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5 Things A $1.3B Tax Shortfall Will Mean For Kansas After The Coronavirus

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Daniel Caudill
/
Kansas News Service
Kansas lawmakers and the governor will have to make choices as the coronavirus sends the state's tax revenues spiraling.

Kansas will have to plug a $1.3 billion budget shortfall between now and June 2021, but the state will have to be careful about where it makes cuts.

TOPEKA, Kansas — Across the United States, the COVID-19 pandemic is triggering state budget crises. Kansas is no exception, with tax collections expected to plummet by $1.3 billion between now and June 2021.

“This is more than just a little bump in the road,” said Gov. Laura Kelly, who over the next 15 months (or longer) will have to hash out with the Republican-led Legislature how to stay in the black. That’s because the Kansas Constitution prohibits deficit spending.

Here are the five things you need to know about Kansas’ budget situation.

How bad is it?

When lawmakers left last month to shelter in their homes, Kansas was supposed to end the current fiscal year with more than $900 million in cash reserves. That’s all gone, plus policymakers will have to deal with a projected $650 million shortfall — approaching what Kansas saw after the 2008 financial crisis.

But the speed with which revenues are projected to fall off is “historic,” said J.G. Scott, who heads the legislature’s research staff and is part of the Consensus Revenue Estimating Group. That panel does revenue projections that are required for writing the state budget.

What can’t Kansas cut?

K-12 schools are the largest line-item in the state budget, $4 billion a year. But primary and secondary education tops the list of untouchables. To end a long-running legal battle last year, Kelly and lawmakers agreed on a bipartisan plan to increase funding for public schools by $90 million a year through the 2022-23 school year.

At $3.5 billion a year, Medicaid is the state’s second-largest expenditure. It’s difficult to cut because Kansas shares the cost of the program with the federal government, so there are rules about what services can be reduced. Even so, the state made targeted cuts in Medicaid during the Great Recession and again when Republican then-Gov. Sam Brownback’s cuts in income and business taxes sent state revenues crashing. Still, it’s unlikely Kelly will propose cuts to KanCare, given that expanding it to cover another 130,000 low-income Kansans is one of her top priorities.

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Jim McLean
Kansas Gov. Laura Kelly says she knew the revenue estimates would be bad.

What can Kansas cut or borrow from?

More than $2 billion of the Kansas Department of Transportation’s budget has been raided to plug holes in the state’s general operating budget to the point that the agency is known as the “bank of KDOT.” While Kelly is taking less each year and has pledged to end dipping into the agency’s budget by 2022, the pandemic could force her to extend that timetable. It also could threaten work promised under her new 10-year, $10 billion transportation program.

Over the last couple of decades, Kansas universities have seen budget cuts in lean years and halfway-helpful measures to make up for the cuts. That’s led public universities to raise tuition repeatedly: In the last 10 years, tuition revenue grew by $276 million, or 53%. State funding has increased by only $13 million (or 2%). And with other large expenditures considered off-limits, universities will likely once again be a target.

What else can the Legislature do?

Kelly will look for one-time savings before restricting state services. One example, she said, would be to delay paying back money the state borrowed from itself in 2017, saving about $265 million between now and the end of the next budget year in June 2021.

Lawmakers could move another $25 million into the State General Fund by restoring Kelly’s proposed $158.7 million transfer from the State Highway Fund.

Lawmakers also could reconsider some of the spending increases they approved before the impact of the coronavirus on state revenues was clear. As just one example, they could reverse a decision to increase Medicaid reimbursement rates for nursing homes and people who provide in-home services to Kansans with disabilities. That would save the state another $12 million.

What’s next?

Kelly is meeting this week with the state’s budget director. The Legislature’s budget committees will also meet via video conference calls this week to start dealing with the projected revenue shortfall.

Lawmakers won’t return from their break Monday as scheduled, which means any budget won’t be approved for a while.

Some Republicans believe the budget crisis could worsen if Kelly doesn’t reopen the state soon.

“We need a plan to get our economy moving again and we need it soon,” said Senate President Susan Wagle, a candidate for the Republican nomination for U.S. Senate.

Kelly said she’ll release a plan early next week for “starting to reopen the state,” adding that she’s hopeful that Congress will repeat what it did during the 2008 recession to provide states with money to balance their budgets. But any federal aid that’s already been approved is only to be used to offset the cost of responding to the COVID-19 outbreak, not plugging holes in the state’s general operating budget.

Jim McLean is the senior correspondent for the Kansas News Service is a collaboration of KCUR, Kansas Public Radio, KMUW and High Plains Public Radio focused on health, the social determinants of health and their connection to public policy. You can reach him on Twitter @jmcleanks or email jim (at) kcur (dot) org.

Kansas News Service stories and photos may be republished by news media at no cost with proper attribution and a link to ksnewsservice.org.