The Budget Dilemma, Part One
As I mentioned earlier, Kansas faces a very serious budget deficit, not only for the present fiscal year but also for the next two years. Governor Brownback has proposed a solution which would address the immediate problem for this fiscal year. The final details of that plan are still not completely understood but one thing is certain: nearly everyone hates what is now known about the plan. But it seems no one has a better solution. Now the state is rapidly approaching a serious cash flow crunch and decision time is nearly upon us. http://cjonline.com/news/2015-01-28/state-will-have-cash-flow-problems-mid-february-without-legislation
The immediate problem outlined above is made even more vexing for many of us by the growing realization that it is self-inflicted, being the direct result of the overly aggressive tax cut of 2012. It takes true leadership to admit a mistake and it appears that the 2012 tax cut was in fact a mistake. Further confirmation of that came today when it was revealed that January revenues came in $47 million less than expected.
It is time to stop kidding ourselves and admit that we have an ongoing structural imbalance between revenues and expenditures which cannot be solved with budget cuts alone. Spreading blame is not helpful, and the challenges we face are daunting. We must now join together to craft the best and most responsible solution, accepting the reality that the mistakes of the past were a collective failure.
Details of budget recommendations for 2016 and 2017 are still being revealed. Gradually, however, some elements are beginning to come into focus.
K-12 Funding – Governor Brownback has proposed repealing the current K-12 finance formula, with the intent of reforming it in the future. Until that is completed, school districts would receive block grant funding which would be equivalent to their current level of funding. There are two problems with that proposal. First, it is a huge leap of faith for any legislator to vote to scrap the current formula and replace it with a blank slate to be filled in later. I regard that as not only risky but irresponsible. I cannot and will not support it. Secondly, there appears to be some sleight of hand going on, because it had been promised that funding will be level, but recent details have made it plain that effective funding would in fact be cut. The Kansas Department of Education has reported that the proposal would amount to a cut of $127 million, primarily because the plan would force schools to make KPERS contributions which are now the responsibility of the state.
Medicaid – The budget proposes a mix of policy and contractual changes including payment reform and prescription drug savings estimated to produce $50 million in savings for FY 16 and FY 17. There would also be a 4.5 percent increase in the privilege fee paid by Medicaid contractors. The Medicaid contractors would eventually get that privilege fee back through their arrangement with the state, and the intent is to pull down additional matching funds from the federal government. Curiously, this quest for additional federal money is apparently acceptable, but the proposal to expand Medicaid, which is desperately needed to insure a stable future for rural Kansas hospitals, is still being resisted.
KPERS – Governor Brownback plans to alter the KPERS system by issuing $1.5 billion in bonds to help reduce the future employer contribution rates. In addition the plan would extend the current amortization period of payments to KPERS by 10 years, from 2033 to 2043. In the meantime, the budget reduces employer contributions of $52.1 million earmarked for KPERS. Those changes would produce short-term budgetary relief, but at the cost of greater instability in the KPERS system. Future costs would go up and the timeframe to actuarial soundness would be extended.
Transfers from the Highway Fund – The budget proposal makes a $158 million transfer from the State Highway Fund to the State General Fund (SGF) in FY 2015. The proposal also calls for $100 million transfers to SGF in both FY 16 and FY 17. KDOT indicates that preservation projects already announced for FY 15 and FY 16 as well as expansion and modernization projects announced for the course of T-WORKS will be let as scheduled. That promise appears to be at odds with earlier notice regarding the delay of I70 projects in Logan and Trego counties. And we have recently been informed that preservation (maintenance) projects totaling as much as $297 million will now be delayed.
Evidently the Bank of KDOT has finally been tapped out. The current proposals to once again raid KDOT will have a very real effect on the highways of rural Kansas, the citizens who use them, and the contractors and laborers who rely on those projects for their livelihood.