By Gene Meyer
January 11, 2010

(KansasReporter) TOPEKA, Kan. - Kansas Gov. Mark Parkinson asked lawmakers for a temporary, three-year, one cent increase in the state's sales tax. He also wants higher tobacco taxes to help plug what now is estimated to be a $400 million hole in the state's fiscal 2011 budget.

After two years of budget cuts totaling almost $1 billion since 2009 budget, "I can't find $400 million that we can responsibly cut," the governor, a Democrat, told Kansas legislators in his annual state of the state address Monday evening.

Senior Republican legislators, however, said they believed that raising sales taxes now, near what they believe is the end of the state's steepest recession since the 1930s Great Depression, would hurt both the state and its lowest income residents.

"Sales taxes are regressive on a good day," said state House Speaker Mike O'Neal, a Hutchinson Republican. "In a recession, they are very bad."

New car buyers and other consumers of big ticket items simply postpone purchases when sales taxes go up and lower income purchasers of food, clothing and other necessities end up paying the tab, said state Rep. Arlen Siegried, an Olathe Republican and member of the Taxation committee.

"If we are at the tail end of the recession, now is the time to hold back on taxes," and wait for economic growth created by business and consumer spending to generate revenue, he said.

Other legislators disputed Parkinson's insistence that further responsible budget cuts are impossible.

"When we should be reducing the size of government, this is the largest budget in our history," said state House Majority Leader Ray Merrick, a Stilwell Republican.

Parkinson said in his speech, however, that the cuts already forced by falling tax revenues have forced schools to close, universities to lay off professors, parole officers to supervise prisoners less closely and reductions in highway maintenance and payments to Medicaid service providers.

"We are not $400 million short of what we need to get these programs back to where they need to be," the governor said. "We are $400 million short of what we need to keep most of these budgets at their already drastically cut levels."

Parkinson and state Budget Director Duane Goossen outlined their latest calculation of Kansas' budget crunch in briefing materials prepared to supplement the governor's speech.

The heart of the problem, Goossen said, is that Kansas has never gone through what soon will be four consecutive years of declining tax revenues before. To meet a constitutional requirement to balance the state budget each year, the state began cutting $340 million out of an original $6.064 billion budget in fiscal 2009, then followed that with successive cuts of $160 million and $232.6 million in 2010.

"We'll be starting 2011 (on July 1) with nothing in the bank," Goossen said. "Whatever comes in, that's what the budget will be."

In Gov. Parkinson's budget proposal, what comes in - for as long as current economic projections hold – will be $5.18 billion in tax revenues from existing sources, plus $308 million from the proposed higher sales tax and about $70 from increasing Kansas' cigarette and tobacco taxes to the national averages.

Transfers of $107 million from state highway funds, plus $14 million of uncommitted surplus funds from eight small special purpose funds will help bring projected general fund revenues to $5.831 billion, Goossen said.

Projected expenses meantime will be going higher, he said. Among the key issues pushing those higher are increased funding for schools and Medicaid providers that will be required when federal stimulus help for those programs runs out in midyear, a $36 million increase in debt service paid on what were interest-only state general funding loans and mandated increased contributions to the Kansas Public Employees Retirement System and to KPERS death and disability fund.

Expenditures in the state’s general fund, $5.83 billion proposed for fiscal 2011, is slightly higher from what was approved for fiscal 2010, $5.6 billion, but otherwise the smallest total since $6.1 billion in fiscal 2008.

"The alternative to coming up with this $400 million is not acceptable," Parkinson said in his speech. "It would require a round of cuts that would do years of damage to what we have built... On top of all that, the budgets for 2012 and beyond would be even more difficult."

"I'm not convinced," said Speaker O'Neal, "It may be a struggle, but I think there is more cutting to be done."