(Updated to include comment from governor and House speaker)
Tax collections are beating estimates for the first two months of the new fiscal year, although the state is still facing a budget hole in the years ahead.
The Legislature’s research arm released a report Wednesday showing that tax revenues are exceeding estimates by about $47.4 million for the first two months of fiscal year 2026, which started July 1.
Legislative researchers released their report ahead of Gov. Laura Kelly’s administration, which has traditionally released the revenue report first but in recent months has been running behind the Legislature.
Tax receipts for July and August were about 3.6% above estimates for the year so far, with four tax sources higher than estimates by more than $1 million and two tax sources
falling below the estimate by more than $1 million.
Individual income tax receipts were above the estimate by $48.7 million, or 7.4%, according to the legislative research report.
Withholding receipts continue to drive the strength of individual income taxes, as they
exceeded the prior year amount for the month by 12.8%, researchers said.
Sales and use taxes, meanwhile, combined to exceed the yearly estimate by $9 million, or 1.6%, the report said.
Corporate income tax receipts, however, were below the estimate by $18.3 million, or 33.2%. Researchers said the majority of the shortfall was attributable to lower-than-anticipated receipts in the previous month.
Even with better-than-projected tax collections, Kansans will not see tax cuts under a new law that buys down rates as more taxes flow into the state.
Legislative researchers notified lawmakers that the revenues generated for fiscal year 2025 weren’t enough to lower taxes for 2026 even though they beat estimates by about $248 million.
“This month’s stronger-than-expected tax collections highlight the strength of Kansas’ work to attract business investment and workforce development,” Kelly said Thursday when the Department of Revenue released its report.
“However, even if these better-than-expected revenues continue, I remain concerned about the reckless budget’s impact on the long-term fiscal health of the state and the risk of departing from the course of fiscal responsibility we have been on.”
House Speaker Dan Hawkins fired back at the governor.
“Another month another gas lighting press release from the governor,” he said in a statement.
“Tax collections once again beat estimates, proving what I’ve said all along – Kansas doesn’t have a revenue problem, we have a spending problem.
“When the Legislature returns in January, we’ll continue to hold the line, take a hard look at government spending, and make sure your tax dollars are used effectively,” he said.
Despite the upbeat revenue numbers, a new budget profile released at the end of August still showed the state spending more than it was taking in.
The profile projects the state falling into an estimated $406 million budget hole by fiscal year 2029, although it would still have a healthy reserve fund.
The profile showed the state spending about $1.1 billion more than it would take in during fiscal year 2026, $773 million more than revenues in 2027 and about $769 million more than revenues in 2028.
However, by 2029 the state is estimated to have about $2.3 billion in its rainy-day fund.
The new revenue report released by legislative research cautions about inflation.
While inflation was moderate for the second quarter as a whole, averaging 2.4% for the nation and 2.6% for the Midwest region, there were sharper increases in June, 2.7% nationally and 3% for the Midwest, the report said.
Also, for the first quarter of 2025, real Kansas gross domestic product – the measure of the value of goods and services a state produces — declined by 3.3%, which was consistent with declines across the plains states.
Agricultural production contributed the entirety of the net decline in Kansas GDP as all other components combined to show no change for Kansas, the report said.
On a more positive side, the state’s unemployment rate has maintained a consistent rate for 10 consecutive months, holding steady at 3.8% throughout the second quarter.
By comparison, the U.S. rate averaged 4.2% in the quarter, up slightly from the 4.1% from the previous quarter.
Kansas gained 5,200 jobs over the course of the three months of the quarter.
Kansas weekly wages averaged 6.7% growth throughout the second quarter, as both hourly wages and weekly hours increased in each month.
