Kansas government officials are now releasing new economic and tax revenue estimates, but it's unclear how those projections will affect Gov. Laura Kelly's decision on a massive tax cut.
Kelly has until April 25 to decide whether to sign, veto, or pass without his signature the package of income, property and sales tax cuts included in House Bill 2036. There is a need. Congress has a bipartisan supermajority that could override a veto.
Here's what you need to know about the new earnings forecast and how it could affect Kelly's decision.
What do the new revenue projections show for Kansas?
Kansas government uses consensus estimating groups to forecast revenue projections to help legislators and the governor make budget and tax cut decisions.
Officials characterized the new outlook released Friday as largely unchanged from the previous outlook released in November.
“We're not talking about a huge change in revenue projections,” said Adam Proffitt, director of the Kansas Governor's Budget Office and Kansas Executive Secretary.
Shirley Morrow, acting director of the Kansas Legislative Research Service, said state tax revenues and the state's economy are “steady.” He added that economists have a “moderately improving economic outlook” for next year.
Economists lowered their forecasts for fiscal year 2024 by $100 million, but said this was more a reflection of lower-than-expected figures in past months rather than a sign of future revenue declines. This corresponds to an estimate that is off by about 1%.
Economists increased their fiscal year 2025 forecast by $146 million, but suggested almost all of that was due to likely delays in implementing the 0.5% corporate tax rate cut. That's because the tax cuts come from the APEX Act, which is tied to the Integra megaproject and is contingent on federal CHIPS Act funding, which has been delayed.
The 2025 forecast primarily reflects that lag and is likewise not an indication of future revenue growth.
How much tax relief can Kansas get?
Kelly said earlier this month that “honestly, the most important thing to me” is to make sure the tax cuts are done “in a fiscally responsible way.”
But Topeka politicians can't agree on how much tax relief is affordable.
Kelly previously said the tax cuts would be capped at $425 million a year through fiscal year 2029.
Rep. Adam Smith (R-Wes.) previously said House Republicans believe $500 million a year worth of tax cuts are sustainable.
HB 2036's main tax relief package is expected to cost $469 million in 2029. This does not include the cost of tax cuts proposed in other bills.
What do Laura Kelly and the budget director say?
“My gut feeling is that it's too expensive to be sustainable,” Kelly said earlier this week when speaking about HB 2036, but added that waiting for new revenue projections would “help.” If the estimate were lower, he said, “it would further reinforce the feeling that the package is too expensive and not sustainable in the long term.”
In releasing the revenue estimates, Proffitt did not give a clear answer on how they would affect the governor's view of the tax cut plan.
“These numbers are probably 30 minutes old as they relate to the governor's decisions and reviews of the past several years,” he said during a Friday afternoon press conference. “So we haven't had a good chance to sit down and look at them. She's going to want to sit down with me and the team and look at all the year numbers over the next few days, and she… We'll decide what that means at that point.”
Asked if he had made a recommendation to the governor on whether the proposed tax plan was too high, he said after reviewing the numbers, “we're going to make an appropriate recommendation. And ultimately it's up to the governor to decide what to do.”
“She's been consistent in the idea that she wants to make sure that her income meets her expenses over the next few years, so we'll see next week how that plays out,” Proffitt said.
Kansas has a large budget surplus
Along with the new projections, officials have created a new budget profile showing the projected budget surplus.
Currently, the state's general fund is expected to end in fiscal year 2024 (ending June 30), with a final balance of approximately $2.7 billion. In addition, the rainy day fund is approximately $1.7 billion.
According to these estimates, the state would receive approximately $243 million more in revenue than it spends in the current fiscal year.
The Kansas Legislative Research Service's budget projections include assumptions that certain bills sent to Kelly's desk by lawmakers will become law, including the budget proposal and a major tax cut plan. Based on these assumptions, the balance at the end of fiscal year 2025 is expected to decrease to approximately $1.9 billion, while the rainy day fund would increase to approximately $1.8 billion.
According to these estimates, the state would spend about $705 million more than it receives.
Jason Arratid is a statehouse reporter for the Topeka Capital Journal. He can be reached by email at jalatidd@gannett.com. Follow him on X @Jason_Alatidd.
