State revenues increased $361 million amid cautious optimism

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Kansas revenue forecasters on Tuesday offered a “cautiously optimistic” future for the state as it recovers from the pandemic, pointing to falling unemployment, rising oil and gas prices, improved farm income and a healthy increase in gross domestic product.

They released a new estimate that increased revenues by $361 million for fiscal years 2021 and 2022, prompting a top Republican to believe there is enough room to pay for tax cuts that the governor vetoed last week.

“This appears to be good news,” said House Speaker Ron Ryckman Jr. “It should be received with cautious optimism.”

In a statement, Ryckman said the projected ending balances – about $1.2 billion in fiscal 2021 and $821 million in 2022 – should be enough to cover the cost of the tax bill.

The tax bill is estimated to cost about $284 million over three years.

“The resulting balances show our state has more than enough resources to give Kansans the tax relief they have been entitled to since 2017.”

Ryckman was referring to 2017 federal tax reform that imposed new taxes from some sources that hadn’t been previously collected before.

Ron Ryckman

Kansas is a “rolling conformity” state, meaning it must conform with any changes to the federal tax code automatically unless otherwise authorized by the Legislature.

Supporters of tax cuts said the state was collecting a “windfall” from revenues it wouldn’t have received without changes in the federal tax code.

The Legislature has tried to decouple from some of the 2017 federal tax code changes, but has three times run into opposition from Democratic Gov. Laura Kelly, who vetoed the legislation because she said it would wreck the budget.

Kelly has warned about returning to the era of tax cuts enacted under former Gov. Sam Brownback that caused deep budget deficits and were mostly rescinded.

Kelly didn’t show any signs of reversing course after the announcement of the new revenue estimate.

Laura Kelly

 “It’s encouraging that our state is recovering from the COVID-19 pandemic but we must be cautious,” Kelly said in a statement.

“Kansas has been through a lot,” she said.

“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.”

The new budget estimate assumes that state will lose $261.6 million in revenue because of tax-free loans made under the federal Paycheck Protection Program, which helped businesses make payroll during pandemic shutdown.

The federal government has forgiven those loans, which means they are not subject to state and federal income taxes.

It also means that businesses can deduct expenses paid for with those very loans.

Revenue forecasters believe the state can expect another $100 million tax hit from the same tax break in 2023.

However, they painted a bright picture for the state as it climbs out of the fiscal wreckage caused by the pandemic.

The state’s gross domestic product is now expected to grow by 4.7% compared to last fall’s estimate of 1.9% – an increase described as substantial by the legislative research director.

It also has now recovered about 87,500 of the 158,000 jobs it lost from last February through April when the pandemic first hit the state.

The seasonally adjusted unemployment rate had fallen from 12.6% last April to 3.7% this spring, although it is still higher than before the pandemic.

“We are certainly progressing with cautious optimism,” said Adam Proffitt, the state budget director.

“The economy is certainly showing signs of improvement, that much is clear,” he said. “Things are strengthening.”

Yet, Proffitt added a word of caution.

“The economy does look strong. There are some good indicators out there,” Proffitt said.

“But we’re not out of the pandemic yet, so we need to make sure we’re proceeding cautiously and not getting over-exuberant here.”