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New forecast boosts Kansas tax revenue projections by $1.3B

November 10, 2021 GMT

TOPEKA, Kan. (AP) — A new Kansas fiscal forecast issued Wednesday predicts that state government will be awash in more than enough cash to allow for the big tax cuts that Democratic Gov. Laura Kelly and Republican legislators already planned to pursue.

The new forecast increased the projection for the state’s total tax collections by $1.3 billion for the current 2022 budget year that began July 1. The new projection of $8.9 billion is 17.1% higher than the $7.6 billion predicted in the previous fiscal forecast issued in April.

The forecasters also predicted a 3.2% increase in tax collections for the 2023 budget year. The increase would be $288 million, to nearly $9.2 billion.

The new forecast assumes that Kansas will continue to see solid economic growth despite a lingering coronavirus pandemic, higher inflation and problems in bringing goods to market. It suggests that the state’s economy has recovered from last year’s early-pandemic restrictions on businesses and public activities more quickly than state officials had expected, but also that inflation itself is fueling a rise in tax revenues, particularly on goods that are getting more expensive.

“It continues the stability that we’ve been experiencing with the budget over the past couple of years and making sure that things are on a solid footing going forward,” Adam Proffitt, the governor’s budget director, said during a WebEx news conference.

The university economists, legislative researchers, state Department of Revenue officials and governor’s budget staffers who issue a consensus forecast every April and November had been expected to provide good news Wednesday. Collections from July through Oct. 30 were 18.9% greater than anticipated, for a surplus of $440 million.

“The largest change in the economic conditions has been increased inflationary pressures throughout the economy,” J.G. Scott, director of the Legislature’s research staff, said during the news conference. “But the nominal economic growth projections have kept pace and sometimes have exceeded that inflation.”

Kelly earlier this week proposed eliminating the state’s 6.5% sales tax on groceries, which could save consumers a total of roughly $450 million per year. Top Republicans also have embraced the idea.

But GOP lawmakers also remain interested in cutting income taxes again after enacting about $95 million per year in breaks for individuals and corporations over Kelly’s veto earlier this year.

“In times of growth, government is usually too quick to find new ways to spend,” House Speaker Ron Ryckman Jr., an Olathe Republican, said in a text to The Associated Press. “We need to reinvest those dollars in Kansans and in our future through meaningful change.”

Proffitt also suggested that Kansas also could address “key areas” of the budget. He wasn’t more specific, other than to suggest that the state could build its cash reserves.

Ryckman suggested building cash reserves but also paying off state government bonds and shoring up the pension system for Kansas teachers and government workers.

A new budget profile from legislative researchers, based on the latest forecast, predicts that the state will have plenty of financial breathing room. The profile projects that the state will have nearly $2.9 billion in cash reserves at the end of June 2022, and the cushion will grow to nearly $3.8 billion by the end of June 2023.

That’s a far cry from where Kansas was financially five years ago after persistent budget shortfalls followed a nationally notorious experiment in aggressive income tax cuts under former Republican Gov. Sam Brownback. Lawmakers repealed most of the Brownback-era cuts in June 2017, and the state has exceeded its tax-collection projections for all but three months since, including for the past 15 consecutive months.

When Kelly vetoed Republicans’ income tax-cutting bill in May, she suggested it would create “perennial, self-inflicted budget crises that undermine the very fabric and foundation of our state.” Her proposal to eliminate the sales tax on groceries is more than four times as expensive.

“What’s different today is the budget is in a more stable position,” Proffitt said.

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