Feds Blamed For State’s Revenue Shortfall

By John Celock

Kansas’ budget director is blaming the federal government’s changes to the capital gains tax for the state’s $21 million revenue shortfall in September.

Budget Director Shawn Sullivan said on the “Joseph Ashby Show” Tuesday morning that the hike to federal capital gains taxes initially changed sales habits in the state causing the revenue shortfall for September. The capital gains tax changes came as part of the federal government’s response to the fiscal cliff in 2013. Sullivan made the comments hours before the state Department of Revenue released the numbers. The monthly revenue collection numbers have become a top issue in the state as the income tax cuts implemented by Gov. Sam Brownback (R) have become a top issue in his battle for reelection against state House Minority Leader Paul Davis (D-Lawrence).

“It’s not great news but still year to date it will be two percent off estimate,” Sullivan said on the Ashby Show Tuesday morning. “We will be fine with the budget reports.”

The numbers released by the Revenue Department Tuesday afternoon showed the income tax collection for September were $42.4 million below estimate while a $21.5 million rise in corporate income tax collections for the month helped bolster the state’s revenue collection for the month.

The tax cut debate has taken center stage in the gubernatorial race, with Davis and Democrats arguing that the deep cuts will bankrupt the state and cause deep budget cuts, which nonpartisan legislative research staffers had warned in 2011. Brownback has defended the cuts saying that they will lead to an economic stimulus in Kansas and raise revenue over the long term. Brownback has said that private sector jobs have grown in the state in his term, while Davis points to overall job numbers, which show a decrease due to public sector job loss.

Sullivan used his appearance on the Ashby Show to defend the tax cuts and to say that Brownback had prepared the state for the initial cuts, noting that the governor built up $700 million in cash reserves for the state. Brownback has touted that he has saved the state’s economy, saying that the state had little in the bank when he took office in 2011, a fact disputed by Democrats.

“Where we are today is much, much better than a couple of years ago,” Sullivan said Tuesday. “We have healthy cash balances.”

Sullivan told Ashby that this would be the last month the capital gains changes would impact revenue collection.

Sullivan agreed that the current political situation and debate over the tax cuts is causing Kansans to pay closer attention to the monthly revenue collection numbers than in past years. But he noted that this also includes that people did not pay attention to revenue collection in 2009 and 2010 when he said the state was “really in a bad situation” with consistently lower collections at the height of the recession. Democrats Kathleen Sebelius and Mark Parkinson held the governorship during those years.

Democrats were quick to pounce on the numbers and accuse Brownback of bankrupting the state.

“The governor’s economic experiment isn’t working, and it’s not going to work,” Davis said in a statement. “It is damaging our schools, hurting our economy and putting our children’s future in jeopardy. Kansans can’t afford that kind of failed leadership,” Davis said. “Sam Brownback promised his experiment would be ‘like a shot of adrenaline to the heart of the Kansas economy.’ Instead, Kansas is falling behind.”

Davis has said he’ll halt the tax cuts while Brownback said he’ll continue on that path.

Last week, Senate Minority Leader Anthony Hensley (D-Topeka) accused Brownback of trying to balance the budget by selling sex toys. The accusation came after the Revenue Department announced that a sex shop chain in the state would be auctioning off inventory to pay a $163,000 tax debt to the state. The tax agency said the state would not be taking more than the back taxes owed. The state’s website lists regular auctions for back taxes including for auto parts and flowers.

The capital gains tax argument has been a common theme for Republican governors across the country regarding declining tax revenues. New Jersey Gov. Chris Christie (R), the chairman of the Republican Governors Association, has blamed the fiscal cliff, including the capital gains tax changes for revenue shortfalls in the Garden State that led to a credit rating downgrade for the state.

Sullivan also used his appearance on the Ashby Show to defend the state’s education spending, which has come under attack from Davis and the Kansas National Education Association, both of whom accuse Brownback of underfunding schools. Republicans have defended the governor noting he has hiked education spending.

Sullivan, who has been known to debate KNEA leaders on Twitter, said spending has gone up.

“By every possible metric we spend more now than ever before,” Sullivan said. “Because I have the budget I’m staring at on my desk in my office. I know we spend more now than ever before.”