Surging tax collections in Kansas reflect uncertainty of economic recovery

Gov. Laura Kelly, a Democrat who is building her re-election campaign in part around private business investments in Kansas, say the sparkling May revenue figures indicate her efforts to strengthen the economy "are paying off." (Sherman Smith/Kansas Reflector)

TOPEKA — A sparkling state revenue report for May reflects the challenges of accurately predicting what will happen in a post-pandemic economy goosed by unprecedented streams of government stimulus.

Even after a late-April adjustment to the state’s official revenue forecast, which provides the barometer lawmakers use to form tax deals and set spending levels, Kansas collected $509 million more than expected in May. The extraordinary one-month surplus of cash provides a cushion for the state as a new fiscal year approaches in July.

Still, the inability to place the forecast within a half-billion dollars of actual revenue over a four-week period raises questions about what to expect in the coming months.

Tom Siomades, chief investment officer at Advisors Excel Wealth Management, a Topeka-based financial consulting company, says he doesn’t envy the state officials tasked with projecting revenue figures.

“There’s really nothing that they can base on, nor have there been prior examples in history that you can sort of model,” Siomades said. “All of these external forces didn’t exist. You just can’t take last year’s spreadsheet and add 5% to it.”

Siomades said nobody has ever taken a thriving economy and, like a big electrical switch in a factory, shut it down. The amount of government stimulus doled out in pandemic relief packages, including the controversial boost to weekly unemployment benefits, also is unprecedented.

The closing of schools for nearly all of the past academic year may have been a significant factor in keeping parents out of the workforce, Siomades said. The state could start to see a clearer picture when things come “full circle” in September, he said. In addition to the reopening of schools, that’s when the federal unemployment aid is set to expire.

Following consensus revenue revisions made on April 20, the state expected total tax collections to grow from $448 million in May 2020 to $543 million in May 2021. Instead, the state collected a little more than $1 billion for the month.

Most of the unforeseen revenue came through individual income tax collections. The state expected $278 million but collected $708 million.

Reeves Oyster, press secretary for Gov. Laura Kelly, said capital  gains from the stock market were the largest factor in the the spike in income tax collections. The extended deadline for tax filings also played a small role.

Kelly, a Democrat who is building her re-election campaign in part around private business investments in Kansas, said the revenue figures indicate her efforts to strengthen the economy “are paying off.”

“We will continue moving forward by prioritizing pro-growth policies that will support Kansas businesses and Kansas families,” Kelly said.

The governor clashed with Republican legislators over tax policies this session. Her advisory council warned in early April that a tax plan proposed by Republicans would leave the state with a billion-dollar budget deficit. She vetoed Senate Bill 50, which extends the state sales tax to online retailers while providing relief to multinational corporations and write-offs for individuals.

Republicans overrode the governor’s veto when they returned to the Statehouse in early May.

“The revenue figures certainly show that Republicans were right to return money to the taxpayers with the passage of SB 50 and wise to ignore the warnings of a tax council made up of those who prefer to grow government,” said Senate President Ty Masterson. “Time will tell how much skyrocketing federal spending and inflation will ultimately slow our economic growth, but Kansans have clearly demonstrated their desire to return to normal.”