How bad will Kansas’ decision to reduce personal income taxes and eliminate income taxes for hundreds of thousands of corporations be in the upcoming fiscal year? An inspection of the state’s anticipated cash flow offers a rather bleak picture.
Even using the current flawed forecasting method, which underestimates state revenues month after month, Budget Director Shawn Sullivan expects October to be the low point of the year. According to a story in the Topeka Capital-Journal, Sullivan said that month alone is budgeted to have $830 million more in expenses than revenue.
The only way to survive such a negative position is to have enough reserves to carry you through. Or, in the case of our state government that has burned through all its cash on hand, you borrow.
This week, the State Finance Council voted to authorize a record-high $900 million certificate of indebtedness.
“We’re essentially borrowing from ourselves,” said the budget director.
The process is not unusual, as these sort of IOU’s have been issued regularly for the past 20-some years. The ever-increasing amount should give pause. Particularly when balanced against the vast sums the state is borrowing in other areas, the massive amounts of delayed payments, and the swiping of funds dedicated for other state functions to patch holes in the general fund.
It is a continuation of a recipe for disaster as the state budget continues to be hopelessly imbalanced. And it will invite yet further downgrades from credit ratings agencies, thereby increasing the state’s cost of borrowing.
Based on the current discussions taking place in the legislative special session, it doesn’t appear lawmakers are ready to do anything but maintain the status quo. Having structural imbalance in state government guarantees Kansas will continue digging a deeper financial hole. How our elected leaders in the executive and legislative branches can issue a $900 million certificate of indebtedness without changing their approach indicates one of two things: Either they don’t understand basic economics and financial management — or they don’t care.
Either way is unacceptable.
Editorial by Patrick Lowry