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KPERS and Medicaid Poised to Drive Kansas Budget Off a Cliff
Only sustained, record economic growth avoids billions in deficits or severe 'crowding out' of all other spending
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December 6, 2011 - Wichita - It's no secret that KPERS and Medicaid costs have been growing, but many Kansans may be shocked to learn that those two items could soon consume nearly half of all Kansas State General Fund (SGF) revenue. In 1998, Medicaid and employee pension costs consumed 5.9% of SGF revenue and are budgeted at 24.2% of 2012 revenue. But, even if SGF revenue grows at a slightly-above-average annual rate of 3.5%, KPERS and Medicaid will account for somewhere between 34% and 45.1% of SGF revenue by 2023.
A new study from Kansas Policy Institute, "Major Structural Deficits Looming In Kansas," projects General Fund spending under four spending scenarios and three revenue growth assumptions. Spending scenarios are based on alternate funding levels for KPERS, whether the Patient Protection and Affordable Care Act (commonly referred to as ObamaCare) is implemented; the scenarios also assume that all other SGF spending continues at historic averages. Depending upon which variables occur (KPERS is funded at a 6% assumed rate of return, ObamaCare is implemented, or both), average annual revenue growth of 3.5% would produce SGF deficits totaling $275 million, $1.7 billion or nearly $5 billion over the next eleven years.
KPI President Dave Trabert summed up the analysis by saying, "Even sustained, record revenue growth would not prevent deficits unless ObamaCare is repealed and KPERS' rosy 8% investment return assumption holds up."
Arthur P. Hall, Ph.D., at the University of Kansas is the study's author and writes, "As things stand today, Medicaid and KPERS will shortly present legislators with some very unsavory choices; 1) Reduce spending on all other categories of General Fund spending; 2) Implement large tax increases; 3) Some combination of the first two options."
Trabert continued, "Kansans are faced with a very stark reality - based on current conditions, spending on KPERS and Medicaid will almost certainly force their taxes to skyrocket or severely crowd out spending on schools, social services and everything else."
The only question currently facing KPERS and Medicaid is how fast their expenditures will rise and how much this will affect other spending, as the chart below demonstrates.
"At the end of the movie "Thelma and Louise," the title characters sat in their car near the edge of a cliff, trying to decide how to deal with their legal problems. Their choice was to drive off the cliff," concluded Trabert. "The Legislature, Governor Brownback, and all Kansans only have a little time to dramatically change course and avoid a one-way ticket to the bottom of the economic canyon." |
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Kansas Policy Institute is an independent think-tank that advocates for free market solutions and the protection of personal freedom for all Kansans. Our work centers on state and local economic policy with primary emphasis on education, fiscal policy and health care. We empower citizens, legislators and other government officials with objective research and creative ideas to promote a low-tax, pro-growth environment that preserves the ability of governments to provide high quality services. To speak with Kansas Policy Institute, please contact James Franko at (316) 634-0218.
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