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APNewsBreak: Kansas' budget shortfall narrows

John Hanna, Associated Press

TOPEKA, Kan. (AP) -- Kansas is seeing its projected budget shortfall shrink because of better-than-expected revenue collections last month, according to a new estimate released Thursday by the Legislature's research staff.

The new projection of $267 million represents the gap between anticipated revenues and current spending commitments for the fiscal year that begins July 1. The state expects to have a little less than $6 billion in revenues to finance education, social services and other government programs during the next fiscal year.

The end-of-November projection for the shortfall had been $295 million, but the state saw a $31 million bulge in revenues in December, particularly in individual income tax collections. Legislative researchers shared the new shortfall projection with The Associated Press before distributing their report to most legislators and making it public.

Researchers said it's not clear yet whether the unanticipated revenue collections signal continuing economic growth. Incoming Senate Majority Leader Terry Bruce, a Hutchinson Republican, suggested the bulge could have resulted from people selling assets and other economic activity ahead of the new year, with the hope of avoiding higher taxes associated with the federal government's averted "fiscal cliff."

"Every little bit helps, but we probably need to treat that bulge as one-time money," Bruce said. "I'm going to proceed cautiously."

Legislators must erase any projected shortfall during their annual session, which opens Monday.

The gap results from massive income tax cuts approved last year to stimulate the economy. Republican Gov. Sam Brownback and other supporters of the tax cuts have acknowledged that a boost in economic activity would lag, possibly causing budget issues.

The state dropped individual income tax rates and eliminated income taxes for the owners of 191,000 businesses. Legislative researchers project that the reductions will be worth $4.5 billion over the next six years.

Critics contend — whatever the month-to-month projections for the budget shortfall — the income tax cuts will lead to a permanent financial crisis. Senate Minority Leader Anthony Hensley, a Topeka Democrat, predicted the reductions won't boost the economy enough to generate new revenues to offset what the state gives up.

"It's very irresponsible and reckless," Hensley said. "We have our own fiscal cliff to worry about here in Kansas."

The state's sales tax also is scheduled to decrease in July from its current rate of 6.3 percent to 5.7 percent under a law enacted in 2010. Lawmakers and Brownback's predecessor as governor boosted the tax that year to avoid deeper cuts in education funding, social services and other programs but promised the bulk of the increase would be temporary.

Keeping the sales tax at its current rate would provide at least an additional $250 million annually.

Last year, as Brownback pushed for big income tax cuts, he proposed keeping the sales tax at its current rate to lessen potential budget problems. He also proposed other unsuccessful measures, such as eliminating popular income tax deductions for charitable contributions and interest paid on home mortgages. The governor signed the income tax cuts without the offsets.

Many legislators expect Brownback to propose extending the current sales tax rate, though the governor himself hasn't confirmed such a plan publicly. But some lawmakers and the powerful Kansas Chamber of Commerce want any sales tax proposal to be tied to future income tax cuts.

"Some have softened, but some may not have," incoming House Majority Leader Jene Vickrey, a Louisburg Republican, said of opponents to canceling the sales tax decrease.

Brownback spokeswoman Sherriene Jones-Sontag said Thursday that the governor will protect education funding, social services and core government programs, while leaving adequate cash reserves. But he and leaders of the Legislature's GOP majorities also have said they're looking for places to trim spending. And all of them acknowledge that their goal is to phase out income taxes.

The governor is expected to outline his tax proposals in his annual State of the State address Tuesday evening and release the details of his budget proposals Wednesday.

"The Kansas economy continues to show steady signs of growth but there is still much work that needs to be done," Jones-Sontag said in a statement emailed to the AP.


Follow John Hanna on Twitter at www.twitter.com/apjdhanna