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PRESS RELEASE
May 24, 2012
For Immediate Release
Contact: James Franko
316.634.0218
Tax Reform Doesn't Result in Long-Term Budget Holes
KPI Analysis: Concerns About Mounting Deficits Unfounded  
May 24, 2012 - Wichita - Today, Kansas Policy Institute released an analysis of the tax reform package, HB 2117, that Gov. Sam Brownback recently signed into law which shows that the billions of dollars in predicted deficits will not necessarily occur. A previous analysis from the Kansas Legislative Research Department (KLRD) that predicted large budget deficits used a standard methodology where only one variable changes. That methodology also makes no allowance for Kansas' constitutional requirement for a balanced budget, so the long-term implications of spending adjustments in the early years are not considered.  

"Deficits are a very understandable concern for Kansas, but they are not a forgone conclusion under HB 2117," said KPI president Dave Trabert. "Tax reform means government must find ways to provide core services more efficiently; it does not mean a reduction in services. These tax reductions will result in economic growth and job creation, not spiraling debt. A low tax burden is an essential component of economic competitiveness and the secret to having a low tax burden is common sense spending restraint. When Kansas spent $5.268 billion in FY 2010, our per-resident spending was 16% higher than the states with no income tax. Had we spent at their per-resident level, we would have saved $723 million. Now we're spending nearly a billion dollars more than in 2010."

A full explanation of the different scenarios and accompanying charts are available here.

KPI examined three scenarios in arriving at the conclusion that billions in deficits that have been predicted in future years will never happen.  

Scenario 1: Is directly from KLRD. It includes nearly $700 million in State General Fund (SGF) spending increase through the next few years and makes no allowance for the constitutional requirement of a balanced budget. Under their projections, revenue is projected to dive in 2014 and climb to $6.3 billion in 2018 while spending is projected to continuously grow unchecked; resulting in a $2.4 billion 'deficit' in 2018.

Scenario 2:  Uses KLRD's revenue projections but reduces spending in 2014 by $670 million to leave a $450 million ending balance; $450 million is close to the 7.5% ending balance currently required under state law. Spending is then allowed to grow in lock step with revenue so long as $450 million is left in the bank.

Scenario 3:  This scenario illustrates what happens if Kansas implements aggressive efficiency programs that would produce 6.5% cost savings in FY 2013, which would still allow spending to be higher than FY 2011. The ending balance temporarily dips lower than recommended but spending is then able to increase gradually moving forward. For instance, FY 2018 would have $6.2 billion in SGF spending, 17 percent higher than FY 2010, and an ending balance of $209 million.



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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.