Kelly cautiously welcomes healthy revision of state revenue projections

GOP legislators likely to use report as leverage to override tax bill veto

Gov. Laura Kelly said the upward revision of state revenue forecasts was welcome news but warned the Republican-led Legislature against going on a tax-cutting spree as Kansas worked through issues tied to the COVID-19 pandemic. (Sherman Smith/Kansas Reflector)
Gov. Laura Kelly said the upward revision of state revenue forecasts was welcome news but warned the Republican-led Legislature against going on a tax-cutting spree as Kansas worked through issues tied to the COVID-19 pandemic. (Sherman Smith/Kansas Reflector)

TOPEKA — Gov. Laura Kelly recommended legislators adhere to a cautious approach to budget and tax policy Tuesday after analysts decided economic conditions merited a $361 million increase in the state’s revenue estimate for the current and upcoming fiscal years.

The group of economists and state officials recalculating the revenue trend pointed to higher individual and corporate income tax collections, climbing sales tax revenue in addition to acceleration in the gross domestic product and personal income. The unemployment rate in Kansas has continued to fall toward the pre-pandemic levels. On the negative side, the state’s manufacturing sector has struggled to recover 18,000 jobs that vaporized last year when COVID-19 descended.

“It’s encouraging that our state is recovering from the COVID-19 pandemic, but we must be cautious,” the Democratic governor said. “Kansas has been through a lot and we need to allow adequate time to recover and rebuild by continuing to invest in our schools, our infrastructure and the economic development tools that helped bring in a record amount of capital investment last year.”

The revision of estimates last issued in November suggested the state could be sitting on balances of $1.1 billion in July and of $820 million in July 2022 assuming no other changes to tax policy.

The bullish forecast could embolden the House and Senate to push harder to override Kelly’s veto of a tax reduction bill approved by wide margins in the Republican-led Legislature. State lawmakers return to Topeka on May 3, and House and Senate leaders would need two-thirds majorities to enact a package of tax changes, including some provisions thwarted by Kelly since elected in 2018.

“This appears to be good news. It should be received with cautious optimism,” said House Speaker Ron Ryckman, an Olathe Republican. “The resulting balances show our state has more than enough resources to give Kansans the tax relief they have been entitled to since 2017.”

He was referencing Senate Bill 50, which was rejected last week by the governor. It would enable Kansans to take a more generous standard deduction on federal income taxes while itemizing deductions on state income returns. Other provisions of the vetoed bill would raise the standard deduction for state income tax purposes, exempt corporate profits held overseas from state income tax, implement a broader sales tax for online purchases and allow deductions for business lunches.

Kelly justified the veto by declaring a rush by the Legislature to slash tax revenue could result in the type of budget debacle that followed passage of aggressive income tax cuts in 2012 and 2013 signed by then-Gov. Sam Brownback. The Legislature repealed much of the Brownback tax program in 2017. State revenue rebounded, but the economy was staggered by the pandemic as consumers hunkered down, businesses closed, unemployment surged and tax revenue fell off.

J.G. Scott, director of the nonpartisan Kansas Legislative Research Department, said during a briefing at the Capitol after the estimating group’s meeting that the state’s economy was “going much better” but still had a “long way to go” before surpassing the pre-coronavirus levels.

He said the perspective of analysts was of optimism tempered by caution because the pandemic could still derail business activity despite vaccination of more than 1 million Kansans and passage by Congress of massive economic recovery legislation.

“We certainly are progressing with cautious optimism,” said Adam Proffitt, the Kelly administration’s budget director. “We think there is reason for optimism. The economy is certainly showing signs of improvement. Things are strengthening.”

Proffitt also said the state hadn’t returned to revenue projections issued before start of the pandemic in 2020, a period in which the governor made budget allotments to reduce expenditures.