New Kansas revenue forecast predicts $2.89B surplus, bolstering push to cut food tax

TOPEKA — Kansas lawmakers from both parties welcomed new revenue forecasts Wednesday that project a $2.89 billion surplus to the state general fund as evidence the state can afford to exempt groceries from the state sales tax.

Gov. Laura Kelly, a Democrat seeking re-election, called on lawmakers to “axe” the food tax earlier this week and promised to introduce corresponding legislation in January. By exempting groceries from 6.5% sales tax collections, the state would lose an estimated $450 million in annual revenue.

Attorney General Derek Schmidt, who is expected to win the GOP nomination for governor in next year’s election, also asked lawmakers to eliminate or reduce the tax burden on food.

A group of economists and state officials revised projected tax collections based on observations of economic growth, inflation and other “potential headwinds,” said J.G. Scott, director of the Kansas Legislative Research Department. The group elevated the forecast, last updated in April, by $1.3 billion.

House Speaker Ron Ryckman, R-Olathe, said the state should reinvest “in Kansans and our future” through eliminating the sales tax on food, reducing debt, stabilizing the state employee retirement system and other measures.

“It’s encouraging to see our economy moving forward despite some of the government barriers and mandates that have held so many businesses back,” Ryckman said. “In times of growth, government is usually too quick to find new ways to spend. We can’t let that happen.”

Total revenue in the current fiscal year, which ends July 1, is now expected to be $10.96 billion. Current government spending levels would leave an ending balance of $2.89 billion.

For the following year, the forecast is $11.94 billion in revenue and an ending balance of $3.77 billion.

“Such a robust ending balance means we can give back to Kansans without having to cut essential services or raise taxes,” said House Minority Leader Tom Sawyer, D-Wichita. “Our next steps are clear: Let’s axe the food tax and get this money back to Kansas families.”

Scott, the researcher, said economic growth has exceeded higher-than-usual inflation, as well as supply chain challenges and the threat of the pandemic.

“The continued reopening of the economy, the apparent pent up demand and excess savings, the experience of each succeeding wave of COVID cases are causing seemingly less economic disruption than what we previously thought,” Scott said.

The Kansas job market continues to bounce back from pandemic-related job losses, Scott said, and the state is bucking national trends for labor shortages. The state currently exceeds its pre-pandemic labor force participation rate and has nearly returned to its pre-pandemic employment-to-population ratio, he said.

Agriculture continues to see improvements, including a 61% rise in soybean prices from two years ago.

“The strong revenue estimates are a sign there is a lot of cash in the system from stimulus and that our economy is thankfully moving forward,” said Senate President Ty Masterson, R-Andover. “However, it also shows that Kansas families face too high of a tax and debt burden, and in these uncertain times government should look at ways to reduce that burden.”

The governor said the state’s fiscal health will allow for the removal of sales tax on food, but she warned lawmakers not to bundle her proposal with other tax cuts.

“It does not mean that we should return to the dangerous tax experiments we’ve spent the last three years recovering from,” Kelly said. “I urge the Legislature to get a clean, standalone, ‘axe the food tax’ bill to my desk as soon as possible.”

Schmidt said the revenue forecast provides an opportunity to “catch up with promises already made.”

“The Legislature should pay our current bills, provide the grocery sales tax relief I called for last week to help working families cope with the worst inflation in three decades, pay down state debt including obligations in the public employees retirement system, and save the rest for a rainy day,” Schmidt said.