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Report Says Kansas Shouldn't Count on Growing Tax Revenues

Photo used with permission of Pew Charitable Trusts

A new report has some advice for Kansas lawmakers looking at revenue growth that’s beating projections: Don’t count on all of it to last.

The report from the Pew Charitable Trusts outlines strategies states can use to manage growing revenue and maintain balanced budgets.

It recommends that states watch tax collections closely, because some types of tax growth will sag if the economy slows.

Steve Bailey, one of the report’s authors, said lawmakers should look at saving some of the revenue growth for the next time tax collections dip.

“You don’t have to capture all of those above-normal spikes in revenue,” he said, “but it’s good to start setting aside a little bit of that right away.”

One thing Kansas should avoid is earmarking all of the new revenue for recurring costs, Bailey said, such as education.

“When you have these spikes, you can put it toward ongoing programs in the short term, but in the long term you know that you’re just kicking the can down the road,” he said.

Kansas tax collections have been consistently beating estimates in recent months.

If the state is going to spend all of those gains in revenue, Bailey said use it for one-time costs, such as paying down part of the shortfall in the state pension plan. The report said other examples would be building projects or one-time tax refunds.

Kansas lawmakers have created a budget stabilization fund and payments into the fund are slated to start in fiscal year 2020.

Kansas had several lean budget years after lawmakers cut taxes in 2012. Last year, legislators changed course and reversed many of the tax cuts.

The state’s economy has also been growing. Even when accounting for the tax increase, collections are beating estimates.

At the end of May, state cumulative tax collections were $175 million above estimates for the fiscal year. The next fiscal year will start July 1.

Bailey said one strategy for harnessing the revenue growth is to study tax collections and try to separate the normal tax growth from any unusual spikes in revenue. 

“There’s a way that you can put regular, recurring revenue growth into ongoing programs and building those back up while at the same time capturing some of those spikes,” he said.

Kansas lawmakers used some caution when restoring funding to state services in this year’s budget. The bill was both criticized for adding too much new spending and not doing enough to invest in services such as education and transportation.

 

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