By Gene Meyer | Kansas Reporter
TOPEKA — Kansas state Sen. Carolyn McGinn, R-Sedgwick, wants to save taxpayers $113 million by repealing part of a statewide sales tax increase — six months ahead of schedule.
Kansas legislators who voted in 2010 to increase the state’s basic statewide 5.3 percent sales tax rate by 1 percentage point to prevent deeper cuts in school funding, promised at the time that the increase would be temporary, said McGinn, chairwoman of the Senate Ways and Means Committee, through which all major Kansas tax legislation passes.
“The temporary sales tax accomplished what it was supposed to,” McGinn said, by protecting schools and other infrastructure from the potential full effects of steep drops in other state tax revenue during the Great Recession.
But now as Kansas’ economy, and the state tax revenue it generates, appear to be on the mend, “the Legislature should keep its promise, and if we can continue to reduce taxes, we should,” McGinn said.
But cutting those taxes now also could increase some potentially whopping $275 million or larger future state general fund deficits in the next decade, if lawmakers also don’t get a handle on state pension funding and Medicaid obligations, according to a new report that says the rising cost of those programs threaten to swamp Kansas’ state budgets by 2023.
The report, “Major Structural Deficits Looming in Kansas,” was released Monday by the Kansas Policy Institute, a Wichita think tank that advocates lower taxes and free market solutions in government and also founded KansasReporter.org.
The rising cost of meeting state pension fund obligations in the Kansas Public Employees Retirement System and also health-care costs for the poor, which Kansas is obligated to help pay through the joint federal-state Medicaid program, consume 24 percent of Kansas’ general fund budget, said Art Hall, executive director of the Center for Applied Economics at University of Kansas in Lawrence and the report’s author.
At current rates of growth, that total will increase to 34 percent of the state’s budget by 2013, Hall said. It could reach 45 percent, depending on potential changes in Medicaid obligations and federal rules for pension fund accounting, Hall said. Both are being debated by lawmakers in Washington, D.C.
More to the point for Kansas taxpayers, however, is that as these costs consume more of each year’s general fund revenue, the chances for future relief become less, Hall said.
The only way legislators can resolve a potential conflict now between proposed tax cuts and the pension fund and Medicaid obligations is to cut spending in other areas, Hall said.
Resolving that dilemma will be one of the major policy issues Gov. Sam Brownback and state legislators must address when the Kansas State Legislature begins its next session Jan. 9, say two economists who are members of the Kansas Consensus Revenue Estimating Group. The group is a state panel of economists, revenue department officials and budget executives that prepares the official tax revenue estimates on which state budget proposals are based.
Brownback is expected to offer his proposed approximately $6 billion budget for general funding spending to the Legislature soon after it convenes. Legislators are expected to come up with their version within the next 90 days.
Until then, “we don’t even know if we are dealing with a revenue question or a budget question,” said Tracy Turner, a Kansas State University economist and Consensus Revenue group member.
“Personal incomes in Kansas continue to grow at a respectable rate,” Turner said, which means tax revenue based on those incomes will grow as well.
But that means little until the governor and Legislature present a spending plan, she said.
“The question is can the state balance its budget?” Turner said.
Theoretically, Kansas balances its state budget because the state constitution requires it. But legislators in the recent past have achieved that by borrowing money from state highway funds, which are separate from the state general fund, or voting to suspend previously passed requirements to use part of the tax revenue to build a rainy day fund.
Such decisions “are policy questions that involve promises that legislators and the governor have made to keep taxes low,” said Nancy McCarthy Snyder, a Wichita State University economist who also is a Consensus Revenue group member.
“The cost of keeping taxes low is reduced government,” she said.
McGinn’s plan calls for rolling back what now is a statewide 6.3 percent sales tax across Kansas to 5.7 percent on Jan. 1. That rate is higher than the statewide 5.3 percent sales tax Kansans paid before 2010. The 0.4 percent difference goes to Kansas Department of Transportation, in part to make up for funds it provided for the general fund when general fund revenue dropped.
Brownback declined to comment on McGinn’s proposal, which legislative researchers calculate would reduce $2 billion in projected 2013 sales tax revenue by $113 million.
“Brownback welcomes all suggestions on how to create new jobs and to increase the income of Kansans through tax reform,” said Sherriene Jones-Sontag, his press secretary.
