TOPEKA — Kansas reported Friday that tax collections for its just-concluded 2021 budget year were 9.3% more than anticipated, giving the state its healthiest cash reserves in more than 40 years as the U.S. economy recovers from COVID-19.
The state Department of Revenue's report was certain to spark a push next year in the Republican-controlled Legislature to cut taxes again after GOP lawmakers enacted income tax reductions earlier this year over Democratic Gov. Laura Kelly’s veto.
As a sign of a solid economy, the numbers also are likely to spur more pressure from Republicans and business groups on Kelly to end the $300 a week in extra unemployment benefits allowed by the latest federal COVID-19 relief law.
But a solid economy also could help Kelly as she seeks re-election next year. She won the office in 2018 after making a key issue of the persistent budget problems that followed a nationally notorious experiment in 2012 and 2013 in slashing income taxes under former Republican Gov. Sam Brownback. In the four years since most Brownback-era cuts were repealed, the state has exceeded tax-collection targets in all but three months.
"Our efforts to rebuild our state’s economic foundation and strengthen our economy are paying off,” Kelly said in a statement.
The state collected $8.9 billion in general tax revenues for the budget year that ended Wednesday, $758 million more than expected. There were surpluses of $509 million or nearly 94% in May and $157 million or 22.6% in June.
The state began its 2022 budget year Thursday with cash reserves of $1.9 billion, possibly more. That is highest total ever and equal to 25% of the spending financed with general taxes. The state hasn't hit that percentage at least July 1980, according to legislative researchers and budget documents.
Yet the state needs a sizeable cushion. The new state budget anticipates using nearly $600 million in cash reserves to cover extra spending on public schools and social services and to offset the GOP's income tax cuts.
Mark Burghart, the Department of Revenue's top administrator, said much of the state’s tax surplus is tied to investors claiming “incredible” gains and paying taxes on them.
“The activity in the stock market has been phenomenal,” Burghart said earlier this week.
Kelly resisted Republicans’ push for income tax cuts, arguing that they would undermine the state’s finances. The tax cuts enacted this year were designed to provide relief to individuals and businesses paying more to the state because of changes in federal tax laws in 2017 championed by former President Donald Trump.
GOP lawmakers narrowed the scope of this year’s cuts to hold their legislative supermajorities together and override Kelly’s veto. They failed to do that after she vetoed two tax-cutting measures in 2019.
House Speaker Ron Ryckman Jr. said fellow GOP lawmakers want surplus revenues to “grow Kansas, not government.”
“It is time to consider how we can give some of those dollars back to the Kansans working hard to produce them,” Ryckman, an Olathe Republican, said in a text to The AP.
The revenue report came two days after the Democratic National Committee began airing a 60-second television spot in the Topeka market touting the pandemic recovery under President Joe Biden. Kelly has repeatedly highlighted new business investments in Kansas and says it has topped $6 billion since she took office in January 2019 — previewing what is likely to be a key reelection campaign theme.
The U.S. economy saw an encouraging burst of hiring in June, as employers added 850,000 jobs, after some economists already saw 2021 as potentially the strongest year for the economy in about seven decades.
The Kansas Department of Labor reported that unemployment remained at 3.5% in May, almost as low as it was before the pandemic reached Kansas in March 2020.
Extra pandemic-related unemployment benefits end in early September, but GOP lawmakers and business groups argue the aid is discouraging people from taking jobs with employers struggling to find workers. Kelly sees other factors at work in people not taking jobs, such as a lack of child care.
But Ryckman said: “What these results show is that Kansas works best when Kansans are back at work and government gets out of their way.”
