By Dave Ranney, KHI News Service, June 30, 2008
TOPEKA, June 30 – The first shoe dropped Friday when Gov. Kathleen Sebelius revealed that she had told her cabinet secretaries to pare their budgets by 1 to 2 percent.
The second shoe falls late this afternoon.
“That’s when we’ll know how much revenue came in June,” said State Budget Director Duane Goossen.
Goossen predicted revenues collections — sales and income tax collections, mostly — would fall “about $20 million short” of projections.
In May, the state collected $51 million less than it expected.
“May revenues were off because income tax collections were less than what we expected,” Goossen said. “They were still greater — about 6 percent higher — than what we had collected in May a year earlier. It’s just we’d set our sights too high in May. We erred on the high side.”
The combined shortfalls mean the state is on track for ending fiscal year 2009 with an ending balance of about $50 million.
“That’s not very much,” Goossen said.
Fiscal year 2009 begins Tuesday and ends June 30, 2009.
When projected ending balances fall below $100 million, state law allows the governor to propose whatever across-the-board cuts are needed to keep an ending balance of $100 million. Such a cut would have to be approved by the State Finance Council, a panel of eight legislative leaders.
“The law allows the governor to initiate the process for reducing expenditures — it’s not required, it becomes possible,” Goossen said.
Mid-year warning
At this point, he said, the governor is only “asking" state agencies to spend less than their approved budgets. She has not formally proposed cutting budgets 1 to 2 percent.
Still, Goossen said, state agencies have been warned not to put themselves in a position of asking for a mid-year boost in spending.
“On Sept. 15, all the different state agencies will submit what’s called a revised budget for the current budget year as well as a new request for the next year, which, at that point, is still nine months away,” he said.
“What the governor is saying is, ‘don’t revise up, revise down; don’t ask for supplementals or for the same amount, ask for less.’”
Sebelius on Friday sent letters to the Kansas Health Policy Authority, State Board of Education, and Board of Regents, asking them to enact similar reductions.
The Kansas Supreme Court ruled Friday that the state constitution allows the state to own and operate casinos, clearing the way for an expected $80.5 million in “privilege fees” from prospective casino operators.
But “that money goes to a separate fund,” Goossen said. “How it’s to be used is open to question. It could be applied to the state general fund, but it doesn’t have to be. Technically, it doesn’t help the ending balance.”
Even if it did, he said, an additional $80 million wouldn’t resolve the state’s budget dilemma — not when revenue collections are flattening or, worse, declining.
“I do not expect our economy to improve enough to change our situation, now. It could ease it, but…we’ve got a tough budget ahead, no matter what happens to the economy,” Goossen said.
The state’s economy, he said, is holding its own.
“Our growth has slowed over last two years,” Goossen said, “but there are still a lot of good things happening. Aviation is good, ag is pretty good. Oil and gas prices hurt at the pump, but they’re helping our oil and gas industry. Our job numbers are still growing, we have low employment.”
The problem, Goossen said, wasn’t that May revenues declined — they were 6 percent above May 2007 collections. Instead, the projected collections were off.
“Whether (May collections) was a one-time blip that we’ll recover from in June is something we’re watching closely,” he said.
More spending
The bigger problem, he said, is a “confluence of a full implementation of a number of projects,” namely:
The budget, he said, has reached a tipping point.
“In fiscal year 2008, which ends (today), will be the first year in six years where we have spent more than we’ve taken in, but, certainly, as we go forward in fiscal year 2009 we’re going to spend more than we’re taking in,” Goossen said. “That’s pretty clear.”
No surprise
Sebelius’ letter was no surprise to most cabinet secretaries.
“You knew something was going to have to happen,” said Department of Social and Rehabilitation Services Secretary Don Jordan. “I mean, when the Legislature left town, the budget already had more spending than revenue. Then, April was flat; May was down $50 million.
“Adjustments are going to have to be made,” he said. “It’s early enough, we have time to figure out how to do that. But…I don’t want to mislead anybody. I’m not very optimistic about the direction we’re headed.”
Rep. Bob Bethell, R-Alden, chairman of the House Social Services Committee called Sebelius’ cost cutting moves “the right thing to do.”
Bethell said he hoped most of the decisions on how to trim spending would be handled by the state agencies.
“I really don’t think we want the Legislature to be micro-managing things,” he said. “But we also know that some programs are more effective than others, and I hope that steps are taken to see that less-effective programs are affected before more-effective programs.”
-Dave Ranney is a staff writer for KHI News Service, which specializes in coverage of health issues facing Kansans. He can be reached at dranney@khi.org or at 785-233-5443, ext. 128.