KS Center for Economic Growth: The Fiscal Year 2017 Budget Won't Work

October Update: The Fiscal Year 2017 Budget Won't Work

By Kansas Center for Economic Growth Senior Fellow Duane Goossen

It's even clearer now. The FY 2017 budget won't work, which means mid fiscal year budget cuts are ahead. And those budget cuts must be taken from a set of expenditures already squeezed down and chopped up.

 

New information allows an update of the official version of the FY 2017 budget. We now know the actual beginning balance - $37 million - that carried over from FY 2016. We also now know the amount of FY 2016 unpaid bills - $87 million - forwarded for payment in FY 2017. The carryover balance was above zero "on paper," but only because Kansas did not pay all its bills in FY 2016. Had the bills been paid on time, the carryover balance would have been $50 million below zero. (That does not count the $96 million KPERS payment due for payment in FY 2016, but deferred until FY 2018. Timely payment of the KPERS bill would have taken the carryover balance even further below zero.)

 

The updated general fund profile (shown below) starts with the beginning balance of $37 million. The unpaid FY 2016 bills add onto FY 2017 expenditures. After pushing FY 2016's unpaid bills forward, the gap between ongoing revenue and expenses grows to $430 million in FY 2017. This updated version of FY 2017 projects an ending balance of $5 million, but with two great big "IFs."

The ending balance will be barely positive "IF" the sale of the bioscience authority brings in $48 million. That's not likely.

 

And the ending balance will be barely positive "IF" revenue comes in as projected. However, three months into the fiscal year, general fund tax receipts are already $67 million below projections.

 

July tax revenue missed projections by $13 million, August missed by $10 million, and September missed by $44 million. The updated FY 2017 general fund profile shown above does not yet account for those misses. In early November, the FY 2017 revenue estimate will be revised - revised downward - and then the general fund will be "officially" underwater, triggering the necessity for more budget cuts. Given actual experience in the first 3 months of FY 2017, the revised revenue estimate could potentially be $200 million (or more) lower than the current one.

 

Kansas does not receive nearly enough revenue to pay its bills, but that's not a new phenomenon. The budget became structurally unbalanced four years ago, immediately after the implementation of unaffordable income tax cuts. Make no mistake - Kansas' current troubled finances originate right there.