Kansas' fiscal future improves slightly, setting up potential spending battles

Andrew Bahl
Topeka Capital-Journal
The state's revenue picture is projected to brighten slightly, officials announced Tuesday, giving Republican lawmakers more ammo in pursuing a range of potential spending items in the weeks to come

The state's revenue picture is projected to brighten slightly, giving Republican lawmakers more ammo in pursuing a range of potential spending items in the weeks to come — most notably a series of tax cuts long coveted by conservatives.

The twice-annual updates to the state's fiscal forecast announced Tuesday showed Kansas' budget and economic standing improving after the COVID-19 pandemic, although officials cautioned it hasn't yet reached pre-pandemic levels.

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"We certainly are progressing with cautious optimism," said Adam Proffitt, director of the budget office. "We think there is reason for optimism. The economy, certainly, is showing signs of improvement."

Gov. Laura Kelly echoed that sentiment in a statement, saying the figures were "encouraging" but noted the state was not yet out of the woods.

"Kansas has been through a lot and we need to allow adequate time to recover and rebuild by continuing to invest in our schools, our infrastructure and the economic development tools that helped bring in a record amount of capital investment last year," Kelly said.

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The state is expected to take in $361 million more than initially anticipated over the next two fiscal years, when compared with initial forecasts.

Most of that increase comes in the 2021 fiscal year, which experts note is expected to be a bumper year for revenues because of the decision to move back the 2020 tax filing deadline.

The revisions further underscore a fiscal picture that is far better than what was initially feared in the early days of the pandemic, when officials estimated a roughly $1.5 billion budget shortfall.

Adam Proffitt, director of the budget, and J.G. Scott, director of the Kansas Legislative Research Department, brief reporters on changes to the state's fiscal projections.

Revenue revisions could fan flames of tax fight

The news comes as legislators are set to meet in the coming weeks to finalize the state budget, as well as make decisions on any number of policy items. That includes a likely attempt to override Kelly's veto of a set of tax cuts favored by Republicans.

More:Gov. Laura Kelly rejects sweeping, Republican-backed tax cut proposal with veto

Kelly said legislators had acted "irresponsibly" in approving Senate Bill 50, arguing its cost — an estimated $284 million hit to the state's coffers over three years — was too high.

The budget passed by legislators last month would still leave the state with $1.1 billion in the bank, according to projections released Tuesday — something which could embolden attempts to override Kelly's veto.

"The resulting balances show our state has more than enough resources to give Kansans the tax relief they have been entitled to since 2017," said House Speaker Ron Ryckman, R-Olathe, in a statement.

Changes to federal tax law, meanwhile, will cost the state money. Most notably, that includes a decision by the federal government to exempt businesses from paying taxes on small business relief loans — even if those loans are forgiven.

Those changes to the Payroll Protection Program are expected to cost the state $260 million over the next two years, with other assorted tax changes costing the state an additional $100 million.

Overall, the byword for the state's economic future is cautious optimism, expert said. Kansas' GDP is expected to grow significantly in the months to come and the unemployment rate has dropped to 3.7%, although that is still above pre-pandemic levels.

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But Proffitt noted the estimated $8.1 billion in revenue the state is pegged to rake in during the 2021 fiscal year is roughly what was projected before the pandemic, meaning the gains have really only gotten Kansas back to where it started.

And while some sectors, such as agriculture, have rebounded well, others are still sluggish, most notably the aerospace industry that is a key pillar of Wichita's economy,

"We need to make sure we're proceeding cautiously and not getting over-exuberant," Proffitt said.