the campaign trail this fall.
The State Finance Council met for an annual event: the state of Kansas borrows money to help manage cash flow during the year.
But the meeting soon turned to a debate over fiscal policy. Last year, the state borrowed $300 million, which Brownback said was good financial news. This year, the amount being borrowed has more than doubled, to $675 million. That caught the attention of the top Democrat in the Senate, Anthony Hensley from Topeka.
“The $300 million figure the governor said was good news for the people of Kansas. Are we now to assume the $675 million certificate is bad news?” says Hensley.
That set off a debate of the type that could be common during the governor’s re-election campaign. Brownback says a temporary slowdown in tax collections was expected as part of the tax plan and federal tax changes have driven down some tax collections this fiscal year. He points to the state’s 4.8 percent unemployment rate and job growth as evidence that his administration’s tax plan is working.
“We cut taxes to create growth. We’re seeing the growth taking place. We always told you that there’d be a dip in revenues for a couple of years before it pulled back up. But the focus was always getting more money in people’s pockets and creating jobs,” says Brownback.
Brownback has touted turning around the Kansas budget, increasing the state’s ending balance from nearly nothing in 2010 to hundreds of millions of dollars in the bank at the end of the last fiscal year. Hensley told Brownback at the Finance Council meeting that a temporary sales tax increase passed in 2010 was what helped fix the state’s finances.
“That's the reality of the situation when you came into office,” says Hensley.
“If you're proposing raising taxes again that's up to you and Representative Davis,” says Brownback.
Brownback and Hensley also targeted each other over the issue of tax increases. Brownback argued for keeping the sales tax on the books to help offset income tax cuts, and as Hensley points out, most of the sales tax was made permanent.
“You’re the one that proposed to extend the sales tax. When you make the allegation as to tax increases, you need to look at what you’ve done as well,” says Hensley.
A key question in this year’s race for governor will be: how much are the tax cuts responsible for economic growth in Kansas? How much of the growth is natural recovery from the recession? Representative Paul Davis is likely to be Brownback’s Democratic opponent in the gubernatorial race. Brownback says tax collections will recover as the tax cuts push economic growth, but Davis says the tax cuts will lead to budget troubles in the future.
“What unfortunately nobody is talking about here is what the future of our fiscal situation looks like. You look at a 5-year budget profile and this state is well over a billion dollars in debt,” says Davis.
After the meeting, Brownback brought up another issue that could be part of his reelection campaign. He says the media has been overlooking some of the state’s fiscal successes. Talking with reporters, he used the example of stories about record revenue collections in fiscal year 2013 vs. coverage in recent months, where state revenues have come in below expectations.
“We ended last year -which I was begging you guys remember to write that story about record revenues last year, nobody would write it.” “I put that in a story.” “Did you? One day, and then you did a month on what's been happening lately. Come on, guys, let's give me a little fair play here,” says Brownback.
Brownback acknowledges that some of 2013's record revenue was from people hoping to avoid an increase in investment taxes, so they sold off investments during that year. That move also hurt tax collections this fiscal year.
These kinds of debates over the state’s fiscal policy are sure to continue through November. The signature issue of this campaign could well be this question: whether tax cuts in Kansas are spurring growth or setting up the state for more budget trouble down the road?