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February 29th, 2024
L&T Opinions Page

GUEST COLUMN, Ganon Evans, Kansas Policy Institute

 

Kansas, like most states, has a spending problem, not a revenue problem. The 2025 Responsible Kansas Budget offers several ways that the state can limit its spending to pave the way for tax reform and economic growth in the future.

In June 2023, Kansas ended FY 2023 with collected tax revenues at $10.2 billion – a 4.1% or $402 million increase over the collected tax revenues of FY 2022.  According to the Kansas Legislative Research Department, even if Kansas had enacted a flat tax bill during its 2023 legislative session, the state would end FY 2028 with $2.7 billion in its ending balance and $1.8 billion in the Budget Stabilization Fund, totaling $4.5 billion in reserves.

At the same time, spending has grown massively over the last decade. According to the FY 2025 Governor’s Budget Report, the approved FY 2024 General Fund budget of $9.918 billion is 13.6% more than the approved 2023 budget. In FY 2020, the State Fund appropriations equaled $12.6 billion, but has ballooned into and after the COVID-19 pandemic to be $19 billion in FY 2023 and a base of $18.4 billion for FY 2024.

If Kansas’s annual appropriations had grown at the rate of population growth plus inflation since FY 2005, State Fund appropriations would be $6.4 billion lower in FY 2024 than the actual base appropriations. This equates to a $46.6 billion cumulative difference from FY 2005 to FY 2024. What this number represents is higher taxes on Kansans, slower economic growth, and fewer opportunities for people to flourish.

Responsible Kansas Budget overview

The 2025 Responsible Kansas Budget sets a maximum threshold on the state funds budget based on the average annual rate of population growth plus inflation during the prior three years before a legislative session year. With a base approved state funds budget of $18.4 billion in 2024, the 2025 RKB is a maximum of $19.4 billion.

The maximum spending is based on the fiscal rule calculated with the following:

a) State funds appropriations in FY 2024, and

b) Three-year average rate of population growth plus inflation.

The Responsible Kansas Budget operates as a form of a TEL (tax-and-expenditure limit). TELs could slow budget growth by 0.75 to 1.11 percentage points. On average, states with a TEL have higher gross state product growth, personal income growth, and population growth. Studies have found that TELs reduce the size and growth of property taxes, and are a strong approach for states trying to deal with large debt amidst increasing spending habits. However, TELs are most often undermined by alternatives to get around the limit, such as issuing debt.

Responsible budgeting has the opportunity to save Kansans billions of dollars in fewer taxes. In fact, controlling spending and taxation over several decades opens the door to major policy achievements, such as eliminating the income tax.

The state’s Consensus Revenue Estimate of $10.3 billion in general revenue results in an annual average increase of 6.3% over the last decade. The average annual rate of population growth plus inflation has increased by 2.6%, resulting in an annual surplus of 3.6%. Individual income taxes of $4.6 billion in FY 2024 have grown by 7.9% over that decade. Using 85% of the expected surplus each year to permanently reduce the individual income tax rate, those taxes could be eliminated by 2042. These projections, however, are based on a “static” analysis without incentive effects from lower income tax rates that would support more economic activity and more revenue.

Accomplishing this requires a commitment to operating more efficiently and managing spending. For instance, Texas and Louisiana use efficiency audits to help identify improvements in safety net programs, such as the Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP). However, Kansas still has much to improve. In 2016, Kansas commissioned an efficiency audit from the firm Alvarez & Marshall that suggested $2 billion in savings by following through on 105 recommendations. As of 2019, 43 of the suggestions had been implemented, but 42 were explicitly not implemented, with another 15 lacking a response or listed as “not available.”

Responsible budgeting demonstrates that a flat tax like the one being debated in Topeka currently is possible. By controlling spending, the state has room to buy down its tax rates while still providing the same goods and services to its citizens.

In an unpredictable economy, state legislators have control over spending and the types of taxes in the Sunflower State. Keeping a steady course for the state’s economy is dependent on a balanced budget that is least burdensome to taxpayers. Responsible spending leads to lower taxes and regulations, as you do not need to tax or regulate as much if you do not excessively fund the state, supporting a stable budget that does not overly distort economic activity. Given the economic situation in Kansas and what is going on in D.C. that has created an uncertain future, there should be every attempt to spend less so that there can be maximum tax relief for Kansans.

GUEST COLUMN, Kim Baldwin, Kansas Farm Bureau

 

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MY PERSPECTIVE, Gary Damron

 

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