Following the primary elections the Republican Senate Leadership held an informational meeting with sitting Senators and the Senators who won their primary elections. That meeting was held on August 30th. Budget and tax discussion dominated the meeting. At that meeting, it was calculated that the state had a small $4 million dollar positive ending balance. Minuscule but still positive. On November 10, 2016, two (2) days after the general election the official revenue estimators met and lowered the expected estimates b
y $346 million. These lowered estimates created an immediate $350 million budget deficit for the current fiscal year, which ends June 30th. No one expected such a large correction and decrease. To my knowledge the state has never faced such a big budget deficit with only a few months remaining in a current fiscal year. Legislators will have to bring their full attention to fixing this shortfall. The reality is it needs to be addressed immediately.
Senators huddled up in small group presentations for several days last week. Financial models were analyzed showing assumptions for 100% cutting our way out of the deficit, 100% taxing our way out of the deficit, and a combination of operational cuts and tax policy changes to eliminate the deficit and structurally stabilize the budget. Obviously no consensus was reached at this early date with exception the majority wants a long term structural fix to the budget deficits. Starting this week tax debate will start up in Senate tax and budget debate will start up in Senate Ways and Means budget committees. Tax Chairwoman Tyson will hold hearings on SB-147 and Budget Chairwoman McGinn will hold hearings on SB-27, the recession/budget bill. With the large deficit, tax and budget changes will all be coupled this year. Very much chicken and egg scenario we are dealing with. The purpose of the financial modeling presentations was to demonstrate the interwoven relationships with budget and tax policy dealing with a current fiscal year deficit and the direct effect any changes have on the budgets for FY2017, 18, and 19.
Some starting discussion points in SB-147 to get the debate going.
1. Repeal of the non-wage pass through provision. The revenue estimates were $230.9 million in FY2018 and $181 million in FY2019.
2. Increase the lower income tax bracket. Each 1/10th increase equals $18 million in taxes.
3. Increase the upper income tax bracket. Each 1/10th increase equals $40 million in taxes.
4. Repeal the low income exclusion. Increase taxes by $20 million.
Some starting discussion points in SB-27 to get debate going.
1. Do we use some of the $317 million long term investment account fund as bridge money?
2. Do we cancel all or part of the Governors recommended $540 payment reductions to KPERs?
3. Do we propose budget cuts which would include cuts to K-12?
4. Do we create a new extraordinary needs fund for schools districts without reserves to absorb a current year funding cut?
To be clear, any significant cuts if agreed to will include K-12 this round. Medicaid and all other programs have taken cuts in previous years. Below is a graphic of the budget allocations.