Lawmakers in Topeka, Washington skeptical of potential pandemic budget windfall
In the spring of 2020, city officials in Pittsburg feared the worst for their budget as COVID-19 spread across Kansas.
The city braced for potentially having to lay off workers because of a decline in taxes, with a 16% drop in revenue projected.
Almost a year later, things are different.
Tax revenues are higher than they were before the pandemic, which city manager Daron Hall attributed to more residents shopping and eating in the community, rather than nearby Joplin, Mo.
Meanwhile, a pay raise, initially jettisoned in the pandemic's early days, is back on for city workers and construction has forged ahead on three new housing developments in town.
But Hall said that the city was in a "sweet spot" and that it was decidedly atypical, compared with other municipalities across the state.
He pointed to larger cities, which are staring down budget shortfalls or weighing having to cut services. In Pittsburg, he said, there was still a need for some form of aid to help ensure the continuity of core services and give relief to small businesses.
"Show me a community in America right now that isn't hurting because of the pandemic and I'll tell you that you're not getting the straight story," Hall said. "The question is 'How bad?' "
That logic is underpinning efforts in Washington, D.C., to send billions of relief dollars to states across the country, as well as counties and cities, with Congress getting increasingly serious about passing some form of direct relief to help ease the budget-making process for state and local governments.
While conservatives at both the state and federal level say they are concerned about the scale of the spending, it is increasingly likely that Kansas will be in line for some sort of windfall and lawmakers are beginning to plot how it might be used.
Under the terms of legislation passed early Saturday morning by the U.S. House, Kansas would receive $1.58 billion in direct aid from Washington. County and city governments across the state would get an additional $1.1 billion in support.
These funds would differ from support doled out under the CARES Act last March in one key respect — states could now use at least some of the money to directly offset lost tax revenues, easing budget concerns that have been caused by the pandemic.
But Republicans, both in Topeka and Washington, have scoffed at the largesse of the proposal.
Members of the state's congressional delegation have argued the plan will primarily benefit Democratic states that had fiscal troubles even before the pandemic. All three Republicans from Kansas in the U.S. House voted against the proposal.
That sentiment was shared among state lawmakers, even though their own state is in line for a substantial funding boost.
"Who is going to pay for it?" said Sen. Rick Billinger, R-Goodland, chairman of the Senate Ways and Means Committee. "Who is going to step back and say 'Wait a minute.' Our kids and grandkids, we're putting all this debt on them, even though it might sound good and look good."
It also comes as tax revenues have picked up, leaving the state in a better place budget-wise than many feared in the early days of the pandemic, when a $700 million budget shortfall was suggested as a possibility.
Instead, that number is now closer to $152 million.
"Will it help? Yes. Am I convinced we need it? No," said Rep. Troy Waymaster, R-Bunker Hill, who chairs the House Appropriations Committee.
Kansas Democrats tout need for pandemic relief
Gov. Laura Kelly and her allies have been championing federal aid for months, however. The prospects for direct support were a long shot when Republicans controlled the U.S. Senate, with Congress instead favoring ways of targeting the money to COVID-19-related expenditures.
But with Democrats now controlling the Senate, the odds have increased that Kelly, and others, might get their wish.
State Treasurer Lynn Rogers has also been a full-throated supporter of the aid. He believes that uncertainty with the pandemic has not eased, even as COVID-19 case counts in the state have dropped.
"We’re still facing a lot of unknowns, even though we’ve been at this for a year because of the pandemic," Rogers said. "Anyone who says differently is mistaken."
Kelly told reporters Wednesday that "I never count my chickens before they hatch."
But she said she favored using the money for long-term priorities, like paying down debt or investing in infrastructure projects, rather than using it for creating new programs that might not be sustainable in the long run.
"Generally, I'm going to be looking for one-time expenditures that will leave us better, give us something to show for our money," she said at a Statehouse news conference Wednesday.
Kelly has been critical of how Congress chose to calculate state aid, however. She joined 21 other governors in a statement urging federal lawmakers to dole out the funds based on population, instead of a formula based on a state's unemployment rate.
The group of governors, of which Kelly was the lone Democrat, argued that this would generally benefit larger, more liberal states.
"A state's ability to keep businesses open and people employed should not be a penalizing factor when distributing funds," the statement said.
Tax bill, unemployment potential uses of Kansas relief dollars
Republican leaders have said it is too early for hard-and-fast plans to form about where the funds might be spent, although they note that the windfall could significantly remake the budget process.
One possible use could be bankrolling a sweeping tax bill the Senate approved earlier this month.
That legislation, which started out as a way to help residents take advantage of 2017 federal tax cuts, ballooned in cost by the time it was passed. Like placing ornaments on a Christmas tree, legislators opted to ramp up the standard deduction and also exempted some retirement accounts and Social Security payments from income taxes.
Several Republicans voted against the bill, arguing the price tag, which could surpass $1 billion over three years, was much too high.
That skepticism from moderates, who compared it to deep tax cuts which were passed and later repealed under Gov. Sam Brownback, would have appeared to sink the ability of legislators to override a near-certain veto from Kelly.
It is expected that the House will take a hard look at stripping many of those elements out of the bill as it considers the legislation.
Senate Majority Leader Gene Suellentrop, R-Wichita, told reporters that hope was not lost for the more expansive version, however. He said that the potential aid from Washington could be a way of making the budget math work.
But there is always uncertainty, he noted, when it comes to relying on Congress.
"We don't know the revenue stream that is ultimately going to come from the feds to provide relief in all areas of the budget," Suellentrop said at the time.
But House Speaker Ron Ryckman, R-Olathe, appeared cool on the idea of using the funds to offset the tax bill, noting that it would not ease the costs of the bill after the federal aid was all spent.
"It is hard to take one-time money and program it for the long term," Ryckman said.
Instead, he championed the idea of plowing a good chunk into the trust fund, which bankrolls unemployment insurance.
A report from the Legislature's auditing department showed that a sharp increase in unemployment claims, many of which are fraudulent, has drained the trust fund by 75% in the last year. There have been fears among legislators that this will lead to employers paying higher taxes in order to replenish it.
"I could see that being a high priority," Ryckman said, noting that none of the CARES Act money wound up being earmarked for that purpose.
Aid for local governments not without controversy
Advocates for federal help have also focused on what the dollars would mean for county and city governments, as well as school boards.
Every county in Kansas would be in line for some relief, ranging from $1 million to Ness County all the way up to $118 million being distributed to Johnson County.
While the CARES Act went a long way to helping county governments, Jay Hall, legislative policy director for the Kansas Association of Counties, noted that the ability to shore up lost revenue would be important.
There have been concerns expressed at the current formula being used in Washington to dole out funds for cities, which is a modified version of the federal Community Development Block Grant formula, something which could skew the money more towards more urban areas. County funds, meanwhile, would be given out based on population.
But not every county is created equally, Hall argued. Counties of similar size had vastly different experiences during the pandemic. Those more reliant on oil and natural gas saw their revenues take a hit as those industries fell on hard times and areas with prisons or meat packing plants often saw more intense COVID-19 spread.
"You have some very small communities that were impacted in a much more significant way than their population would suggest, just because of the economic reality of their community," Hall said.
At the city level, Billinger said he didn't believe more relief was needed.
"It would probably depend on the city, but I don't even know how much their budget has been impacted," he said.
But Daron Hall, the Pittsburg city manager, bristled at that notion, pointing to his counterparts elsewhere in the state who were looking at budget shortfalls in the millions, layoffs or hiring freezes.
"Cities are looked on as these Democratic bastions of liberalism," he said. "Well, the other thing that cities are is that they're where all the people live. And that's who is hurting right now."
There is also the matter of a potential push from state legislators to require property tax refunds for any businesses ordered to close in the early days of the pandemic, something which could ding the bottom line of local governments.
Without federal aid, any refunds would likely cause taxes to go up for residents, Hall said.
"It would just result in the county having to get that money from other tax bases," he said. "I don't think anybody wants counties to raise taxes on residential customers, but that's where we as counties get our revenues from. If we were put in that position that would be what we have to do, basically make up that revenue by passing those costs along to our other taxpayers."
Lawmakers take wait-and-see approach
The federal spending package has a ways to go before becoming law, and the final form could evolve in the U.S. Senate, where Democrats have a much more narrow advantage.
That could involve slashing the amount of direct aid for states like Kansas or even adding in restrictions on how the money can and cannot be used.
U.S. Sen. Jerry Moran, R-Kan., told reporters Monday in Topeka that he would push to narrow the aid to certain areas related to the pandemic, saying that Kansans should not pay to help balance the budgets in states that had cash flow issues even before COVID-19.
He still acknowledged there is a need for the money.
"I think there is a way to fashion this in which Kansas taxpayers are protected while still responding to the needs of local units of government," Moran said.
Billinger said legislators were forging ahead under the assumption that there would be no federal aid, noting that any changes could add strings to the aid that might color any action budget makers might take.
"It would certainly make it easier to get through the process, for sure, but I think at this point in time we are building a budget not relying on unknown funds or unknown amounts of funds," Billinger said. "We're continuing on just like normal."