Legislative members are back in Topeka to begin the wrap-up session for 2015. Wednesday afternoon, the House will reconvene to finish up the big issues, meaning the budget and proposed tax changes.
A lot has happened during the nearly month long break. First and foremost is the consensus revenue estimators met and released their estimates for the remaining months of 2015, and also for the 2016 and 2017 years. The State budget year begins July 1, so two months remain in the 2015 year. The estimates are generally a little under $90M lower than previous estimates for the current year and each of the other future years with a cumulative effect in 2017 of $270M.
While there are many different numbers floating around as to what the real number of shortfall is for the upcoming fiscal year, with the lower estimates the 2016 proposed budget will need about $500M to break even. If Local Ad Valorem Tax Reduction (LAVTR) and City-County revenue sharing is taken out, the number falls to a little above $400M. While the statutory requirement remains on the books, the State has not paid the LAVTR and Revenue Sharing for several years and likely will not again. Those two funds may be deleted from the law before we finish this session.
It’s all about how the numbers are figured. Some reports include the proposed tobacco and liquor taxes, as well as some hidden taxes, as if those had already passed. But, they have not yet passed and it seems the possibility of passage is slim. The numbers presented here are strictly based on taxes and adjustments that the Legislature has already passed, but do not include any proposed changes that are not in current law. Given the instability of the State revenues, it seems appropriate to include a cushion of $100M, making the needed amount $500M. That represents about 8% of the SGF. Also remember that without extraordinary KDOT transfers, the number would be about $750M.
What happens if the tax increases do not occur? If taxes and the budget do not pass, the most likely scenario is the budget will be pulled back and cuts made to fit the expected revenues. Many, including the Governor, say they do not want to reduce school funding further, but that may not be possible if additional taxes do not pass. There will be much arm-twisting and threats to try to get something passed. Typically the newest members of the Legislature get beat up the worst in these battles.
It is always difficult to sort through everything to find out the facts. For instance, one group known as Americans for Prosperity (AFP) says the schools are receiving the largest amount of funding per pupil ever, while the Governor says he does not want to cut funding to schools any further. Which is correct? The reason a larger amount spent per pupil is reported is because of changes in the way the money is accounted for. Despite the books showing larger expenditures per pupil, the facts are that school funding has been cut.
The House taxation committee met Thursday to hear about the revenue shortage. Appropriations will meet afterward to make further adjustments to the budget. Other than those two committees, only conference committees are expected to meet. I anticipate the budget and tax proposals will come to us in conference committee reports without the ability to adequately debate or amend.
No one knows, but I expect the wrap-up session could take as long as a month, but certainly hope for a shorter time. No matter the time frame, the budget and tax issues will be very challenging.